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The U.S. Dollar traded mixed against the Euro and the British Pound. Initially, currency markets experienced solid gains after China said inflation slowed; however, these profits were lost shortly before the release of the U.S. Retail Sales report.
Also encouraging the EUR/USD to top out early were fading expectations that Spain would formally seek a bailout ahead of this Thursday and Friday’s European summit. Traders are pricing in the possibility that European leaders will not be able to reach a conclusion as to whether to approve the release of the latest tranche of aid for Greece.
U.S. retail sales in September advanced 1.1 percent and the August report was revised to show a 1.2 percent increase. Consumer prices in China rose only 1.9 percent last month from a year earlier. This news gives the government more room to stimulate the economy should it deteriorate and led to increased demand for higher-risk assets early in the session. This demand faded, however, as traders decided not to chase these assets higher ahead of a busy week.
The GBP/USD traded flat after a two-directional trade early in the session. The better-than-expected U.S. retail data pressured the currency pair but this move followed a rally that was fueled by the China’s friendly inflation report. The main trend is down on the daily chart, but conditions are oversold, making the market ripe for a short-term turnaround. The fundamentals remain weak as traders are pricing in the possibility of additional asset-buying at the next Bank of England policy meeting next month.
Technical factors are leading the weakness in December Gold. The mixed Dollar is also giving investors a reason to pare positions. The recent rise to $1800.00 was triggered by the thought of additional stimulus by the U.S. Federal Reserve and the European Central Bank. Once this initial euphoria faded, gold investors looked at the market as over-valued and decided to take profits. The inability to pierce the $1800.00 level with conviction gave investors a reason to sell their positions in the hope of buying back at much favorable prices. This is the cycle that gold is going through at this time. Selling pressure may lead to a change in trend to down. This move will take out the weaker shorts, but lead the market into a value-zone where the next round of buyers will be waiting.
December Crude Oil is also under pressure today. The mixed-dollar is contributing to the weakness, but concerns about oversupply and fading worries about a disruption in supply are the largest contributors to the weakness. Traders may try to establish support near the psychological $90 level, but this is no guarantee. The bearish supply/demand situation is strong enough to trigger additional weakness, but speculators banking on an escalation of the conflict between Syria and Turkey may show up to support the market if prices get too cheap. Traders should brace for a volatile two-sided trade over the near-term.