Lower Dollar To Drive Equity Moves

Stock traders ignored the weaker existing home sales report and turned its focus on the U.S. Dollar which weakened because of increased demand for higher risk assets. This week’s testimony by Fed Chairman Bernanke may have set the tone for today’s rally. Earlier in the week, Bernanke said that interest rates would remain low for a prolonged period of time which may have triggered demand for higher yielding stocks.

The rally on Friday put the March E-mini S&P 500 in a position to take out the recent main top at 1112.75. This breakout will turn the main trend to up on the daily chart.

Treasury markets traded higher on Friday which was a surprise since the tone of the day seemed to be demand for risky assets. Today’s weaker than expected U.S. existing homes report provided much of the intra-day support. Investors gained more confidence in holding long positions this week after Fed Chairman Bernanke said interest rates would remain low for “an extended period”.

The weaker Dollar helped to support both April Gold and April Crude Oil. Upside momentum is building in gold which could provide this market with enough strength to test the last main top at $1131.50. A trade through this level will turn the main trend up on the daily chart.

The Euro rallied on Friday after Bloomberg reported that Germany may buy Greek bonds. Shorts read this as a potential vote of confidence for Greece and used the news as an excuse to cover positions. The strong rally put the March Euro in a position to turn the main trend to up on a rally through the last main top at 1.3692.

Despite a rise in Fourth Quarter GDP, the March British Pound finished lower on Friday, but off its low. Friday’s action was an indication of just how weak the U.K. economy is. Traders still feel economic problems, political woes and the possibility of more quantitative easing by the Bank of England may be too much to overcome in the short run. The weak close put this market slightly under a key 50% level at 1.5271.

Greater demand for higher risk assets helped to underpin the March Japanese Yen, but the break stalled after a penetration of a 50% level at 1.1227 and just below the main top at 1.1295. A break through this price will turn the main trend to up.

This week’s action indicates that the stock market rally and demand for commodities is still alive which could rally the March Japanese Yen further. The current administration in Japan is not expected to intervene unless they feel the current strength in the Japanese Yen is being triggered by speculation and volatility. Look for an acceleration to the upside if the main top at 1.1295 and the .618 level at 1.1227 fail to broken on this current rally.

Risk sentiment appears to be shifting once again toward demand for higher yielding assets. This helped to boost gold, crude oil and stock prices, sending the March Canadian Dollar higher. The recent break did not change the trend to down and appears to have been a retracement into a support zone at .9459 to .9415. Look for more upside pressure next week, but for this market to remain inside the main range of .9780 to .9274.

The improving Euro helped to ease the possibility of an intervention by the Swiss National Bank. This triggered the strength in the March Swiss Franc. Friday’s rally through .9334 turned the main trend to up, setting up the possibility of a rally to .9526 to .9608 over the near-term.

Usd/Cad Correction

Usd/Cad reached new highs around 1.0680 after the pair broke through the 1.0592 area. The price action from the 1.0369 lows was clearly made by a five wave move, which means that a near-term Short correction is expected.

This correction looks to be already developing after a Short turning point seen during the last Wall Street session. The price action now signals for a near-term decline towards the 1.0500 region with a three wave move expected in a corrective wave 2, before the pair becomes bullish again.

British Pound Falls Despite Better Fourth Quarter GDP

British Pound Falls Despite Better Fourth Quarter GDP

Concerns about sovereign debt issues in Greece eased overnight helping to increase demand for higher risk assets, says Brewer Futures Group. Catch Brewer Futures, and TheLFB trade team on ForexTV Live.

In addition, good economic news from Japan and higher stock markets in Asia helped increase optimism over the global economic recovery.

With tensions easing regarding the sovereign debt problems in some of the European Union nations, Forex trader focus will be on U.S. economic reports.

