Futures Point To A Slightly Stronger Open
METALS
GOLD:
Since the high of June 17th when the COT registered the net spec long at 106,000
contracts, we have probably seen around 20,000 contracts liquidated. Therefore
with gold entering the session today long roughly 80,000 to 86,000 contracts,
one should not think that the recent liquidation is complete. The most
discouraging thing for gold is that it lacks fundamental rational for the long
side.
SILVER:
The silver market continues to hold up very well in the face of gold weakness.
In fact, we take the recent action in silver, as confirmation that it wants to
move higher especially with the short contingent showing very little presence.
However, given the weakness in gold, one can’t rule out a temporary dip down
to $4.485 to $4.46 basis the September contract.
PLATINUM:
The market rejected the downside breakout Thursday and we have to think that
happened because of the sharp recovery in the
US
stock
market. The problem we have with getting long platinum, at current levels, is
the proximity to such historical high levels! In short, platinum has an
unfavorable risk and reward.Â
COPPER:
We are really surprised that the US copper market remained weak yesterday in the
face of the strong equity market rally. However, the soaring Dollar is making US
copper unattractive to international buyers. Furthermore,
Shanghai
copper
stocks rose 11,734 tons this week and that simply leaves the market vulnerable
to further liquidation.
CRUDE
COMPLEX
OVERNIGHT
CHG to  4:15 AM Â
:CRUDE +12Â ,HEAT+44Â
,UNGA+14 Â The bull tilt didn’t last long following the favorable
inventory readings but we have to think that the big natural gas injection had
something to do with the break down of bull psychology.Â
With another record injection it would seem that some of the pressure is
coming off the natural gas situation and that in turn can yield some benefits to
large commercial buyers and others than might be able to switch back and forth
between the types of fuel they use.
NATURAL
GAS
The
weekly injection figure of 127 bcf rocked the foundation of the natural gas
market Thursday. The inventory readings take on extra bearish incentive because
of the much below normal temperature sweep expected in the
US
over the coming three days.
INTEREST
RATES
OVERNIGHT
CHANGE to Â
4:15 AM
:BONDS +1 Even though the
economic numbers yesterday were not that impressive, the fact that stepwise
macro economic improvement is being documented, was apparently too much for the
bull camp. While the September bonds and notes both closed below critical chart
support levels they appear to have returned to critical pivot point levels this
morning. The fact, that the Dollar continues to rise and US equity markets are
performing, simply turns up the heat on the bull camp to liquidate.
STOCK
INDICES
OVERNIGHT
CHANGE to
4:15 AM
:S&P-10Â
DOW +0 NIKKEI +180 FTSE +15Â The action yesterday was very impressive
but we are not sure that the market has the fundamental case to explode away
from the recent lows. However, the outside market action is certainly coming
together for the stock market, with the Dollar rising, natural gas prices
sliding, the Japanese economy improving and most importantly, the Treasury
markets weakening. One should not underestimate the significance of a strong
Dollar and a weak bond market, as that combination could funnel significant
buying fuel to the
US
stock
market.
FOREIGN
EXCHANGE
DOLLAR:
Held out in isolation the
US
economic recovery doesn’t seem to be strong enough to attract the world’s
capital, but when one considers the alternatives the Dollar does come out on
top. In fact, considering the benefit of long term short covering, it is
possible that the Dollar continues its rise through the 96.00 level. While US
economic numbers might not outshine those seen in the
UK
and
Canada
, they
do manage to come in better than the Euro zone and that is all that matters in
the near term. In other words, the Dollar is seeing the benefits of long term
short covering and what might eventually be considered an extremely overextended
value of the Euro. When all the dust settles, we doubt that the Dollar will find
itself in a long term uptrend pattern, but we could end up seeing the Dollar a
lot closer to parity or 100 by the end of the year. However, in order for the
Dollar to continue its recovery, the
US
economy
needs to consistently improve and it might even take the capture of Saddam and
lower global energy prices to effect an entrenched change. Right now, there is a
least a good chance of catching Saddam and energy prices are showing signs of
calming down! Furthermore, if the
US
stock
market continues to rally hard that could pull more than short covering buying
toward the Dollar. 96.00 is a target, with near term support seen at 94.92 in
the September contract.
EURO:
The Euro continues to violate critical support levels on the charts and this
morning the market sees some slightly bearish current account deficit readings
from the Euro zone. There really isn’t a key force driving the Euro down,
except that the market is simply not convinced that the Euro zone is primed to
recover, as the
US
economy
appears to be. Therefore, the rate of decline in the Euro should slow a little,
with near term targeting of 113.38. Seeing a rise back above 114.09 could signal
a slight recovery bounce that can be sold.
YEN:
Surprisingly the Japanese economy posted a host of better than expected economic
readings this morning. In a word, “Wowâ€, lower Japanese unemployment and
increased Industrial output! Without explaining the repatriation/intervention
action in the Yen, we think that the favorable economic readings from
Japan
, foster
the downside pressure in the currency. In fact, with the blessing of the BOJ,
the Yen should probably slide all the way down to levels below 83.00.
SWISS:
The technical liquidation dominates. In fact, under slightly favorable
US
economic information and continued gains in the
US
stock
market, we see the Swiss falling to 72.00 in the coming two weeks. Near term
support is seen at 73.70.
POUND:
The Dollar looks to be strong enough, that even the Pound sees some minor
selling. We doubt that the Pound will capitulate like the Euro and Swiss but a
return to levels below 164.00 is to be expected. Overnight the
UK
saw
Final 1st Qtr GDP readings revised lower and also saw some significant softness
in construction output and that allows the selling effort to turn up a little.
Channel line support was violated overnight and that also puts pressure on the
Pound.
CANADIAN:
Just as the overt weakness in the
US
economy
meant aggressive gains in the Canadian, a period of favor for the US Dollar has
to undermine the Canadian a little. The question becomes, will the Canadian
slide a little or cave in to broad based profit taking? In the near term, one
should at least expect the September Canadian to fall to chart support of 72.94.