risk

On Tuesday, the Federal Reserve left its benchmark interest rate unchanged and reiterated that interest rates would remain low for “an extended period”. In its statement, it also mentioned that inflation remains subdued, and that the weak employment situation seems to have stabilized.

The Dollar is trading higher overnight as traders await key economic reports and tomorrow’s Federal Reserve Open Market Committee meeting. Overnight, traders are reacting to less demand for risk on concerns over a Greek bailout and a debt cut for the U.K.

Key reports today include Empire State Manufacturing, Treasury International Capital and Industrial Production.

Retail Sales just came out bullish. Equity markets are soaring. Bonds are breaking. The Dollar is plunging. The market reads this report as good. The key will be to be able to separate the report from the trade. The question is will U.S. investors chase equity market higher or wait for a pullback? Overall, however, it looks like a strong report.

The U.S. Dollar declined into the close after trading in a tight range most of the day. A strong surge in the equity markets late in the session confirmed investor demand for risky assets, thereby pressuring the lower yielding Dollar.

Firmer stock indices, gold and crude oil are indicating that trader demand for risk could be up today which could pressure the Dollar versus commodity-linked currencies.

After trading higher overnight, the trade-weighted Dollar Index has turned down as it trades near its low shortly before the U.S. opening. This may be an indication that risk sentiment is shifting toward the riskier side.

U.S. stock indices rallied sharply higher following the release of better than expected U.S. Non-Farm Payrolls Report. Investors drove up stock prices on the belief that the jobs data indicates an improving economy.

Concerns about sovereign debt issues in Greece eased overnight helping to increase demand for higher risk assets. In addition, good economic news from Japan and higher stock markets in Asia helped increase optimism over the global economic recovery.

The U.S. Dollar is trading higher against all major currencies except the Japanese Yen as risk sentiment has shifted back toward safety. Investors are buying the Dollar and the Yen as they scale back their appetite for more risky investments.

Confidence that the European Union, Greece situation is close to a resolution is helping to drive up demand for risky assets. This is helping to boost the U.S. stock indices ahead of the opening. Traders are also becoming more confident in corporate earnings reports because of the recent improvements in the economy.

Greater appetite for risk is helping to pressure the Dollar overnight. Reduced demand for safer assets is helping to drive up higher-yielding currencies. The weaker Dollar is providing a boost for stocks and commodities.

Stock Indices tried to mount a rally early in the trading session, but failed to hold on to gains by the end of the day. The markets were trying to follow-through to the upside early in the session on the heels of stronger markets in Europe. Buyers were reluctant to chase the indices higher after news surfaced that the resolution of the Greek debt problems would be delayed for a day or two.

An easing of investor risk sentiment is helping to support equity price overnight. Early in the trading session, stock markets followed through to the upside following Friday’s strong finish and talk of a possible resolution of the fiscal problems plaguing the Euro Region.

The EUR USD closed sharply lower, pressured by concerns that despite the proposal of a new budget plan, Greece lacks the means to deal with its deficit issues on its own. Fears were also being raised that the fiscal problems in Greece are not isolated and may spread throughout the Euro Region should it default on its debt.

An increase in demand for risk is putting pressure on the U.S. Dollar overnight. Tensions have been easing all week on speculation the European Union will accept the latest proposal by Greece to shore up its budget deficit. In addition, talk is circulating that the E.U. and the International Monetary Fund are likely to rescue Greece should the situation warrant such moves.

April Gold surged for the third consecutive day fueled by a combination of oversold conditions and a weaker Dollar. After failing to attract fresh selling pressure following the break under the December bottom at $1076.50, this market has formed a support base. Tuesday’s rally helped form a new main bottom at $1073.20.