Out of the box first this morning will be the final U.S. Fourth Quarter GDP Report. The consensus range is 5.4% to 6.0%. The preliminary estimate at 5.7% is today’s target. With demand for higher risk assets higher this morning, a better than expected GDP number may pressure the Dollar. Some feel however that a better number will send the Dollar higher because the improving economy will indicate the Fed may have to raise interest rates sooner than expected.

The Chicago Purchasing Manager’s Index due out at 8:45 CT is projected to be in a range of 55.8 to 64.3 with the consensus at 60. Traders want to see continued strength in this index as it indicates an improving economy. Like the GDP figure, it difficult to project at this time how the Dollar will react. It will either go up because of the improving economy or down because of increased appetite for risky assets.

The University of Michigan Consumer Sentiment figure is expected to come in at 73.7, inside the range of 73.0 to 75.0. Investors will be watching the expectations component of this index for clues as to how consumers feel about the economy. High unemployment and worries over jobs may have a negative influence on this month’s index.

Finally, Existing Home Sales should come in at 5.5 million. A weaker than expected number should help to drive investors into the U.S. Dollar.

The EUR USD is up overnight but trading inside Thursday’s range. In fact, Wednesday’s range of 1.3692 to 1.3497 has held this market in check for two days. This formation indicates impending volatility. Watch for a break-out on either side of the market. Traders are likely to chase the market once it commits to a direction. Overnight, Euro Zone consumer inflation was 1% as predicted. On Thursday, the Euro firmed after reports of a Greek bond issuance next week surfaced. Traders feel that strong support for this bond issuance will indicate the European Union is close to a solution for Greece’s deficit problems. The rally took place despite reports that the S&P Corp. was poised to cut Greece’s debt rating. 

European Economics Preview: German GDP, Eurozone Industrial Orders Data Due

(RTTNews) - Revised fourth quarter GDP results and consumer sentiment data from Germany, along with industrial new orders data from the Eurozone are the major data due from Europe on Wednesday.

At 2:00 am ET, Germany's Federal Statistical Office is scheduled to release the final fourth quarter GDP figures. Economists do not expect to see any revision to the preliminary data that showed German output had stagnated in the final three months of 2009.

Consumer sentiment data for Germany is due at the same time from the market research firm GfK. The sentiment indicator is seen at 3 in March, down from 3.2 in February.

At 3:00 am ET, the Czech Statistical Office is slated to issue consumer confidence data for February. The consumer confidence index stood at minus 11.5 in January.

Industrial production data is due from the statistical office at the same time. Year-on-year, industrial output is forecast to grow 3.5% in January, accelerating from the 1.8% increase in the previous month.

At 4:00 am ET, the Italian statistical office is expected to release retail sales figures for December. Retail sales are tipped to rise 0.2% on a monthly basis but fall 0.9% on a yearly basis.

In the meantime, unemployment data is due from Norway's Labor and Welfare Organization. The jobless rate is expected to rise to 3.3% in December from 3.2% in November.

Consumer price inflation figures for February are due from Statistics Iceland at the same time.

At 5:00 am ET, Eurostat is set to issue industrial new orders data for December. Economists expect new orders to rise 7.6% on a yearly basis but fall 1% on a monthly basis.

Germany GfK Consumer Confidence Eases

(RTTNews) - German consumer confidence is likely to decline going into March, as worries over unemployment weigh on Europe's largest economy, market research group GfK said on Wednesday.

The forward-looking consumer sentiment indicator, based on a survey of about 2,000 Germans, fell to 3.2 in March from an upwardly revised 3.3 in February. This was better than consensus forecasts for a reading of 3.

All three sub-components in the survey, which refer to February, worsened over the month, GfK said.

The gauge of consumers' economic expectations slid to minus 5.6 in February from 1.5 in January, while the income expectations sub-index eased to 12 from 12.5. The sub-index measuring buying propensity of consumers fell to 24.2 from 25.4.

Battered Euro Takes Breather Near 9-Month Lows

(RTTNews) - The euro steadied versus the dollar on Friday after suffering significant losses earlier in the week, crippled by debt concerns and speculation the US economic recovery is leaving the euro area in the dust.

