Traders expecting upbeat earnings reports this week are helping to drive up stock index futures this morning.  Investors seem to be optimistic that the positive earnings trend will continue.  Technical indicators continue to signal overbought conditions, but investors seem to be ignoring these indicators because they really have no investment alternative other than equity markets at this time. At this point, it is going to take a slew of poor earnings reports to drive investors out of this market.  

December Treasury Bonds and Treasury Notes are feeling downside pressure this morning as money is flowing out of the lower yielding Treasury instruments into higher risk commodities and equities.  Look for pressure to mount on the Treasuries as investors begin to demand higher yields to compete with the movement in the equity markets.

Overnight trading conditions suggest a lower opening for the U.S. Dollar.  Trading activity is light as traders await more U.S. earnings reports today.  Apple, Inc., McDonald’s Corp. and Whirlpool are among the major companies to report.  The weaker Dollar suggests that investors must be expecting good earnings.  Better than expected earnings results have tended to put pressure on the Dollar as investors increase their demand for higher risk assets.  Apple will report after the closing bell so trading may be less volatile than usual throughout the day.

Expectations of better earnings are helping to boost the December Euro overnight.  Recently Euro Zone economic reports have signaled a flat to weaker economy, but investors have chosen to ignore these “old” reports and instead have decided to focus on the improving global economy.  The weaker data is expected to convince the European Central Bank to keep rates unchanged at its next meeting in November.

Last week, a shift in sentiment helped drive the December British Pound sharply higher.  This blow-out move formed a bullish closing price reversal bottom.  The upside momentum was triggered by comments from a Bank of England official who said that the asset-buyback program was working as expected.  This led to speculation that the BoE would consider ending the program sooner-than-expected.  

This morning, the British Pound is expected to open weaker on speculation that the BoE may actually be considering extending its asset purchases.  This is making last week’s bulls a little nervous, causing them to pare positions in reaction to the news.  Technically, the rally may be a case of too much, too fast.  This means the strong possibility of a 50% correction of the rally.  Traders will also be focusing this week on the release of the Bank of England minutes and the Third Quarter GDP.  

The U.S. Dollar is under pressure versus the Japanese Yen this morning after rallying most of last week.  Low interest rates in the U.S. continue to encourage traders to treat the U.S. Dollar as a carry market.  Last week’s rise in the Dollar versus the Yen was triggered in part by a clarification of a prior statement by Finance Minister Fujii.  Earlier in the month he said that a strong Yen is good for the economy.  Late last week he retracted the statement but reemphasized that he wanted a currency rise to reflect an improving economy.

The U.S. Dollar had a strong comeback versus the Canadian Dollar late in the week, but is under slight pressure this morning.  Last week, traders initially sold the December Canadian Dollar as it approached parity with the U.S. Dollar.  One of the reasons for the selling was the possibility of an intervention by the Bank of Canada.  Another reason for the sell-off could have been the anticipation of the weaker than expected Canadian consumer inflation figure that was reported on Friday.  

Trading could be light today ahead of tomorrow’s Bank of Canada meeting.  Investors expect the BoC to leave interest rates unchanged.  The focus will be on whether they change the date when they expect to begin hiking rates in 2010.  It may also issue a statement outlining its concerns about the rapid rise in the Canadian Dollar and its possible negative effects on the pace of the economic recovery.  

December Gold is up because of the weaker Dollar.  The market is currently retracing last week’s decline.  Although the charts indicate the possibility of a correction to $1028.80, buyers have been coming in just slightly below $1050.00.  Last week, gold started to show signs of diverging from the Dollar.  This morning’s action looks as if the relationship is going back to normal.

The weaker Dollar and decreases in supply have been helping to give crude oil a boost.  Upside momentum may begin to pick up now that December Crude Oil has cleared the $75.00 barrier.  This price should now become support.  $80 crude oil is now the next upside target.  Look for volatility to pick up as this market moves higher.  Speculators continue to support the current rise in anticipation of greater demand as the global economy recovers.


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