New Wave of Optimism Appears on the Horizon


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By Mercaforex

On Tuesday, the U.S. dollar lost ground against the Euro and the British Pound, as the U.S. stock market went bullish, regaining losses that were seen during Monday’s trading session. In this sense, the positive evolution of the U.S. stock market was attributed to the encouraging numbers of several companies. This way, the U.S. Dow Jones, an index which represents main American companies went up 82.60 points and registered 9217.94 points, while the U.S. S&P 500 advanced 1.01% and reached 989.67 points. On the other hand, the NASDAQ, which represents the main technological companies in the field of internet gained 1.3% and came at 1955.92 points. This way, the buying scenario came to the American soil, after two trading sessions with bearish signals on the U.S. stock market. It is important to note that the U.S. Dollar’s bearish trend against the major currencies supported Crude Oil Value, commodity that finally registered an uptrend correction, showing its correlation together with Wall Street.

Yesterday in the United States, the Building Permits numbers were published, which determine the level of new residential building permits issued, and showed a reading of 0.56 million despite estimations of 0.58 million. Also during yesterday’s trading session, the Producer Price Index (PPI) was published at -0.9%, below the estimated number of minus -0.2%. The PPI determines the rate of inflation experienced by manufacturers when purchasing goods and services and it has more impact in the market than the Core PPI which is a derivative of the Producer Price Index that omits the Food and Energy which are volatile items. The Core PPI met expectations at -0.1%. Also yesterday, the Housing Starts numbers were published, which determine the annualized level of new residential buildings that began construction during the last month, and showed a reading of 0.58 million, below the forecasted 0.6 million. As for today’s schedule, the U.S. Crude Oil Inventories are expected to come in at 1.1 million. The Crude Oil Inventories determine the weekly increase in barrels of commercial Crude Oil held in inventory by U.S. firms. Should the Crude Oil Inventories meet the forecasted 1.1 million, it will represent a good sign of recovery and Crude Oil Prices will go up during today’s trading session. Tomorrow, the U.S. Weekly Unemployment Claims will be published, which determine the amount of individuals who filed for unemployment insurance for the first time during the past week. As well, the Philadelphia Fed Manufacturing Index will be published tomorrow, which determine the general business conditions of manufacturers in the Philadelphia Federal Reserve district and the CB Leading Index. As we observed thanks to the bullish trend of the U.S. stock market and mainly because of the uptrend of the banking sector and the retail sector, new economical hopes are emerging once again.

During yesterday’s trading session, the Euro strengthened against the U.S. dollar, as the stock market went bullish, regaining losses seen during Monday’s trading session. Yesterday the Euro advanced against the U.S. dollar as the stock market went up worldwide. On Tuesday, the German Confidence numbers were published, which were better than forecasted, as determined by the Institute of Economic Research ZEW’s index. In this sense, the ZEW Economic Sentiment came in at 56.1 for August, its best level since April 2006. Also yesterday, the European ZEW Economic Sentiment showed a reading of 54.9 when analysts awaited a number of 44.6. The last German and French GDP numbers boosted confidence in the European region, and a wave of optimism is spreading around the Euro Zone. German indices are key for predicting the Euro evolution as Germany carries a big economical weight in the Euro Zone. As for today we are waiting the German Producer Price Index (PPI), which determines the rate of inflation experienced by manufacturers when purchasing goods and services, and is forecasted at -0.1%. Also to be announced today is the European Current Account, which determines the quarterly difference in worth between imported and exported goods, services, income flows, and unilateral transfers, and is estimated at -1.7 billon. It is important to note that Olivier Blanchard, International Monetary Fund Economy Chief, stated that international recovery started but highlighted the fact that the U.S. should boost its exportations. Investors should follow carefully the European indexes and the stock market; because American risky events will be minimal.
Today’s lesson: Fibonacci Retracement, Markets Try To Make A Comeback

Now that’s a Doji! The last 4 hour candle to form on our SPX/USD chart is showing definite indecision and an inability by traders to show some gains in the American equity market. As we open today, I expect a push downwards past that candles lows. Price action will be a factor here as it will allow more experienced traders to judge the strength of any attempted move. First support (987.24) is just the last candles low but I expect that to be broken relatively easily. Followed by 978.51, and 968.65. Resistance,992.67 and 996.44

Gold continues to show weakness. On the four hour chart we have hit the first level of retracement (38.20% just around resistance of 942.38) and backed right off. Support 933.20 and 930.54. I expect us to push further down today, and approach 925.90! Hold on to your hats boys and girls, it’s going to be a bumpy ride.

Resistance, 1.6744, 1.666, 1.6594, Support 1.6276, 1.5984
I am using the daily chart today to point out how we are trading this range. Even on the four hour chart these are the levels that we are trading. We will easily push down to 1.6276, and I believe that perhaps today, we will finally see the weakness that we need in order to break below towards the lower part of the channel.

There are a few interesting things to point out on this chart. First of all notice the highlighted candles and the moves that occurred after them. The first candle suggests a reversal, and the second suggests strength (notice the buying tail). Next, we have retraced to the first fib level. However, I do not believe that we will see much strength in this market and technically, the chart suggests that we can go much lower. Resistance 70.517, support, 68.53,65.245.
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