September 17, 2010
Increased demand for higher risk assets overnight is helping to drive U.S. equity markets overnight. After several days of sideways trading, and the appearance that the markets were going to remain rangebound, the December E-mini S&P 500 finally broke out to the upside, leading to speculation that today may be a “risk on” day.
Overnight the S&P took out two former tops at 1122.00 and 1124.50, and a key Fibonacci level at 1128.00. Now that the market has broken out over this level, look for these levels to become new support. The daily chart indicates that there is room to rally up to at least 1160.75 over the near term. On the downside, a failure to hold support could trigger the start of a break to 1103.25.
Greater demand for risky assets is also helping to pressure December Treasury Bonds. Currently this market is testing a Fibonacci level at 129’11 and a Gann angle at 129’10. Look for a test of the week’s low at 129’05 if this support cluster is violated. The daily swing chart indicates that 128’05 is a potential downside target.
Fundamentally, the T-Bonds are a tricky market at this time. Fed buying and weak economic reports should be supportive, but there is new supply hitting the market this week because of a new Treasury auction. In addition, there may be an allocation going on between equities and debt.
November Crude oil has sold off this week because of concerns over increased supply. Technically the main trend on the daily chart is up as long as the 74.24 bottom holds. An uptrending Gann angle and 50% level at 75.49 and 75.18 respectively is currently providing support. Increased demand for risk could help drive this market higher.
Higher crude oil prices and increased appetite for risk are helping to support the Canadian Dollar overnight. It looks as if it could be a “risk on” day today which will be beneficial to all the higher yielding currencies.
Another session of selling pressure in the crude oil market helped weaken the Canadian Dollar on Thursday, sending the U.S. Dollar slightly higher against the Loonie. Thursday’s trading session also had a “risk off” theme which triggered some light shedding of higher risk assets, contributing to the Canadian Dollar’s weaker tone.
Technically, following a recent sharp rise, the December Canadian Dollar formed a daily closing price reversal top which was confirmed on September 15. The lack of follow-through to the downside helped to prevent this market from finishing its counter-trend retracement to .9636. A rally through .9768 will negate the reversal top and likely trigger an acceleration to the upside.
Overall, there are concerns that the Canadian economy is slowing down. Lower crude oil is hurting exports, but the weaker U.S. economy may be having a bigger influence on the Canadian economy than estimated earlier. Some traders are saying that the Bank of Canada’s recent rate hike may do more harm than good for the economy.
The December Euro is trading sharply higher overnight as speculative buyers continued to drive the market on the notion that the Euro Zone economy will recover faster than the U.S. economy.
On Thursday the Euro rose to its highest level in more than a month after a strong debt auction in Spain relieved investor concerns about the county’s ability to tap capital markets for investment. The rally took the market to 1.3116, the highest level since August 11, as investors perceived the success of the Spanish auction as a sign that the country’s sovereign debt issues from the Spring were subsiding.
The December Euro is trading higher overnight but in a tight range as capital markets are still adjusting to the huge intervention which began on Tuesday night. Trading has slowed to a crawl as investors assess the impact of Wednesday’s intervention and the outlook for further Yen selling from Japanese officials.
Many feel that the Japanese government is not finished weakening its currency and are unwilling to step in the market on either side until there are signs of breakout in either direction. A small group of traders seem to be willing to buy the support and sell the rallies while the market remains inside of its tight range.
The market appears to be drifting lower at a slow pace. The daily chart indicates that a break through 1.1557 is likely the trigger point for the start of an acceleration to the downside.
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