Market Finding Strength In Early Going
METALS
GOLD:
With another bad technical trade overnight and the Dollar action considered
strong rather than weak the gold market is possibly in for more selling. With
the added threat of a capital, or margin liquidation break, gold looks to be in
for a rough ride in the near term. The pattern of lower lows combined with the
recent 120,000-contract spec long reading, could easily spell a slide to $350 in
the August gold contract.
SILVER:
Considering that July silver has been influenced by the direction of gold, we
suspect that silver will have a negative bias in the short term. However, we see
no reason why silver should fall all the way down to the deflated price levels
of $4.40 basis the July unless there is widespread talk that the economy isn’t
going to recover. While the silver market also has a moderately long spec and
fund position, we suspect that a slight decline below the June low will provide
enough technical balancing to defray the downside pulse and bring about a
bottom.
PLATINUM:
The platinum market managed to hold up despite the slackening view toward the
economy and the weakness in the equity market. We think there might be a
significant spread interest driving platinum with most players long platinum and
short gold. Near term support in the July platinum is $649 but traders should
consider shifting positions to the October contract. Â
COPPER:
The copper seems to want to hold up against the liquidation pressure seen Monday
but with weak Chinese action overnight and the recent positioning in the COT
report there could be additional liquidation pressure. We view near term
technical support down at 76.00 in the September contract. Unless the stock
market manages to surprise and shake off the current liquidative tilt we suspect
that copper will trade lower.
CRUDE
COMPLEX
OVERNIGHT
CHG to  4:15 AM Â
:CRUDE -33Â ,HEAT-40Â
,UNGA-17 Â The OPEC dialogue flowing this morning should weaken the
posture of the market as it would seem that no cut in production will be made.
The Iranian Oil Minister suggested that there would be no cut, but that
production might be cut in a September meeting.
NATURAL
GAS
The
natural gas market can’t quite settle on the full impact of the weather, which
is negative near term and “potentially” positive in the longer term.
In fact, the market isn’t totally convinced that the mid to late June heat wave
is going to entrench, or if it will be tempered by a rain event.
INTEREST
RATES
OVERNIGHT
CHANGE to  4:15 AM :BONDS -1
The bond bulls continue to get the right information at the right time and late
last week the bonds could have come under a massive liquidation wave but didn’t.
With the market teetering on significant weakness Monday morning, the bull camp
was given a life line in the weak Kansas City Fed manufacturing readings, the
weaker equity markets and the downgraded earnings projections of some key
companies. Therefore, the better than anticipated reading in the non-farm
payroll report is forgotten and the focus remains on the feebleness of the
recovery.
STOCK
INDICES
OVERNIGHT
CHANGE to
4:15 AM
:S&P+410
DOW +23 NIKKEI -33 FTSE UNCHÂ It is not clear if the bull camp is waiting on
the sidelines to gather up stocks on the current weakness but with the overnight
reversal off the lows that can’t be ruled out. However, considering that the
economic numbers Monday were soft and that several key companies lowered sales
and earnings projections, it is not surprising that prices are generally weak
and apparently poised to drift lower. Furthermore, with Nokia lowering sales
projections this morning, it is clear that the global economic situation isn’t
as bright as the stock market was factoring last week.
FOREIGN
EXCHANGE
DOLLAR:
The Dollar is hanging closer to the top of the consolidation than to the bottom
and it would seem that some players are seeing the potential for the
US
economy
to outperform the Euro zone in the coming months. However, that faster recovery
view isn’t that widespread, especially considering that the US Treasury market
is preparing to make a new high for the move and the
US
stock
market is into a shallow multi day slide. We still suggest going with a breakout
zone of 94.55 and 92.71 in the September Dollar Index but it is possible that
the downside pattern is breaking up. In fact, with the talk in
Europe
about
stemming the rise in the Euro and the BOJ already intervening against the Yen
rise, we are in a sense close to seeing coordinated intervention. Many traders
will suggest that intervention can’t change the trend or the fundamentals and
they may be right. In conclusion, the pace of the downside losses in the Dollar
look to slow significantly but in order to see the Dollar actually bottom and
start a rally, it will have to be clear that the US economy is in fact stronger
than the Euro zone. We simply don’t see numbers or an event over the coming two
sessions to promote the
US
economy
as the best in the G7.Â
EURO:
Seeing the September Euro slide below 116.02 could throw the currency down to
115.60 and below. We have to think that the decision by the
UK
not to
work directly toward a Euro conversion is slightly negative but not that
significant. With Italy posting a soft 1st quarter GDP reading and citing the
strong Euro rise, as cause for the weakness, it is clear that the high Euro is
hurting economic prospects and sentiment. Therefore we see more minor step-wise
losses in the Euro until support is tested at 116.02 or 115.56.
YEN:
The BOJ meeting was started with negative news from the economy, as machinery
orders declined nearly 2% in April. We have to think that the BOJ will step up
efforts to weaken the Yen, rather than allow their export and manufacturing
sectors to soften even further. However, with the
US
near
term economic outlook also soft, the Yen probably avoids weakness in the coming
two sessions. A rally to 85.15 in the September Yen might be a sell later this
week.
SWISS:
We see the Swiss as a direct follower of the Euro and in the near term that
probably means more light liquidation. Near term downside targeting is seen at
75.60 but we don’t expect the trade to attempt to hammer the Swiss.
POUND:
The selling off the EU situation might have run its course but we can’t rule out
a slide to consolidation support of 162.08. A trade deficit reading might add
slightly to the downside in the Pound, as the Pound isn’t immune to the idea,
that the rise in the exchange rate since last November, is hurting some export
sectors.
CANADIAN:
Since the Dollar isn’t directly falling away, the Canadian is having trouble
restarting the upside trend. We are concerned that the Canadian might be mired
in a consolidation but with support solid at 72.66 and then again at 72.10, we
would not abandon the bull track. However, the Canadian might need a reason to
rekindle the bull camp and we see nothing in the near term headlines to spark
such an improvement in sentiment.