Swiss Slumps To Summer Low
Swiss francs followed the euro lower as traders predicted
economic troubles ahead in Europe. Inflation rose in Europe at a 2.4% annual pace last
month, leaving the impression that the European Central Bank will raise interest
rates. With interest rates lower in Europe than in the US, interest rate rises would
normally be positive for euro FX futures and Swiss francs. But the news was
received as negative for European currencies because it is believed that higher
rates will strangle continental economic growth. Both the Swiss franc
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PowerRating) and euro FX
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PowerRating) fell sharply, losing .90820 and .0056,
respectively. Both contracts also made good on Pullback From
Lows setups.Â
Meanwhile, the dollar index
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PowerRating) rallied sharply, making good on its Pullback From
High
setup, to end up .92 at 110.93. The euro is the currency most heavily weighted on the
dollar index and therefore exerts the largest impact. Traders are also viewing
Friday’s widening in the June trade deficit figures as dollar positive because
it shows consumer demand remains strong in the US, a factor that underpins
economic growth.Â
In the bond pit, T-bond futures
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contract closing high, up 11/32 to 100 4/32. Bond analyst Tony Crescenzi pointed
out that "There are three factors driving the bond market higher currently.
First, there was a Market News story quoting Treasury department sources as
saying today’s budget data due out at 2 p.m. could contain upside surprises.
Second, there is solid buying taking place on the screens, possibly linked to
hedge-lifting associated with the pricing of numerous corporate bond deals.
Third, there was complacency in the bond pit ahead of the 1 p.m. expiration. As
the T-bond future moved above 100, traders who were short the 100 calls either
bought futures or covered their calls. Open interest in the 100 strike was 5
times bigger for calls than puts at start of day."
Call it dollar strength or a reaction from a 10-day high.
Either way,
December gold
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PowerRating) fell as much as 2.1 before settling down .9 at 281. Gold is denominated in dollars
and a rising dollar makes gold relatively more expensive. Following in tandem, September silver
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PowerRating) traded to a contract low, closing down 2.8 at 485.5.
From the Momentum-5
List,
December cotton
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two-month high and just off a contract high. The following chart shows that
cotton closed at a line that has proved critical over the past four months. The
line first acted as a neckline for a head-and-shoulders top in May. A break of
the line in mid-June resulted in a measured move lower where the contract
moved the distance from the head to the neckline through early July. The
contract reversed and has formed a cup-with-handle and a running cup-with-handle
which are simultaneously tracing a head-and-shoulders bottom. If the
“neckline-in-the-sand” works in mirror image as patterns often do,
than the implied measured move to the upside would be double the distance from
the early July “head” to its neckline–once the contract breaks the
neckline. The measured objective from the July cup is denoted by a bracket in
the right of the chart. Cotton closed .46 higher at 63.35.
