Futures Point To A Slightly Weaker Open
INTEREST RATES
A major hook up in open interest and volume on
the recent rally seems to give the bull camp a vote of confidence. We continue
to see the regularly scheduled economic information supporting the bull camp but
not in an overly aggressive fashion. Other outside issues like energy prices and
equity prices have actually been negative to Treasuries but given recent action
in those areas, it will take quite persistently higher equity prices and
consistently lower energy prices to see the outlook on the economy upgraded and
for renewed selling to surface in the Treasuries.
STOCK INDICES
Finally the stock market showed some sign of life
yesterday, but we have to wonder if the bull tilt has staying power? Not only
will the market have to discount renewed domestic terrorism threats, but it
might also have to contend with another rise in gasoline prices. With the weekly
US gasoline inventory report due out around the stock market opening, traders
would be well advised to look over their shoulder at July unleaded prices, to
see if the US is building up supplies or if supplies continue to tighten. With
the US in the last two weeks of the prime gasoline stock rebuilding window and
the market concerned about soaring energy prices derailing the economy, we have
to think that today will give some clarity on where gasoline prices might be
headed this summer.
DOW
The June Dow rose right up to the 40 day moving average and stopped and that
should give the technical players the confidence to go short. Near term
corrective targeting in the June Dow comes in down at 10,080 and then again at
10,053. Really important support (to those thinking that the Dow has bottomed)
is seen down at 9,950.
S&P
While the S&P did manage to climb above the 40 day moving average, it could
return to that critical trend signal today, with a decline to 1102.90. Closer-in
support comes in at 1106.50. In our mind, the inability to start out firmer
gives near term control to the bear camp and that could result in a return to
the 1100 level.
FOREIGN EXCHANGE
US DOLLAR
Really negative chart action in the Dollar leaves
the near term trend pointing down. We were wondering if the world saw the US
economy to be more vulnerable to soaring gasoline prices, but the Dollar has
continued to slide in the face of a temporary pause in the upward track in
energy prices. Maybe the realization that terrorist are planning a summer attack
inside the US, is contributing to the weakness in the Dollar but it is also
clear that the regularly scheduled economic numbers in the US are softening and
that takes away the threat of higher US interest rates. Given the weakness on
the charts, the Dollar looks to be headed down to the May lows of 89.42. In
short, the Dollar will have to see something dramatic change in order to alter
the recent pattern of weakness.
EURO
The Euro should continue to draft off the weakness
of the US Dollar. Certainly seeing a private forecasting agency downgrade the
chance of lower ECB interest rates, gave the Euro a lift yesterday, but most of
the gains are coming off the disappointment in the US economy. Weaker Italian
business confidence readings therefore only serve to dampen the near term upward
track in prices.
YEN
The Yen has managed to rise above and hold above a
critical moving average. The Japanese stock market was also upbeat on the tech
sector and that gives the Yen an indirect source of buying. It would seem that
the Yen is poised to rise above the critical pivot point of 90.00 and might even
be able to rise to 90.43 if the Dollar really capitulates.
^next^
SWISS
A pattern of higher highs is expected and even
though the Swiss lacks the fundamental rationale to rally, there is little
alternative competition to keep it from rising. In fact, the next resistance
point on the Swiss comes in at the April high of 79.60.
BRITISH POUND
With UK 1st quarter GDP unrevised at +0.6% there is
a minor tempering of the upward track in the currency. However, the trend in the
Pound is pointing up and the next logical target is seen up at 183.23.
CANADIAN DOLLAR
The Canadian has built a consolidation above
critical moving averages and has managed a series of closes above long term down
trend channel resistance lines. Lastly the persistent weakness of the US Dollar
would seem to leave the trend pointing up. Critical support is seen at 72.90 and
resistance is seen up at 73.51.
METALS
OVERNIGHT
London A.M. Gold Fix $390.50 +$2.90 LME
COPPER STOCKS 137,225 mt tons -1,725 tns COMEX Gold stocks 4.446 ml +45,607 oz
Comex Silver stocks 119.8 ml -601,903 oz
GOLD
A significant new low for the move in the Dollar
suggests that the Dollar is falling even in the face of slightly softer energy
prices. We had wondered if the world was downgrading the Dollar because of
persistent problems with US gasoline supplies but with recent weakness in energy
prices, the Dollar has not shown any recovery action. Therefore, the Dollar
seems to be entrenched in a liquidation move and that should directly benefit
gold.
SILVER
The pattern of declining volume and open interest
continues despite the general upward track in prices. The July silver encounters
a critical pivot point at $617.5 today off the early May consolidation highs and
support should be solid at $601. Gold strength continues to be a main component
of the silver rally but it would not be surprising to see the July manage a rise
to even higher resistance of $632, because of the combination of a lower Dollar
and rising gold prices.
PLATINUM
While the chart action in platinum is pretty
impressive, it is really discouraging that volume has declined on the May rally.
Critical support comes in off the April 22nd low of $831 but it would not appear
that platinum is being driven higher off the promise of soaring Asian demand.
COPPER
Overnight copper prices softened moderately, but
then managed to reject that weakness. With the stock market mounting one of the
biggest rallies in weeks yesterday and energy prices somewhat under control, the
copper certainly had cause to rally yesterday, but instead prices were muted and
weak. With the overnight probe down and weaker Chinese copper prices, we are
inclined to favor the downside today.
CRUDE COMPLEX
It is a little surprising after the firm opening
yesterday to see crude and unleaded finish softer but we think that the
speculative tilt was a little overdone Monday into the close. With reports that
Mexico could raise exports to 1.95 million barrels per day by the 4th quarter
and Nigeria indicating that they might be able to produce 300,000 barrels of
additional oil, the ultra scarce supply argument is tempered. Also deflating
long speculation were suggestions from Saudi Arabia that they could increase
capacity if the added supply is needed.
NATURAL GAS
While the rest of the energy complex softened, the
natural gas market held together impressively. In fact, the July natural gas
contract held within proximity to the recent highs. However, the odds are decent
that crude oil prices will weaken today and that could undermine natural gas
prices.