The euro was further punished yesterday when the Federal Reserve surprisingly raised its emergency lending rate for US banks, another step in unwinding the measures taken to prop up the fiscal system and broader economy in the wake of the worst recession in decades.

There was little reaction to Friday's major economic news. US consumer prices rose less than forecast in January, while prices excluding volatile food and energy dropped for the first time in nearly three decades, easing concerns about inflationary pressures.

The Labor Department's seasonally adjusted Consumer Price Index rose 0.2 percent last month, matching December's rise, while analysts were expecting prices to increase by 0.3 percent.

The euro held near 1.3500 over the course of Friday's session, having touched a 9-month low of 1.3444 late last night.

On the flip side, the euro gained on the yen, advancing to 124.65 in a move away from a recent yearly low of 120.69.

Eurozone's private sector output growth stable in February, a flash report from the Markit Economics said on Friday. The composite output index stood at 53.7 in February, unchanged from the previous month.

Across the English Channel, cold weather and restoration of the value added tax to 17.5% dampened British household spending in January with sales falling sharply.

Retail sales volume dropped 1.8% on a monthly basis in January, following a revised 0.2% fall in December, the Office for National Statistics said in a report on Friday. This was the biggest decrease since June 2008.

Oil Near $80 On Economic Optimism

(RTTNews) - Oil prices extended gains Friday as optimism prevailed amid data released during the week indicating a speedy economic recovery in the US, the top consumer of oil. Meanwhile, the greenback touched a nine-month high versus the euro.

Crude oil for delivery in March settled $0.75 higher at $79.81 per barrel in the New York Mercantile Exchange. On a weekly basis the price gained over 7%, and is currently at its highest level since mid-January.

The US Labor Department reported Friday its Consumer Price Index rose by a lower than forecast 0.2% in January. The core CPI, which excludes the prices of food and energy, dropped for the first time since 1982. The tame inflation figures affirmed the view that the Federal Reserve may continue to keep interest rates unchanged near zero for an extended period.

The Fed in an unexpected move raised its discount rate by 25 basis points to 0.75% late Thursday.

Thursday, the Energy Information Administration reported a bigger-than-expected 3.1 million rise in US crude inventories in the week ended February 12. But a day earlier, the American Petroleum Institute had reported a decline of 63,000 barrels in crude inventories during the week.

Indicating continued improvement in manufacturing conditions in the mid-Atlantic region, the Federal Reserve Bank of Philadelphia said Thursday its index of manufacturing activity rose to 17.6 in February from 15.2 in the previous month.

Fed Hikes Discount Rate, Funds Rate Range

(RTTNews) - The Federal Reserve Thursday increased its target range for the Federal Funds rate, one of a series of steps taken to modify the Fed's discount lending programs.

The Fed's discount rate was also increased.

The Fed announced the high end of the target range for the federal funds rate would increase 25 basis points, putting the rate at 0 to 0.5 percent.

The discount rate was raised from 0.5 percent to 0.75 percent.

The Fed, which released its announcement after the close of trading on Wall Street, said the discount rate increase would take effect Friday, February 19th.

Poll Finds Lower Confidence In Big Banks, Businesses

(RTTNews) - Confidence in the country's largest financial and business institutions among Americans is lower than it is for the federal and state governments, according to a new poll.

The Zogby poll,released Thursday, found both federal and state government slightly more worthy of voter trust than the so-called "free market giants."

The results from 2,500 likely voters found 83 percent confidence in small businesses, 73 percent in local banks, 60 percent in colleges and universities, 57 percent for local government, 41 percent for federal government and 41 percent for state government.

For major corporations, the confidence factor was 38 percent, national and regional banks 33 percent and Wall Street 31 percent.

The poll was conducted between January 29th and February 1st.

