U.S. stock index futures are trading better overnight after the inability to follow-through to the downside following yesterday’s sell-off triggered a short-covering rally. The lack of fresh news regarding debt issues in Dubai and Greece is also encouraging traders to take on more risk. There is nothing in the news that could change the opinions of traders about the developing short-term weakness in the markets. This means that this current rally is likely only short-covering rather than fresh buying. Look for the December E-mini S&P 500 to falter after a test of 1103.50.
March Treasury Bonds and Notes are trading lower. With debt concerns abating, traders in these two fixed income instruments are taking profits following a strong two-day rally. Today the Treasury will auction 10-Year Notes as part of this week’s $74 billion debt issue. The results of the auction will be released at the mid-session of trading.
The U.S. Dollar is trading weaker overnight after rallying to a 5-week high. The current rally from the bottom at 74.27 is stopping short of the November 20th top at 76.50. Technical factors indicate an overbought market which could correct back to 75.26 over the short-term before taking another shot at turning the main trend higher.
Concern over global debt issues triggered by credit rating downgrades in Dubai and Greece should continue to hang over the market. Traders will be watching these two nations for signs that their situations are spreading to other countries.
The December Euro is mounting a small recovery after selling off sharply yesterday. The overnight rally is related to technical factors because the fundamental picture is beginning to develop a bearish look. The chart pattern suggests that the next downside target is 1.4625 although a retracement of the current break is not out of the question. The old bottom at 1.4801 is the first likely upside target.
Early this morning the Japanese government released a worse than expected Third Quarter GDP Report. The actual report showed an increase of 0.3% versus the preliminary guess of 1.2%. Nonetheless, traders are reacting to generally weaker global equity markets and risk aversion caused by debt concerns. Overnight the December Japanese Yen reached its first retracement objective at 1.1401. Further strengthening could send this market to 1.1492. Overbought short-term conditions could trigger a break back to 1.1307.
The December British Pound finally broke through a key 50% price at 1.6287 and the October bottom at 1.6245 overnight, stopping short of a Fib retracement price at 1.6148. Short-term conditions led to buying which now has this currency pair in a position to post a daily closing price reversal bottom. Profit-taking and short-covering is most likely being triggered by position evening ahead of tomorrow’s Bank of England policy meeting. The BoE is expected to leave interest rates unchanged and its asset buyback program untouched. Today the U.K. government is going to release plans to shore up its budget. This may include the proposal of special taxes on bank bonus pools. Traders will also be keeping an eye on the debt situation in Dubai because some U.K. bank may face exposure to the bad debt.
Yesterday the Bank of Canada announced that interest rates would remain at 0.25 percent until at least June 2010 and that it was still concerned about the strength of the currency and its possible negative effect on exports. This news helped send an already strong U.S. Dollar sharply higher versus the Canadian Dollar. Overnight the December Canadian Dollar is trading better as profit-takers are controlling the market. Technically, this currency remains rangebound with trading on both sides of the 50% price at .9410 likely.
Overnight the December Swiss Franc made an attempt to test the November bottom at .9675 but failed. The current chart formation suggests a possible closing price reversal bottom formation at .9717. The current rally in the Swiss Franc could be extended if gold begins to mount a rally or if traders decide to take profits ahead of tomorrow’s central bank meeting.
On December 10th the Swiss National Bank is expected to leave its benchmark interest rate unchanged and offer clarity as to its future monetary policy plans. Most traders expect the SNB to discuss its concerns about deflation and the possibility of another round of intervention if the Swiss Franc appreciates too much against the Euro.
Overnight, February Gold failed to take out yesterday’s low, leading to the start of this morning’s short-covering rally. Profit-taking in the Dollar is helping to boost long interest in gold. Given the current volatility, it is possible that gold could rally all the way back to $1176.40 in the short-run before selling pressure resumes.
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