Traders are bracing for this morning’s U.S. Durable Goods, New Home Sales and Crude Oil Inventories Reports. Pre-report estimates are for durable goods to increase by 1%. New home sales are expected to increase from last month to 440K. Crude oil inventories are expected to show an increase of 1.91 million barrels.
The big news, however, is the emerging shift out of higher yielding assets and into more traditional safe-haven investments including the U.S. Dollar and Treasury instruments. This move is taking place because investors are beginning to believe that central banks are on the cusp of pulling liquidity out of their respective economies. These central bank moves should pull the support out from under higher yielding stocks and commodities.
The U.S. Dollar is posting a modest gain this morning, but upside momentum is expected to build throughout the rest of the week in anticipation of a shift from higher yielding currencies into the lower-yielding Dollar. Traders should watch the December Japanese Yen to rally as a change in appetite for risk may shift money from the Dollar and into the Yen. Downside pressure is likely to begin to mount on the higher yielding December Euro, December British Pound and December Swiss Franc. The December Canadian Dollar should continue to feel strong downside pressure because of the possibility of an intervention from the Bank of Canada.
Yesterday’s 2-Year Treasury auction was described as robust as demand was strong, sending yields lower. Today’s auction will be watched carefully to see if the strong interest in U.S. debt continues. The results of this report will be released at about 12pm CDT. This news could move the market. The sell-off in the equity markets is also sending money back into the fixed income asset class.
Equity markets are called lower this morning. Fear that stock prices may be way ahead of the economy is putting downside pressure on equities. With the end of the mutual fund fiscal year ending on Friday, many money managers may be trying to lock in profits by selling out or paring down winning stock positions. Volatility is picking up and a bias to the downside is developing. The December E-mini S&P 500 breached key 50% support overnight at 1056.75. This means that a test of 1047.00 is likely. Traders still have to watch for the possibility of a strong short-covering rally in order to set up a secondary lower top formation.
The stronger Dollar is putting downside pressure on December Gold. Expectations are for this market to continue down to at least $1028.80 before finding some support. A failure to hold this price sets up a further decline to $1018.50. Up trending Gann angle support at $1033.30 is holding up this market at this time, but a sharp rally in the Dollar should help to take this price out.
If gold begins to develop support at the current price level, then look for a short-covering rally back to $1052.40 to $1057.00. If money is beginning to shift out of gold, then look for a secondary lower top to form in this area.
The rising Dollar should begin to exert downside pressure on December Crude Oil. In addition, speculators who have driven this market higher may have to begin liquidating if today’s inventory report comes out worse than expected. Pre-report guesses are for an increase of 1.91 million barrels. Anything larger than this should trigger a sharp break. The chart indicates that this market is vulnerable to a hard break back to 73.77 to 71.83.
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