U.S. equity markets are selling off after a strong early morning rally. The break started after the March E-mini S&P 500 failed to attract buyers after reaching its high for the year at 1148.00. The trend hasn’t turned down, but the trading action suggests that a closing price reversal top is a possibility. Volatility has been low which suggests that a surprise event or more activity is imminent.

June Treasury Bonds are trading lower after breaking through a key 50% level at 115’04. The next downside objective is 115’24. Watch for a reversal to the upside if equity markets sell-off into the close. Oversupply is providing additional bearish pressure on this market.

Higher demand for risky assets and a weaker Dollar should have given April Gold a boost today, but this did not take place as the normal correlation relationship between gold and the Dollar has not been working today. Downside momentum is building which could drive this market into the early March low at $1088.50.

 June Crude Oil surged to a new high for the month after this week’s API report showed a smaller-than-expected increase in U.S. crude supplies and a big drop in gasoline supplies. Crude Oil backed off of its high after demand dropped for higher yielding assets.  

The U.S. Dollar is trading mixed at the mid-session in an unusual day as the normal correlations between the Dollar, gold and equities are not working.  The lack of major U.S. economic reports this week may be having an influence on the trade. The trade weighted Dollar Index is trading lower but this may not be a true assessment of what is actually going on today.

Early in the session it was clear that traders were looking for risk as the stock indices rose with the March E-mini S&P 500 reaching the high for the year at 1148.00. Strong demand for risk was helping to drive up the asset sensitive Australian Dollar, New Zealand Dollar and Canadian Dollar.  At the same time, selling pressure was on the lower-yielding Japanese Yen.

The easing of financial tensions in Greece may be helping to give the March Euro a boost along with better economic manufacturing news from Italy and France. These events offset a weak exports report from Germany.  Trading has been light and choppy this week and expected to remain this way until enough buying power can come in to pressure the short hedge funds out of the market.

The March British Pound is trading weaker, driven lower behind the weak fundamentals.  Traders are most concerned at this time about the possibility of a credit rating downgrade by one or more of the credit agencies. Worries over the economic recovery, political uncertainty and the Bank of England’s soft monetary policy should continue to pressure this currency.

The March Japanese Yen was down sharply because of greater demand for higher risk assets, but its weakness has subsided at the mid-session following a sell-off in U.S. equity markets. Overnight the Yen felt downside pressure after China announced that both exports and imports grew at a higher-than-expected rate.

The rising Euro is helping to support the March Swiss Franc. Traders are looking for the Swiss National Bank to announce that interest rates will remain low while offering a more hawkish commentary. The SNB is most concerned about the impact of the falling Euro on its export market which accounts for 50% of the country’s economy. Gains in the March Swiss Franc may have been limited by an intervention by the SNB earlier today.

Falling gold prices and rising crude oil are helping to limit the movement in the March Canadian Dollar. The Canadian Dollar started out stronger because of higher equity and commodity markets, but it could not hold its gains after gold and U.S. stock indices began their sell-off.  The Loonie began to mount an intraday turnaround after approaching the January high at .9777. Oversold conditions and worries that the Bank of Canada may issue a verbal intervention kept longs from pressing this market higher.