Financial: ABC News Consumer Confidence Deteriorates

(RTTNews) - ABC News said on Tuesday that its consumer comfort index averaged minus 49 in the week ended February 14 compared to minus 48 a week ago.

The index is just 5 points from its all-time low and is well away from its long-term average of minus 13 in 24 years of weekly polls.

ABC News said only 8% of survey respondents rated the economy positively, while just 24% think it is a good time to spend money. Some 44% of respondents rate their personal finances positively.

The latest ABC News consumer comfort survey was based on a sample of about 1,000 telephone interviews conducted in the four weeks ending February 14.

Japan Tertiary Industry Index Sheds 0.9% In December

(RTTNews) - An index measuring the activity of tertiary industries in Japan declined by a seasonally adjusted 0.9 percent in December compared to the previous month, the Ministry of Economy, Trade and Industry said on Wednesday, coming in at 95.8.

That was sharply lower than analyst forecasts for a decline of 0.2 percent on month following the revised 0.1 percent contraction in November.

Among the industries that saw declines, scientific research was down 4.4 percent on month, while miscellaneous services fell 3.1 percent, compound services shed 2.4 percent, wholesale and retail trade shed 1.3 percent, real estate eased 0.9 percent, finance was down 0.3 percent and transport and postal activities lost 0.2 percent.

Finishing higher, restaurants added 2.3 percent on month, while amusement services gained 1.2 percent, learning support was up 0.6 percent, communications climbed 0.5 percent and health care added 0.1 percent.

Electricity, gas, heat and water were flat on month.

For the fourth quarter of 2009, the index was down 0.2 percent compared to the previous three months.

Oil Extends Gains Ahead Of Inventories Data

(RTTNews) - The price of crude oil rose Thursday, finding support in the International Energy Agency's upward revision of oil demand growth, even as the US Dollar strengthened against the Euro.

Crude oil for delivery in March was trading $0.67 higher at $75.19 per barrel in the New York Mercantile Exchange, marking the fourth consecutive day of gains.

The IEA on Thursday upwardly revised its global oil demand growth forecast for 2010 by 120,000 barrels a day to 1.6 billion barrels per day. The agency also expects oil demand to average 86.50 million barrels per day, and oil prices to average $75 a barrel in the year.

A day earlier, the Energy Information Administration had raised its oil demand forecast for 2010 to increase by 1.2 million barrels per day, 120,000 barrels a day higher from the previous estimate.

Traders are awaiting the US Energy Department's weekly inventory report, which will be released on Friday.

Expectations for an increase in US heating oil demand, as the temperatures remain below average, also remain supportive for oil prices.

Meanwhile, the greenback rose against the Euro amid lack of clarity regarding the European Union plans to aid Greece.

Initial claims for jobless benefits fell to 440,000 in the week ended February 6, from the previous week's revised figure of 483,000, according to the US Labor Department. This was more than economists' expectation for a drop to 465,000.

Wednesday, the Commerce Department had reported that the US trade deficit widened to $40.2 billion in December from $36.4 billion in the previous month.

China Inflation, PPI Due On Thursday

(RTTNews) - China is scheduled to release January numbers for its consumer price index and producer price index on Thursday, headlining a modest day for Asia-Pacific economic activity.

Analysts are expecting the inflation rate to come in at 2.1 percent, up from 1.9 percent in December. Wholesale inflation is tipped at 3.5 percent, jumping from 1.7 percent in the previous month.

The South Korean central bank will conclude its monetary policy meeting and then announce its decision on interest rates. The bank is widely expected to keep rates on hold at the record low of 2 percent.

Australia will release employment figures for January. The unemployment rate is expected to climb up to 5.6 percent from the current level of 5.5 percent. The employment change is expected to show an increase of 15,000 after unexpectedly adding 35,200 in December.

Finally, the stock markets in Japan and Taiwan are closed on Thursday. Japan is off for National Foundation day, and will re-open on Friday. Taiwan is getting an early start on the Chinese Ney Year break and will be out of action until February 22.