With positive surprise earnings reports from major banks (Goldman Sachs, Citi), U.S. economic data continuing to beat expectations (this morning’s industrial production), and Spain possibly requesting (and receiving) bailout funds in the near future, U.S. stocks basically had one way to go this morning – UP. Yesterday, we noted the S&P 500 bounced off a pivotal support level at 1418 (the high of Aug. 2012), and overnight continued the rally. With that said other markets, which are typically in the risk-on category, are not experiencing major rallies today. Soybean and corn futures are barely positive, natural gas is down almost 2%, and gold and silver are hovering in slight positive territory after selling off quite a bit from recent highs of around $1,800 and $35 respectively. This is an interesting sign as correlations between risk markets may be loosening. Markets are always changing.
Today we focus on the EURO/USD futures. We note on the chart that 1.28 is our key support level for this market. An uptrend support line has started to solidify since August, and a multi-month downtrend line was broken last month. We have 1.33 as the next key resistance level, and then 1.35 above that. In the spring of 2012, this market built value between 1.31 and 1.33, and we see the potential for the euro to rally into that prior value area and experience some resistance once there. We don’t see major forces causing a longer term euro rally. This market might rally a bit and then consolidate between 1.31 and 1.33. Yes, the U.S. Dollar Index is trading below a key psychological level of 80, but U.S. bonds are in a downward channel. If yields start to go on a rising trend, the U.S. dollar could start to creep up in relation to its foreign peers, and any major rally attempts by the euro might be flustered.
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