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September 03, 2009

Traders Maybe Adopting Yen As The New Safe Haven
by Brewer Futures Group

The U.S. Dollar is called weaker this morning. An equity market rally in China has helped boost demand for higher risk assets overnight. Both technical and fundamental factors are helping to contribute to the weakness in the Dollar.

The September British Pound confirmed yesterday's closing price reversal bottom with a follow-through rally overnight. Yesterday's bottom and strong move to the upside was triggered by a better-than-expected U.K. Services Report which showed its biggest jump in 2 years. This bullish news was a sign that the U.K. economy was beginning to recover from the recession. Shorts covered on the news while driving the market into a minor resistance area at 1.6369 to 1.6430. Oversold technical conditions also helped boost prices.

Resistance could develop today between 1.6369 to 1.6430. A close over 1.6430 sets up this market for a further rally to 1.6577. The main trend remains down until 1.6627 is taken out. Although the U.K. economy has been showing signs of improvement lately, traders expect a sideways market to develop as we get closer to the next Bank of England meeting scheduled for September 10th.

This morning the European Central Bank announced that its benchmark interest rate will remain at 1.0%. This was expected by traders despite recent reports showing improvements in the Euro Zone economy.

Traders expect ECB President Trichet to remain skeptical about the strength of the recovery in the Euro Zone when he comments on the economy later this morning. Although there have been signs of an economic recovery in some sectors, the ECB is still worried about high unemployment, low consumer spending and the growth rate which is currently under the target of about 2.0%.

The September Euro remains inside of its August range of 1.4449 to 1.4045. The support area is the 50% zone of this range at 1.4247.

The firmer global equity markets are helping to put pressure on the September Japanese Yen overnight. Overbought technical factors are also helping to contribute to the weakness. The recent rise in the Yen is a sign that traders have adopted this currency as the new safe haven market.

Higher energy and stock prices could give a boost to the September Canadian Dollar today. Oversold technical factors could help contribute to the rally by encouraging shorts to cover their positions.

Trading ranges may tighten up later in the day as traders begin to even positions ahead of tomorrow's U.S. Non-Farm Payrolls Report.

U.S. equity markets are called higher this morning because of the 4.8% gain in China's Shanghai Index. China is reportedly considering ways to calm down the markets following a 22% break from the recent top. With the government's help, China will try to establish a "stable and healthy" investing environment.

The September E-mini S&P 500 chart suggests a rally to 1014.75 is possible. This move would complete a 50% retracement of the recent break. Trading could get volatile today as traders begin to square positions ahead of tomorrow's U.S. Non-Farm Payrolls Report.

A rally in equity markets today could put pressure on the Treasury futures. Market conditions have calmed since earlier in the week which means traders may be encouraged to seek higher yields in other asset classes.

December Gold is trading higher overnight after a strong surge yesterday. Rumors of a potential bank failure and a shift from equities into the metals asset class helped fuel the rally. Gold had been trading sideways to lower for several months until this week. The rally in the equity markets and the lack of inflation were two reasons why investors had been backing away from gold as an investment. The recent decline in stocks gave traders a reason to reallocate some of their investing funds.

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Information provided in this correspondence is intended solely for informational purposes and is obtained from sources believed to be reliable. Information is in no way guaranteed. No guarantee of any kind is implied or possible where projections of future conditions are attempted.