The September Japanese Yen cleared an important technical hurdle overnight and is now in a position to challenge the July top at 1.0909.

Japanese investors have been repatriating funds invested in China on speculation that the Chinese financial officials will attempt to curb reckless lending practices in the country.  Funds are being moved out of China for safety reasons as investors feel new Chinese practices will slowdown the pace of growth.  With their investments at risk, Japanese investors are seeking the safety of the Japanese Yen.

At this time it is only speculation driving investors to repatriate, but the aggressiveness of the move into the Yen could be signaling that a move by the Chinese government to place restrictions on over capacity could be imminent.  The action by Chinese officials will affect the entire Asian region since China is the key economic driving force for Asia’s economies.  Additional support for the rally in the Yen is a new tax law which is encouraging Japanese exporters to repatriate earnings.

Technically, the September Japanese Yen remains in an uptrend.  Upside momentum is building now that the Yen has overcome a key retracement level at 1.0649.  The next upside target of this rally is 1.0747, followed by the July top at 1.0909.  Major Gann angle support is at 1.0578.  Look for higher markets to follow as long as this angle remains intact.

The trend is up in the September Euro on the daily chart, but the upside pace is slowing after a strong surge late last week.  Traders have been reluctant to drive this market higher since European Central Bank President Trichet threw water on the rally when he stated over the weekend that the road to recovery would be bumpy.  

The Euro has been strong since it was reported earlier in the month that the economies in France and Germany had shown growth during the second quarter.  Traders are beginning to question whether government stimulus produced the growth in these two countries and if they would be able to sustain the growth after stimulus plans end.  More pressure could be put on the Euro today following a report showing European retail sales fell for a 15th month in August.  High unemployment and lower consumer spending were blamed for the decline.  

The September Canadian Dollar is trading steady this morning following a steep two-day sell-off.  The chart pattern suggests that a double-top has formed in this market which could lead to an even further decline once it is confirmed.  

The break in the Canadian Dollar is a strong indication that risk aversion is back.  Lower crude oil and choppy equity markets are also signs that the rally in higher yielding assets may be overdone.  The biggest blow to the Canadian Dollar this week may have been the comments from Bank of Canada Deputy Governor Timothy Lane who noted that the rapid appreciation in the Canadian Dollar may be posing an “important risk” to growth in the economy.

U.S. equity markets are trading flat overnight.  These markets have been churning inside of a tight range for most of the week.  Traders seem reluctant to chase the markets higher because of the fear of buying the top.  There is a lot of talk circulating that stock prices may be over-inflated given the current state of the economy.  This is probably why aggressive traders seem to be more interested in buying breaks rather than strength. The daily chart suggests that the September E-mini S&P 500 could correct to 1006.75

September Treasury Bonds have held up nicely this week despite the Treasury auction.  Yields have been dropping all week and the auctions have been well received.  Rumors are out there that foreign central banks have been demanding U.S. debt.  Today is the last auction of $28 billion of 7-year notes.  

Technically the bonds have reached a major 50% price level at 120’02.  Overcoming this hurdle could send the market sharply higher over the short-run.  Support for this rally could come following a substantial decline in U.S. equity markets.

December Gold is trading a little better overnight.  The lack of fresh fundamental news has kept this market in a range for several weeks.  Trading conditions have been thin.  Bigger traders seem to be waiting for the U.S. Dollar to make its move before committing to either side.

Pressure could begin to mount on December Copper as speculators await news from China regarding its plan to curb over capacity and curb excess lending practices.  Many traders feel the decision will slow the pace of growth in the economy and lead to a decline in demand for copper and other industrial metals.

The return of risk aversion could put pressure on December Crude Oil.  Traders are reluctant to buy this market near $75 despite speculation that an economic recovery would lead to greater demand.  Yesterday’s crude oil inventory report showed a slight rise in oil stocks.  A stronger Dollar and weaker stock market could put pressure on crude oil today.  The biggest influence could be a decision by China to curb over capacity.  China is the world’s second largest user of crude oil.  

Today’s U.S. Second Quarter GDP Report should move the markets today.  Most economists are calling for a contraction of 1.5%.   A report showing a deeper contraction than the estimate could pressure stocks.  

Initial claims are expected to fall for the first time in three weeks.  This report shouldn’t carry that much weight ahead of next week’s all important U.S. Non-Farms Payroll Report.


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