Retail Sales just came out bullish. Equity markets are soaring. Bonds are breaking. The Dollar is plunging. The market reads this report as good. The key will be to be able to separate the report from the trade. The question is will U.S. investors chase equity market higher or wait for a pullback? Overall, however, it looks like a strong report.
U.S. equity markets are trading better overnight ahead of this morning’s Retail Sales Report. Demand for higher risk assets, the weaker Dollar and low volatility are helping to support the indices. The March E-mini daily swing chart has been projecting a test of 1156.00 by March 12th. Strong overnight action has this market in position to test this level. In addition the March E-mini Dow chart shows this market has room to run to the upside with the January high at 10687 the next likely target.
Demand for risk is pressuring the June Treasury Bonds. This market is currently testing a major 50% price at 116’04. This price will dictate the direction of the market today. A better than expected Retail Sales number could send this market down sharply as it would be an indication that the Fed will likely be strengthening by the end of the day. A worse than expected figure will be bullish for T-Bonds.
April Gold is rallying overnight because of the lower Dollar and increased demand for higher risk assets. This market looks like it successfully survived a test of the recent main bottom at $1088.50 and is now poised to resume its uptrend.
June Crude Oil is trading better. Currently this market has enough speculative buying behind it to trigger a break out of the recent high at 83.77. Demand for higher risk, a weaker Dollar and a stronger Euro are helping to underpin this market.
The U.S. Dollar is trading lower overnight against all major currencies. Investor demand for higher risk assets has been the driving force along with short-covering. Economic releases have played a limited role in this week’s Dollar movement. However, this may change today following the release of the U.S. Retail Sales Report and Consumer Sentiment.
The March Euro is trading sharply higher after piercing the recent swing top at 1.3735. This reaffirmed the main trend which turned up last week. The support base that has been built is bullish. The current chart formation suggests the possibility of a near-term retracement to 1.4009.
Two factors are currently driving this market higher. The first is the persistent rumor of Greek financial aid being delivered by Germany and France. This story began two weeks ago when the Wall Street Journal reported a deal was in the works to provide Greece with as much as $41 billion in aid. The speculated amount has since grown to $55 million.
The second factor currently driving the Euro higher and likely to continue is the fact that there are still over 65,000 net short positions in the market according to the recent CFTC Commitment of Traders Report. The easing of the fiscal crisis in Greece and the inability of the Euro to break further means that the shorts are going to have to cover. If they all head to the exit at the same time, then there could be enough short-covering to drive this market up to 1.4009 rather quickly.
The March British Pound is trading higher this morning after a week of consolidation. The high light this week was the release of a report on Thursday stating that year-long inflation is expected to be a little higher. This helped freeze the selling pressure and turn the markets yesterday. In addition, the freezing of political tensions seems to be helping to boost investor confidence. Although the trend is unlikely to turn higher on this next move, there is room for a sizeable short-covering rally.
Despite a pickup in demand for higher yielding assets, the March Japanese Yen is trading slightly higher. Overnight the Japanese Yen weakened after Japanese Prime Minister Hatoyama told parliament the Yen was too strong. The market could see volatility today as traders may drive the Yen lower because of increased demand for higher risk assets, or out of fear of a Japanese government intervention.
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