December Treasury Bonds are trading sharply higher after falling to follow-through to the downside following last week’s daily and weekly closing price reversal tops. The move to the upside today may be a sign that last week’s break following Bernanke’s comments on Friday may have been an overreaction to the downside.

Despite today’s rally, the reversal pattern remains intact with 130’17 a possible downside target. The move taking place today may be setting up a secondary lower top.

U.S. equity markets rallied last night in continuation of the bullish reversal on Friday. Today’s rally, however, fell short of the first upside target at 1082.25. Friday’s reaction following a test of 1037.00 was met with strong short-covering. Today’s break may be an attempt to attract fresh buying while trying to form a secondary higher bottom.

December Gold is trading flat to lower today in light trading. Last Thursday’s reversal top seems to have frozen the market at current levels. The current developing chart pattern suggests that a break to $1228.90 is possible.

The U.S. Dollar is trading higher against most major currencies at the mid-session. The falling stock markets are contributing to the selling pressure in the higher-yielding currencies while a move to weaken the Japanese Yen has drawn the opposite reaction by traders.

U.S. stocks extended losses throughout the session after the release of U.S. income and consumption data showed meager advances in income and consumer spending. Increased M & A activity and a stock buyback by HP also failed to generate any interest in the long side of the market.

The September Euro is feeling pressure after failing to rally following a test of a 50% level at 1.2754. The key area to watch is 1.2605 to 1.2687. A break through this zone will reaffirm the downtrend and likely trigger an acceleration to the Fibonacci retracement level at 1.2433.

The September British Pound is trading lower and in the middle of nowhere on the daily chart. It’s hard to describe what traders are trying to do based on the current chart pattern. What is clear, however, is that a break through the recent low at 1.5371 is likely to trigger a break all the way down to the major 50% price level at 1.5113.

The big news story today involves the Japanese Yen. Early in the trading session, the Bank of Japan announced that it would expand its current 20 trillion Yen quantitative easing program to six months from its current three-month time frame. At the same time it increased the amount of funds available by 10 trillion Yen.

The BoJ expected this action to weaken the Yen instead it’s the U.S. Dollar that is trading sharply lower against the Yen. Traders are reacting as if they had expected the move or were waiting for something more intense.

Last night the Japanese Yen stopped just short of turning the main trend on the daily chart to down with a move through 1.1579. The subsequent rally identifies the importance of this price.