Higher Risk Markets Under Pressure Ahead of Bernanke

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October crude oil futures are under pressure after Hurricane Isaac spared oil-refining areas from damage. The hurricane has been reduced to a tropical storm and it appears that refineries are set to  resume shortly their production schedules. Speculators are also paring their positions that were put on ahead of the storm, helping to drive down prices. Also traders are talking about the possibility of the release of oil from the government’s strategic reserve. This move is supposed to help reduce gasoline prices which are skyrocketing, but the opposition feels that it is politically motivated.

Technically speaking, the October crude oil contract is setting up for a break to $92.75. This price represents a 50% correction of the $87.20 to $98.29 range.

Overbought technical factors and a stronger dollar are putting pressure on December Gold futures for the third consecutive day. Last week gold futures surged as traders bet heavily that the Fed would soon implement another round of quantitative easing. This helped drive up the technical stochastics and Relative Strength Indicators into overbought territory. In addition, the market reached a major 50% price at $1669.48, curtailing demand. Based on the range of $1592.10 to $1679.30, the market could be setting up for a near-term correction to $1635.70.

The EUR/USD is trading sideways to lower in light trading. Many large Forex traders are standing on the sidelines ahead of a key speech by Federal Reserve Chairman Ben Bernanke on Friday. The Chairman, speaking at a central bankers’ conference at Jackson Hole, Wyoming, is expected to touch on the topic of additional quantitative easing.

His speech is expected to lead to increased volatility which has been locked up for the past few days. Traders will be listening for clues as to the Fed’s next move regarding quantitative easing. Some traders believe the Fed will take action in September while others are positioning themselves for a December move. The lack of clarity is helping to keep investors on the sidelines, which is probably why the market is straddling a 50% price level at 1.2527. Following Bernanke’s speech and the Euro’s subsequent movement, the focus will shift to next week’s European Central Bank monetary policy meeting. Traders are expecting the ECB to announce its plan to keep pressure on interest rates. Speculation is strong that the central bank will soon begin another round of bond purchases.

The stronger U.S. Dollar is also weighing on the British Pound. With the U.S. economy holding steady-to-better and the U.K. economy still in a recession, investors appear to be increasing their bets that the Bank of England will continue to apply quantitative easing to boost the economy. Financial austerity measures combined with the sovereign debt situation in Europe have been keeping a cap on the Sterling’s gains. Like the Euro, the Cable has been range-bound this week. Technically, the mid-point of the range at 1.5833 is likely to act as a pivot with the market strengthening above it and weakening below it.

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About:FX Empire Analyst - James Hyerczyk

James A. Hyerczyk has worked as a fundamental and technical financial market analyst since 1982. His technical work features the pattern, price and time analysis techniques of W.D. Gann.

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