Stocks See−Saw in Tight Range amid Friendly U.S. Economic Reports

James Hyerczyk from ForexHound.com at 01/06/10

 

The reaction in the markets was muted this morning following the release of the U.S. ADP jobs data report. The report showed that employers cut 84,000 jobs in December. This was down from 145,000 jobs lost in November. The adjustment to the November figure was positive as it was originally estimated that 169,000 jobs were lost.

Today’s improved ISM Services data also failed to attract strong buying. Institutions and mutual funds still seem to be noticeably absent as these investors await Friday’s important U.S. Non-Farm Payrolls Report.

After trading lower overnight, March Treasury Bonds tried to mount a recovery but failed. Today’s economic reports indicate the U.S. economy is gaining strength, moving the Fed closer to increasing interest rates later this year. Yesterday the main trend turned up on the daily chart. The chart pattern suggests that a rally back to 117’15 is possible if upside momentum can continue. At this time, the market is correcting the short-term range of 114’16 to 116’05.

February Gold surged to the upside following the break in the Dollar. The chart pattern suggests that this market is well on its way to completing a major 50% retracement of the $1227.50 to $1075.20 range at $1151.30.

March Crude Oil is rallying sharply higher after earlier weakness. Today’s action took out the October high at 83.60. More signs that the economy is recovering is driving speculators to anticipate a strong increase in demand.

The Dollar is trading weaker at the mid-session as investors are seeking higher yielding assets amid news that the U.S. economy may be improving. This morning’s reports showing that private sector job losses had slowed and that the service sector of the economy improved helped encourage investors to demand higher risk investments.

Today’s weakness is taking place after the U.S. Dollar rallied overnight after yesterday’s closing price reversal bottom. The first objective was met at 77.77. Upside momentum then took the market to the upper end of the retracement range at 77.93 where it met strong selling pressure. Look for a resumption of the downtrend with 76.31 to 75.80 the next downside objectives.

The March Japanese Yen is trading weaker at the mid-session. Earlier today, this currency pair completed a retracement of the 1.0731 to 1.0964 at 1.0848. Trading below this level is putting pressure on the Yen at the mid-session. Fundamentally, traders are reacting to an improving global economy while expectations remain for the Japanese economy to remain under pressure. News of Finance Minster Fujii’s resignation but slight pressure on the market as this event seems to have been already priced in.

The March Euro weakened into a retracement area at 1.4350 to 1.4319 before holding and beginning a strong rally. A close over this zone will be a positive development which could put the Euro back on pace to challenge a major retracement zone at 1.4680 to 1.4790. Traders will be watching for news regarding a possible bailout of Greece. Overnight, the Euro weakened after ECB member Juergen Stark said that markets cannot assume other nations will bail out Greece.

The main trend remains down in the March British Pound at the mid-session but this market is trying to establish support in a retracement zone at 1.6036 to 1.5988. Holding this zone could trigger a short-covering rally. Tomorrow the Bank of England will hold its first meeting of the year. Expectations are for the BoE to hold interest rates steady while continuing to provide stimulus to the economy in hopes of the start of a recovery.

The March Swiss Franc is showing strength at the mid-session following a test of a 50% price at .9640. Look for the strength to continue as long as this market remains over .9612. The bigger picture suggests a rally to .9806 - .9873 is possible following today’s short-term correction. Gains could be limited as traders are also anticipating a possible intervention by the Swiss National Bank if the currency continues to appreciate against the Euro.

The uptrend in the March Canadian Dollar resumed late in the trading session after trading in a tight range overnight. The direction of gold and crude oil will continue to exert the biggest influence on this currency pair. Today’s strong rally in gold is helping to underpin the Canadian Dollar. Today’s upside action suggests this market is well on its way to a test of an old main top at .9741. Upside momentum may slow as the market approaches this level on concerns the Bank of Canada may try to support its currency.