Global Recession Close To An End - Speculation Reignites
The U.S. Dollar is trading lower this morning following a turnaround in last night's trading session after the release of better than expected data out of Europe. Early in last night's trade the Dollar was trading higher, but reports from France and Germany turned the Dollar lower. Manufacturing in France and services in Germany both unexpectedly expanded reigniting speculation that the global recession was coming close to an end.
This was the second time in a week that both France and Germany were on the same page when it came to economic expansion. Last week both countries reported growth in second quarter GDP. Just like last week's news, the overnight news triggered a rally in the September Euro.
The September Euro rallied through a key retracement zone at 1.4247 to 1.4295 overnight. This move provided the power to take out the last main top at 1.4329 to turn the main trend to up.
The September British Pound is posting a gain this morning driven by the bullish economic news from Europe. Despite the rally this market is still trading below its key retracement zone at 1.6658 to 1.6749. This is because the fundamentals in the U.K. continue to remain bearish. The widening fiscal deficit along with a new round of quantitative easing is two reasons why the British Pound may lag the other currencies during the recovery.
Speculation that crude oil will rise because of greater demand during the economic recovery and strong equity markets is helping to boost the September Canadian Dollar this morning. Technically this market regained a key 50% area at .9198 and is now in a position to challenge the .618 level at .9247. The main trend will turn up on the daily chart following a penetration of the last swing top at .9266.
The news earlier this week out of Switzerland regarding the UBS agreement with the IRS may be the catalyst behind the rise in the September Swiss Franc. Following the announcement of the agreement, Switzerland announced that it was selling its shares of UBS. This move may have been a signal that the Swiss banking system has stabilized. Although it is still trading in a range, the overnight strength indicates this market may attempt to breakout over the last top at .9471.
Overnight weakness in Asian stock markets was the catalyst behind a rally in the September Japanese Yen. Talk is circulating that traders unwound huge carry trade positions when China's Shanghai index weakened. Technically, the Yen regained a key retracement area at 1.0569 to 1.0649. With the main trend up and momentum strong, look for a possible test of 1.0747 over the short-term. A break back under 1.0649 will indicate light selling pressure. A breakout to the upside in U.S. equity markets may also limit gains in the Yen if traders decide to reinstate their carry trade positions.
The weaker Dollar should help December Gold today. December Copper could also rally because of the weaker Dollar but gains may be limited on speculation China may begin to curb demand for industrial metals.
Stock index futures are trading higher overnight boosted by greater demand for higher yielding assets. Early this morning the September E-mini S&P 500 stopped short of taking out the August high at 1016.00. A bullish existing home sales report this morning could trigger a breakout through this price. Trading remains thin and today is option expiration day so don't be surprised by volatile trading and wide ranges.
Treasury futures are trading mixed this morning. This comes as a surprise as most traders expect September Bonds and Notes to break because of the strong equity markets. The announcement of next week's auction was also expected to weigh on the Treasuries because of the increase in supply.
Signs of a global economic recovery and increased demand for higher risk assets should provide support for December Crude Oil. Gains could be limited, however, because the huge rally earlier in the week may have exhausted the buyers.