U.S. equity markets are trading higher overnight. On Friday tensions eased in Greece after the country formally asked the European Union and the International Monetary Fund for bailout loans. This helped drive the stock indices to their highest levels of the year. Although the Euro is trading lower this morning, the situation looks a little brighter as investors still feel confident in holding higher risk assets.
Low interest rates in the U.S., decent economic reports and better than expected earnings continue to support the rise in equities. Now that earnings season is coming to an end and interest rates are expected to remain low for a prolonged period, the emphasis will shift toward U.S. economic reports. Traders are going to want to see improvements in all sectors of the economy especially housing and employment. Last week’s good news regarding existing home sales and new home sales helped underpin equities.
Stocks are expected to continue to rise as long as there is a bid under the market. Throughout this entire bull market investors have gotten used to buying breaks. Expect this pattern to continue especially after strong openings. Traders have been reluctant to chase the market higher.
June Treasury Bonds are called higher this morning. The main trend is up on the daily chart, but the closing price reversal top from last Thursday at 117’29 could be a signal of lower markets to follow. The charts indicate a break to the low 116’00 is likely. The threat of rising interest rates and new supply is likely to limit gains and should help contribute to the impending weakness. It seems the only factors driving this market higher lately have been flight to safety concerns regarding Greece. Talk that China may limit its Treasury purchases can also develop into a bearish factor.
Fear of a possible collapse in the Greek economy and the Euro is sending speculators into June Gold. These traders have been taking long hedge positions against paper currencies. Gold also appears to be decoupling from the U.S. Dollar, Gold is nearing an old top at $1170.70 which could help to slow down upside momentum. The key to higher markets will be whether Greece’s problems escalate or the sovereign debt issues spread to Spain, Portugal or Ireland.
June Crude Oil is trading slightly better because of increased demand for higher risk assets. Supply and demand issues do not appear to be a factor at all in this rally. Last week’s action confirms that the crude oil market is still firm after it established a range between 87.59 and 81.73. The short-term chart indicates there is room to the upside but this market will have to clear 87.59 in order to trigger an acceleration to the upside.
The June Dollar Index is trading higher, but the Dollar is mixed against most major currencies. The June Euro is under pressure after Friday’s strong short-covering rally. Big hedge funds continue to remain short. Traders expect the situation to get worse before it gets better because of the lack of clarity regarding the proposed bailout plan. Most traders are still saying the amount of aid Greece is asking for is not enough.
The stronger equity markets are helping to boost demand for higher risk while driving down the lower yielding June Japanese Yen. The weaker Euro and an improved economic outlook are helping to support the June British Pound. Gains could be limited because of concerns over the upcoming U.K. elections and the possibility of a hung parliament.
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