1-4-2012
During the last two weeks of the year, there was a hint in the price action of the US equity market that traders would let the bull out of the corral and let it loose. This lead to a 250 point gain in the Dow and a two percent rise in other major stock indexes. Only time will tell, if this rally will turn into a stampede of investors chasing the market to get back into long positions in stocks and a variety of commodities.
However, the rally of today had a cumulative affect across many asset classes. The strong equity market assisted the crude oil market to move above the $102.00 level. This allows the crude oil market to begin to build a higher base above the $100 mark. This will be an important development to watch later this month. The buying interest was not only focused on the energy complex. Gold, silver, and platinum were higher as well. The buying enthusiasm spread to the grain complex, soft commodities, and most commodities in all sectors. Much of this may have been short covering from the bearish trends of December, but the rally was across the board.
All of this price action helped the US dollar move lower and there was buying interest in a variety of Forex currency pairs. The strongest of trends were found in the Australian and New Zealand dollar. Rather than appear as nothing but corrections in a bear trend, these pairs appear to have established noteworthy bullish trends. Traders may begin to view declines in prices in these pairs as buying opportunities.
The trends of the Euro and British Pound are not so certain. While this one-day rally is impressive in the EURUSD, a one day rally certainly is not sufficient to change a major trend. A higher equity market for the remainder of the week may help the Euro have a larger correction, but the rally has not reached levels of significance to suggest a change in trend has occurred. The rally in the GBPUSD has merely brought prices to the upper price range for the past 6 weeks.
The correction in the US dollar today also gave further evidence that a potential bearish trend is developing in the USDJPY and USDCAD. Rallies later this week in those pairs may offer shorting opportunities, depending upon upcoming financial news, which may help many of the trends seen today continue later this month.
Many of the short-term charts are overbought or oversold relative to their trends and this may lead to a reversal of this one-day rally. However, the New Year has had a great start and we hope the trends continue.
