Futures Point To A Flat Open
INTEREST RATES
Today could be a watershed day for the Treasury
market as the FOMC meeting decision and subsequent dialogue could set the tone
of the market for the coming months. While the majority of the trade is
expecting a 25 basis point hike in rates, the market is prepared to parse out
every word of the Fed statement for clues on the next Fed move. In other words,
the market can’t help but accept the Fed’s insistence that they will go slow
with future rate hikes but until that is officially documented the market will
be forced to factor other outcomes.
STOCK INDICES
While the stock market showed impressive bullish
persistence yesterday, it would be a neat trick for the market to shake through
the Fed window without some pain, especially since the market has recently
failed to fully embrace other bullish venues. However, it is possible that stock
players will be cheered by the idea that the Fed is truly going to “go-slowâ€
with future hikes. Almost lost in the shuffle yesterday, were indications that
both auto sales and retail sales slowed in June.
DOW
We see the September Dow locked in a range bound by 10,470 and 10,343, with a
weak upward bias. However, for a fresh long plays we feel compelled to wait for
a dip to 10,367, because longs probably have to risk a trade below 10,300.
S&P
The path of least resistance is pointing up but the risk to fresh longs is
rising, with the market rising into the upper half of the last month’s
consolidation pattern. We think the S&P has already managed a reversal of the
down trend in effect since the March top, but we are not sure that prices are
capable of rising directly through the coming three sessions. Trend line support
in the S&P comes in at 1129.50, while fresh buyers support is targeted at
1128.30. We like the long side but can’t rationalize the risk of getting long
above 1130 or ahead of the Fed.
FOREIGN EXCHANGE
US DOLLAR
Usually a single number isn’t capable of totally
changing sentiment, but the ultra strong US consumer confidence readings
yesterday certainly gave the Dollar a lift. However, we have to think that the
interest in the long side of the Dollar is set to wane following the events
today. In fact, with the Fed already expected to hike rates and continue to
trumpet a “go-slow†approach for the future, we are not sure that the Dollar
bulls will be able to avoid a return trip to the Tuesday lows late in the
session. In our opinion the only thing that thrusts the Dollar squarely into the
bull camp, would be to see an extremely strong monthly US payroll report on
Friday morning. In other words, to put the Dollar into an uptrend pattern, the
trade will have to see conditions that predict aggressive US growth and even
more aggressive action by the US Fed! With the overnight reversal in the Dollar,
it makes it difficult to suggest a sale, but we do think that the September
Dollar will see a slide down to 89.00 today.
EURO
The Euro would seem to have an upward bias but most
of that upward tilt seems to come from the vulnerability of the Dollar, instead
of the attractiveness of the Euro. The Euro zone consumer confidence readings
are a prime example of a market unable to generate its own buzz, as confidence
improved but remained in negative territory. It should be noted that June
Business Climate readings in the Euro zone did reach the highest level since
March of 2001 and that should at least give the Euro, a chance of regaining the
recent highs of 122.14. To see the Euro breakout up, something surprising is
needed from the Fed, or from the week ending US payroll report.
YEN
In looking at the Yen chart, it certainly looks
vulnerable but until the September fails to hold above the trend line channel
support of 91.65, we are unwilling to call an end to the uptrend pattern. Some
traders are fearful that the Yen is poised for a “sell the fact†decline off the
Tankan survey and that adds another negative to the equation. In short, the
91.65 to 91.70 level is extremely critical to the Yen.
^next^
SWISS
The Swiss impressively rejected the down side probe
yesterday and that makes the 79.00 level look like rock solid support. The top
of the consolidation in the Swiss is all the way up at 81.00.
BRITISH POUND
The trade continues to think that the UK is going to
need even higher rates ahead and that is disappointing to would-be longs. A
slightly stronger GDP reading was countervailed by a downward revision in
household spending, but we suspect that the Pound will be able to respect
support generated off the overnight low in the Pound of 178.97.
CANADIAN DOLLAR
Those that are long the Canadian with profits,
should move to protect those positions with long put/short call wings! The trend
in the Canadian is up, but the market is overbought and into critical resistance
around the recent highs of 74.66.
METALS
OVERNIGHT
London A.M. Gold Fix $393.75 -$3.00 LME
COPPER STOCKS 104,575 mt tons -800 tns COMEX Gold stocks 4.399 ml -1,494 oz
Comex Silver stocks 118.3 ml +599,842 oz
GOLD
Following the much stronger than expected US
Consumer Confidence rise, more than a few gold traders are balking at picking a
near term low in the gold market. The CFTC revised their last position report
and the new revisions revealed a much larger small spec long position and that
could in a way justify the aggressive liquidation yesterday. In fact instead of
the small spec and fund Long being 78,000 contracts as of June 22nd, the spec
position was adjusted to 95,000 contracts long.
SILVER
A series of daily silver exchange stock increases
dredges up a slightly negative look toward silver, as the market can’t seem to
get anything positive from the physical demand aspect of the market. In fact,
with stocks reaching up to 118.3 million ounces one just can’t get excited about
demand out stripping supply. The low Tuesday was almost exactly in the middle of
the consolidation zone and that level will probably be respected as solid
support.
PLATINUM
The platinum market has recoiled away from the June
low and would now seem to be headed back to the lower end of the 787 to 809
consolidation range. The market has significant overhead resistance but it also
appears to have reacted positively to the much stronger than expected macro
economic numbers from the US yesterday. Therefore, maybe platinum is responding
to physical demand expectations and that at least gives the market a theme from
which to foster a bottom.
COPPER
The trade is fearful of a strike in Chile and that
has totally reversed the strong downward bias seen yesterday. The market was
probably over zealous on the slide Tuesday, but traders should have been able to
exit the short futures long call combination play at a scratch and that should
allow us to reset the position at a higher level. With the much stronger than
expected US consumer confidence readings yesterday it would seem like the US
economy is stronger than many expected, but the copper market isn’t totally
turned back on to the tightness theme.
CRUDE COMPLEX
The energy complex continued to decline Tuesday,
as the trade is becoming more convinced by the day, that supply flow is rising
and that stocks are in the process of being rebuilt. With crude and unleaded
prices failing at a number of critical chart support levels, it is clear that
the bear camp still maintains control. Furthermore, we suspect that the market
is expecting to see another rise in weekly crude stock inventories, but it is
not clear whether or not unleaded will also see a rise in stocks.
NATURAL GAS
With the warm temps forecast for July 2nd pushed out
another 10 days and the regular energy complex remaining under aggressive
pressure, there is no reason to suspect that the natural gas is going to forge a
quick bottom. In fact, until the September natural gas falls to the June low of
$6.05 one can’t even suggest that short term technicals are oversold. The bulls
want to claim that the double bottom at $6.05 is solid, but with the most recent
small spec long position report showing 35,000 longs we doubt that the market is
already technically balanced.