The oversold rally continued today. The December pending home sales data, which showed a slight increase from November, and news that homebuilder (DHI) actually made a profit in its latest quarter injected a positive mood into the market. After opening nearly flat, stocks claimed throughout the day. All three major indexes closed near their intraday highs. The DJIA finished 111.32 points (+1.09%) higher at 10296.85. The S&P 500 rose above 1100, up 14.13 points (+1.30%) to close at 1103.32 while the NASDAQ added 18.86 points (+0.87%) to 2190.06.

It was a disappointing close to the month on Friday for those looking to grasp risk by the horns after Thursday”s US GDP release. All the positive sentiment evaporated and Wall St gave back all the gains, and some more, though there was no one specific news item or event that triggered the heavy aversion to risk. Indeed, US data releases were generally better than expected with the Chicago PMI coming in at a very strong 54.2 versus 49.0 expected while the final University of Michigan confidence was revised higher to 70.6. The continued improvement in these kinds of numbers may be an encouragement to the bulls ahead of this week’s various ISM releases.

As trading kicked off for the week risk appetite rebounded with EUR/USD and AUD/USD gaining more than 70 points at the start of European trade. Part of the boost came from continued expansionary readings in global PMI manufacturing surveys all of which printed firmly above the 50 boom/bust line.

When most people start trading, they do not put much thought into their trades.  They will either buy or sell a currency pair (probably the EUR/USD) because they think they see a trend or maybe even because they put a moving average on the chart.  Sometimes there is no reason at all for the trade, they just want in.  Either that trade nets a small profit or the trades starts going against the new trader.  The trader that gets the small profit will feel invincible and likely base trades in the near future on the same reason as the first one.  Of course they expect every trade to win.  The trader whose position moves against them leaves their position open, stares at the their computer without blinking, and laments that they will get out if the market only goes back to break even.

Bank of Japan maintained its overnight interest rate at 0.10% - the lowest in G10 universe – but removed some key stimulative measures which triggered a small rally in the yen. The central bank stated that it would end its outright purchase of corporate bonds and commercial paper in December noting that “it becomes necessary to adopt the most effective method for money market operations that conforms to changes in financial markets.