U.S. equity markets are trading flat to lower overnight amid concerns the markets have little strong economic news to use as a catalyst to launch them higher. The U.S. Dollar is also trading weaker, driven down by a stronger Euro and Japanese Yen on worries the U.S. economic outlook remains bleak.
There are no major economic reports today so traders may pack it in early ahead of Thursday's Third Estimate of Q2 GDP. Economists are calling for the report to show modest growth of 1.6%. Fear and concerns about the continuation of the global economic recovery remaining on track are helping to support gold and silver.
December Treasury Bonds are trading lower after spiking to the upside on Tuesday after the Conference Board reported a bigger-than-expected slide in consumer confidence. The S&P/Case Shiller home index also showed weakness, helping to underpin Treasury Notes and Treasury Bonds.
T-Bond yields plunged after investors concluded that Thursday's weak reports almost solidified that the U.S. Federal Reserve would begin another round of quantitative easing. Traders also shrugged off an article in The Wall Street Journal saying that investors were overestimating the size of the Fed's QE plan.
Overnight action in the stock indices could be indicating early distribution or topping action. On Tuesday, the December E-mini NASDAQ confirmed Monday's closing price reversal top at 2032.00. This market broke hard after two weaker than expected economic reports, but investors shrugged them off, sending the market slightly higher for the day.
The chart pattern suggests that a break through the swing bottom at 1962.50 will turn the main trend down on the daily chart. The reversal pattern indicates that a break to 1741.00 is possible over the near-term. Gann Angle support at 1917.00 could trigger a technical bounce if tested.
The news that the U.S. economy weakened overshadowed concerns about sovereign debt issues in Spain and Ireland. This remains the only factor that could exert a bearish influence on the Euro. As long as the U.S. economy remains weak, the greater the chance the Fed will use quantitative easing to try to prevent the economy from derailing. QE puts more liquidity into the economy thereby weakening the Dollar.
Weaker than expected U.S. economic reports on Tuesday triggered a surge in the December Euro, taking out Monday's closing price reversal top and a major 50% retracement level at 1.3510.
The herd is following the same line of thinking overnight, driving the Euro to a new high for the week. Unless the Euro Zone gets hit with surprise news about sovereign debt issues or a series of weaker-than-expected economic reports, there doesn't seem to be any fundamental news to stop the current upsurge.
Technically, if the Euro can sustain itself above the 50% level at 1.3510, then look for the rally to continue to the Fibonacci level at 1.3816.
The December British Pound is trading lower overnight but inside Tuesday's range. A closing price reversal top pattern was formed, suggesting more downside to follow. The problem is the range was so large it's hard to find a trigger point for a sell-off this morning.
The Sterling fell sharply on Tuesday, triggered by negative comments from Bank of England's Adam Posen regarding more quantitative easing. Posen said that more QE is going to be needed in order to lead the UK economy to full recovery. Posen suggested that further fiscal stimulus and corporate debt buying might be needed if this round of QE is not enough.
Despite recent news to the contrary regarding better than expected GDP and high inflation, Posen believes that the UK economy may fall into a cycle of low growth for a long period of time although he dismissed predictions of a double-dip recession. The type of scenario he is forecasting is usually marked by high unemployment and low growth.
Technically, the British Pound fell after Posen's speech, triggering a hard sell-off and lower close. The closing price reversal formation is indicative of a top. This pattern often leads to the start of a two to three day break highlighted by a 50% retracement of the last rally.
Based on the last rally of 1.5503 to 1.5894, the retracement zone is 1.5698 to 1.5652. An uptrending Gann angle is at 1.5616. Based on the current chart pattern, the Cable may be getting ready to roll-over to the downside.
