The September E-mini S&P 500 closed higher after a short-covering rally late in the session. For the week the market finished sharply lower.
This market started the week with a rally into a retracement zone at 1122.00 to 1143.00. The daily closing price reversal top on Monday indicated that the selling was greater than the buying. This pattern suggested a minimum 2 to 3 day break into a minor retracement area at 1083.25 to 1072.50. Friday’s low at 1062.75 overshot the downside objective but the market still managed to regain it by the close.
Fundamentally the weak U.S. housing data and the dovish outlook for the economy by the Fed was to blame for the losses.
U.S. equities have reached an important juncture on the charts. The high this week brought the equities back to 50% of the recent April to May decline. The longer-term view suggests that a failure to penetrate this zone signals the renewal of selling pressure which could drive the market through the recent bottom.
September Treasury Bonds had a strong run to the upside this week. News that the U.S. housing market could attempt a double-dip recession helped lower yields. The Fed’s forecast for an economy that is “proceeding” rather than strengthening was perceived as dovish, setting up the T-Bonds for another run to the upside. The chart indicates that upside momentum could drive this market through the May top at 126’05.
September Crude Oil closed sharply higher on Friday following a slight two-day setback. The main trend is up but the market is having trouble at a 50% level at 80.88. The market was driven higher on Friday by problems with the cap on the leaking oil well in the Gulf as well as the threat of a tropical storm early next week. Other oil rigs in the area could be threatened if the storm develops into something major.
The Euro rallied late in the trading session after an early session setback. Advances by U.S. stocks and commodities triggered a surge in demand for riskier assets.
The September Euro started the week strong but overbought conditions and fresh concerns about the European banking system following a downgrade of BNP Paribas by Fitch stopped the rally, triggering a technical closing price reversal top.
Later in the week, fresh economic data showing a slowdown in the U.S. economy and a dovish comment by the Federal Reserve helped stabilize the Euro, forcing it to trade in a range most of the week.
Investors seemed to shed Dollars in favor of the Euro most of the week after the Fed comments and poor U.S. housing data signaled that interest rates would remain low for a long time. Some are beginning to feel that Europe’s move to austerity may actually strengthened the Euro Zone economy before the U.S. gets its economy back on track.
Technically the Euro finished lower for the week but in a position to move either way. The main trend on the daily chart is up, but value is a concern for investors. This means that it may still be vulnerable to a near-term break into a retracement zone at 1.2171 to 1.2102. If appetite for risk continues to increase however, these traders waiting for a cheaper Euro may be left in the dust of the next up leg.
Friday’s rally helped form a new higher main bottom at 1.2209. This could mean the market is set up to move higher. A drive through the last main top at 1.2467 will solidify the uptrend and could trigger a breakout to the upside. The only thing standing in the way of an all out breakout to the upside is a pair of downtrending Gann angles at 1.2522 and 1.2591. Once these angles are cleared, look for the Euro to complete its weekly chart retracement to 1.2609 to 1.2782.
The September British Pound posted a strong gain this week buoyed by the release of the new U.K. budget and signs of a weaker economy in the U.S.
U.K. traders rallied the British Pound after the new government announced its budget plans, complete with calls for higher taxes and severe spending cuts. Traders accepted this news because it represents a better plan than the previous government. Even though some feel the spending cuts will hurt the economy in the short run, the long-term outlook for the U.K. economy looks a lot better.
Technically, the Pound is in an uptrend and looking strong after it blew through a key resistance zone this week at 1.4810 to 1.4947. A new main bottom was formed at 1.4686, creating further evidence that the buying was greater than the selling. Despite all of the strong action on the daily chart, the weekly chart is still in a downtrend making this market vulnerable to periodic short-term corrections.
Like the Euro, some investors feel the new budget proposal by the U.K. government has the British economy on track for a faster recovery than the U.S. Additional support for the British Pound this week also came from the news in the Bank of England minutes that one committee member voted for a hike in interest rates. The dovish tone in the Fed announcement suggests that its committee still feels that the U.S. economy is not ready for an interest rate hike. This could help underpin the Sterling over the near-term.