U.S. Equity Markets Showing Slight Rebound Overnight

Forex Technical Report

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U.S. equity markets are showing a little strength overnight. Last week’s closing price reversal top is expected to keep downside pressure on the market. There is no major U.S. economic reports today so trading may be light. Traders are beginning to pitch stocks that have shown extensive gains during the six-month rally on the thought that the economic recovery may not be as strong as traders anticipated. In addition, investors are beginning to doubt that this quarter’s earnings reports will support most stocks at current price levels. Bargain hunters may support the market today on dips, but the weekly chart indicates that technical factors could limit any gains.

Treasury markets are up slightly overnight. Weakness in the equity markets is likely to send investors to the fixed income markets. Last week’s decision by the Fed to extend its asset buyback program into 2010 is also being deemed as supportive.

December Gold is up slightly overnight because of the mixed Dollar. Last week’s trading action did some serious damage to the gold market. This could mean another round of selling this week until gold can find solid support. At this time, $975.00 looks like support with $1005.00 resistance. A stronger Dollar will continue to exert downside pressure on this market.

Look for December Crude Oil to continue to feel downside pressure and attract sellers on rallies. Worries about the U.S. economic recovery and high inventories should continue to keep the pressure on the energy complex. Traders are also citing a stronger Dollar and weak demand as additional bearish factors.

The U.S. Dollar is expected to open mixed this morning. The Greenback is showing strength versus the major European currencies and weakness against Asian-Pacific markets.

The Dollar is showing strength mainly because oversold conditions and economic uncertainty have encouraged investors to lighten up on their positions in higher yielding currencies and curtail fresh demand.

The G-20 wrapped up its meeting this weekend by agreeing to give emerging markets more influence at the International Monetary Fund and the World Bank. Look for the roles of the emerging markets to increase once the global economy begins to recover. This could help lay down the foundation for a diminished role for the U.S. Dollar as the world’s reserve currency.

Technical factors are helping to weaken the December Euro overnight. Last week’s close formed a weekly closing price reversal that was confirmed overnight. This formation often leads to the start of a 2 - 3 week correction. Losses could be limited as European bond markets are beginning to show that traders expect the European Central Bank to raise rates soon.

The December British Pound is still reeling from the negative comments from Bank of England Governor Mervyn King. Late last week, King stated his opinion that he preferred a weaker currency to help stimulate U.K. exports. The fundamentals still support weakness, but technically oversold conditions may trigger the start of a temporary short-covering rally.

The December Japanese Yen, on the other hand, continues to gain versus the U.S. Dollar as the Japanese government is not expected to intervene to prevent the Yen from rising. Last week Japan’s Finance Minister said he said he opposes government intervention in the currency markets.

Traders should watch for soft equity and energy markets to continue to exert a bearish influence on the December Canadian Dollar.