U.S. equity markets are trading firm overnight after yesterday’s surge to the upside. Buying pressure dried up late in the session, but no damage was done to the uptrend. Volatility is falling which is making traders appear complacent. This could be both good and bad. On the good side, it could mean traders are gaining confidence in the recovery which will send prices higher. On the bad side, too much complacency leaves the markets vulnerable to a bearish surprise or could trigger the start of a sizeable correction. At this time let’s just focus on the trend and determine what it is telling us. The main trend is up in the March E-mini S&P 500. The swing chart indicates 1156.00 is the next upside target by March 12th.
June Treasury Bonds are trading lower but finding support at a 50% level at 116’04. If this area fails to hold, then look for a further correction to 115’24. A pick-up in demand for risky assets and additional supply concerns is putting pressure on this market.
Higher demand for risky assets and a weaker Dollar are providing support for April Gold and June Crude Oil. Gold is recovering after a short-term break. This market will have to take out $1145.80 in order to resume the uptrend. June Crude Oil is sitting on an uptrending Gann angle at 82.44. This angle will dictate the markets direction.
Firmer stock indices, gold and crude oil are indicating that trader demand for risk could be up today which could pressure the Dollar versus commodity-linked currencies.
After trading higher overnight, the trade-weighted Dollar Index has turned down as it trades near its low shortly before the U.S. opening. This may be an indication that risk sentiment is shifting toward the riskier side.
The March Euro had a rocky night but has recovered all of its earlier loss and is now trading better. Downside pressure has eased since Greece has agreed to implement budget cuts. Traders are also becoming more optimistic that some sort of bailout package announcement is imminent. The ability to turn positive after a report last night showed that German trade data came in worse than expected is a sign that there are buyers out there. The key to driving this market higher will be to find a way to get the massive amount of shorts out of the market.
The March British Pound is feeling more downside pressure overnight. The absence of buyers is clearly evident as traders are approaching the long side of the market with caution. The major concern amongst traders at this time is whether the credit agencies will issue a downgrade of U.K. debt. Adding to the pessimism is the weak U.K. economy, political uncertainty and the dovish stance by the Bank of England.
The March Japanese Yen is trading lower because of demand for higher risk assets. A strong surge in the equity markets today should drive this market sharply lower. The March Swiss Franc is up. The firming Euro is helping to diminish the possibility of another intervention by the Swiss National Bank. The SNB is expected to leave interest rates unchanged at its next meeting, but reiterate that it stands committed to protecting its export industry in the face of a deterioration of the Euro Region economy.
Overbought conditions seem to be preventing the March Canadian Dollar from rallying further despite stronger demand for gold and crude oil this morning. This pair is rapidly approaching a key resistance area. Traders are approaching the long-side with caution out of fear the Bank of Canada may try to weaken its currency in order to prevent the expensive Loonie from doing damage to its export market.
News that Chinese exports increased the most in three years is helping to increase demand for the March Australian Dollar and March New Zealand Dollar. The Australian Dollar continues to mount a strong rally after taking out key resistance recently. The strong economy is causing traders to factor in the possibility of another rate hike by the Reserve Bank of Australia at its next meeting.
The good news out of China is also helping to boost the New Zealand Dollar. Although the Reserve Bank of New Zealand is expected to keep interest rates low for a prolonged period of time, traders like the Kiwi at its current level. The overnight action has put the March New Zealand Dollar in a position to turn the main trend up on the daily chart on a move through .7078. The next 50% upside target is .7124. An additional sign of strength is the breaking of a downtrending Gann angle overnight. This move could help trigger additional short-covering once the New York session is open.
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