The U.S. Dollar is expected to open mixed this morning based on a slow overnight trade. The Dollar is losing ground to the Euro and Japanese Yen while showing strength versus the British Pound, Canadian Dollar and Swiss Franc.
The September Euro has been showing strength versus the Dollar recently because the pace of the European recovery is moving faster than traders expected. The new forecast is for the U.S. economy to emerge from the recession in the 3rd quarter. Recent economic data from the Euro Zone showed that both France and Germany produced growth in the second quarter.
The range for the Euro during August is 1.4449 to 1.4045. This market is currently trading near the retracement zone of this range at 1.4247 to 1.4295. This zone has neutralized the market. Fundamentally, comments from European Central Bank President Trichet have contributed to this neutral outlook for the Euro. Over the weekend he noted that the Euro Zone economy still has bumps in the road to overcome before he sees a clear path to recovery. This comment has no doubt limited gains.
Overnight the German Business Confidence Index was reported stronger than expected. This is still another sign that an economic recovery is on the way. Nonetheless, the ECB remains skeptical about the economic outlook. Traders may be taking a wait-and-see attitude toward the Euro until after the next ECB meeting on September 3rd. Investors are anxious to find out if the ECB will discuss withdrawing economic stimulus now that the economy is showing signs of recovery.
Technically, the September Euro could weaken if 1.4247 fails to hold as support. A trade through this price should trigger a minimum break to 1.4211 to 1.4172.
The September Canadian Dollar is trading lower overnight. Weaker crude oil prices are contributing to this weakness. Late yesterday, Timothy Lane, deputy governor of the Bank of Canada remarked that the strength of the Canadian Dollar presented “important risk” to growth. The acceleration in the value of the Canadian Dollar has been an issue since the bottoming process began in March. The BoC has been worried that the rapid appreciation of the Canadian Dollar would make Canadian goods too expensive, thereby limiting interest by foreign importers.
The combination of lower oil prices and the comments from Mr. Lane are helping to put pressure on the Canadian Dollar overnight. The weakness in this currency has helped form a new lower top at .9330. Based on the current chart pattern, traders should expect a minimum correction to .9118.
U.S. equity markets are called lower this morning. The last two days the indices have faded into the close. The rallies this week also appear to be labored. This could be an indication that prices are getting a little too expensive for traders.
Yesterday the markets surged on better than expected U.S. housing numbers and an increase in consumer confidence, but the bulls couldn’t hold on to the early session gains. Today traders will be watching the U.S. durable goods and new home sales reports for clues that the economy is showing additional signs of recovery. Both reports are expected to be higher.
The chart pattern suggests that a short-term top may be forming. The September E-mini S&P 500 indicates that a correction to 1006.75 is possible. Traders have been buying dips near the 1022.00 area. If this pattern fails on the next break then look for the selling pressure to begin.
U.S. Treasury markets are trading higher overnight. Yesterday’s Treasury auction went well as foreign central banks increased demand for U.S. debt. The Treasury is holding another auction today. Expectations are for this one to be well received also. A break in the equity markets could add additional support to the September Treasury Notes and September Treasury Bonds.
Look for pressure on December Gold and Silver if the Dollar picks up strength throughout the trading session. If China curbs liquidity then demand for copper may drop. The September Copper chart suggests a possible double-top formation.
Crude Oil traders have had a hard time following through to the upside following last week’s surge. Traders will be focusing on today’s inventory report to see if a trend is developing. Last week’s report showed an unexpected drawdown of about 8.1 million barrels. Traders will be watching to see if the current economic recovery is beginning to increase demand for crude oil.
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