U.S. equity markets are expected to open higher

James Hyerczyk from ForexHound.com at 12/01/09

U.S. equity markets are expected to open higher as investors are putting risk trading back on the table. Upside momentum is building which could trigger a further acceleration to the upside.  The next target for the December E-mini S&P 500 is 1112.25.  A breakout through this level sets up a further rally to a major 50% price at 1122.00.  The inability to reach the minimum upside target could lead to renewed selling pressure.  A failure to hold the psychological level of 1100.00 will be the first sign of weakness.  Watch for strong volatility today and possible expanded ranges.

Talks continued in Dubai to shore up its debt woes.  Traders are continuing to chip away at last week’s losses in the foreign currency and equity markets as they grow more confident that this issue is a local problem rather than worldwide.  Officials are defining the talks with creditors as “constructive”.  As this situation improves, investors are stepping up demand for higher yielding currencies and assets.

Treasury markets are trading lower as investors are shunning the lower yields being offered by March Treasury Bonds and March Treasury Notes.  An acceleration to the upside in the equity markets is likely to push yields higher and fixed income instruments lower.

The U.S. Dollar continued to weaken overnight against most major currencies after China announced that its manufacturing sector rose to a seasonally adjusted 55.7 last month.  This growth rate was the fastest pace in five years or since the index began being tracked.

The December Euro is up again overnight and in a position to challenge yesterday’s high at 1.5084.  Upside momentum is building which can trigger a further rally to the high for the year at 1.5144.  Later this week, the European Central Bank is set to meet.  Traders expect interest rates to remain unchanged, but ECB members will make announcements regarding the gradual ending to government stimulus plans.

The December British Pound has erased yesterday’s weakness and is now trading higher.  On Monday, this currency pair fell after U.K. consumer confidence unexpectedly fell.  This morning the British Pound is trading at 1.6573 which is a 50% retracement of the 1.6876 to 1.6270 range.  Further upside action could take this market to 1.6645.  This retracement rally is very important to the structure of this market.  A failure to rally above this potential resistance zone could set up a secondary lower top. 

The Dollar is trading sharply higher versus the Yen after the Bank of Japan took action to weaken its currency.  While not actively intervening to weaken the Yen, the BoJ provided additional liquidity to the economy by saying it will provide three-month loans to commercial banks at an interest rate of 0.10 percent.  This action by the BoJ is expected to help stimulate growth and prevent deflation.  Some analysts feel, however, that the size of the stimulus package is not enough to turn the economy around.  Traders are nonetheless selling Yen to lighten up exposure.

Higher equity and commodity markets are helping to boost the Canadian Dollar.  As demand for higher yielding assets increases, look for more weakness in the U.S. Dollar versus the Canadian Dollar. This morning’s trading action has put this currency in a position to turn the main trend up on the daily chart on a move through .9570.  An acceleration to the upside could start following a breakout over the November top at .9599.

February Gold surged to a new all-time high overnight.  The weaker Dollar is providing all of the support this morning.  The follow-through to the upside has been limited so far so watch to see if this market turns lower intra-day.  A higher-high, lower-close will be a strong sign that a top is being formed.  A break in the Dollar Index through 74.27 should lead to an acceleration to the upside.

March Crude Oil is mounting a strong rally this morning.  Greater demand for higher yielding assets is helping to boost prices along with higher equity markets in Europe and Asia.  Speculators are once again driving this market higher.  The trend remains down until the last main top at 82.30 is violated, but regaining a key retracement price at 80.27 has put a bullish tone in this market.  A break back under 79.24 will be a sign of weakness.