Double Or Nothing
Gross domestic product (GDP) took an unexpected jump in the first quarter,
doubling economists’ expectations of growth to 2% from estimates of 1%. Currency
and debt futures moved strongly in opposite directions in response to the
unexpected strength in first quarter US economic growth and equity futures
marched higher and closed near session highs.Â
Dollar index futures
(
DXM1 |
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PowerRating) bolted higher on enthusiasm that the worst
is behind in this “inventory correction” or economic slowdown and that
a recession will be avoided. Demand for the dollar jumped on speculation that investors
who might have pulled money out of the country in search of higher returns
abroad will leave funds here both for investment purposes and to buy US
goods. DXM1 left an outside bar
off a recent one-month low and closed 1.22 higher at 115.81.
The euro FX
(
ECM1 |
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PowerRating), the most heavily weighted currency against the
dollar index, tanked in its biggest decline in over a month as traders ignored
the approximately .25% higher short-term interest rate available in Europe and
returned their focus to perceptions of economic performance. The euro FX slipped
.01270 to .89070 and the highly correlated Swiss francs
(
SFM1 |
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PowerRating) closed .0080
lower at .5802.
Also in the currencies and working to boost dollar index futures, more bad
news out of Japan drove the yen lower in overnight trading. Yesterday, Japan’s new Prime
Minister announced he would appoint a bureaucrat with no finance background to
the Financial Ministry post. Today, Japanese newspapers said the governor of the
Bank of Japan, Masaru Hayami, will resign next month. A weak industrial
production report underscored chronic economic malaise and the recent
appointment and resignation cast doubt on Japan’s capacity to put its
financial and economic houses in order. Who, in fact, is minding the house?
After rallying initially in the open outcry session, the
June yen closed .0057 lower at .8110.
T-bonds
(
USM1 |
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PowerRating) closed at their lowest level in five months. The surprise
jump in GDP reduces the likelihood that
the Fed will remain as aggressive in cutting interest rates to prevent the
economy from going into recession. T-bonds fell on the GDP report, closed below their Pullback
From Lows and bearish flag triggers. Bonds also traced a Kings & Queens pattern where
yesterday’s big up bar has been completely erased by today’s big down bar.
Near a low, this is often the sign of additional downside.
Stock index futures rallied on the euphoria that the economy was not as bad as feared and on
optimism that Q2 economic growth will also be sound. Markets that are bullish
can get overbought — and stay overbought — for a long time. The McClellan Oscillator
from the Market
Bias Indicators Page is showing the market is overbought. Additionally,Â
Dow futures failed to trigger the June contract’s
(
DJM1 |
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PowerRating) Turtle
Soup Plus One Sell setup, another sign of strength.
The leading contract on the Momentum-5
List, June unleaded gasoline
(
HUM1 |
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PowerRating), hit its highest level since the
Persian Gulf War. Lower refinery capacity — no new plants have been built in 25
years — and fragmented “cleaner” unleaded gasoline formulation standard
requirements are fueling fears of summer shortages. HUM1 closed .0157 higher at
1.0460. up .0137 at 1.0440.