Euro and Gold Slip

U.S. 10-year Treasury bond prices rose today,
erasing some losses from yesterday’s slide. A $5 billion auction of 30-year
securities attracted a lower bid than was expected, but bond prices still rose
through the day. Bonds typically fall on strength and rise on weakness; a number
of U.S. retailers reported unexpected weakness in April sales, sparking growth
fears in bond traders. Despite yesterday’s somewhat hawkish Fed announcement,
today’s retail numbers reiterated concerns of slowing U.S. growth.

The dollar rose against the euro today, after
the Fed reemphasized inflation worries in the FOMC announcement yesterday.
Today, the ECB held rates, and traders took his commentary as dovish. The BoE
raised rates today by 25 bpp to 5.5%. The euro did, however, rise against the
yen during morning trading. Despite the dovish interpretation of ECB President
Trichet’s remarks, Trichet did say that “vigilance” would still be required,
which has preceded each of the last rate hikes since 2005. Some traders are
calling for a top in EUR/USD, on the heels of a soft announcement. The U.S.
dollar gained against the yen early in the day on momentum from yesterday’s
announcement, but gave up gains as the day went on. The U.S. dollar also
extended gains over the Canadian dollar, bouncing after a long period of
loonie strength.

Crude oil futures rose about 0.4%, mostly on
demand concerns for the summer. Summer is a period of high demand and usually,
rising energy prices, so traders are speculating that this summer will be no
different than normal, and prices will move higher. Gas has fallen off of
recent highs near 70 to fall near crucial support at 60. Natural gas futures
were basically flat today, after an energy report showed that inventories grew
more than expected.

Gold futures fell about 2.3% today, as the
dollar rose against the euro. Gold usually trades inversely to the dollar and
with oil; today’s gold action was dominated by dollar trading. Traders bought
the dollar, which sent gold’s worth as a hedge lower. Copper futures fell over
3% on signs of slowing demand from China.

Grains fell across the board. Soybeans dropped
about 0.2%, wheat fell fractionally and corn plummeted over 3%.


U.S. March trade
deficit grew more than expected.

John Lee

Associate Editor