Futures Point To A Higher Open
5/3/2005
INTEREST RATES
We have to think that the fear of the Fed kept
the Treasury market from forging more significant gains in the wake of soft US
economic information on Monday. We also suspect that the Fed will at least note
the slowing in the economy in its dialogue today, even though they are widely
expected to move rates up another notch. With the Wall Street Journal Credit
section this morning suggesting that US April tax receipts were up sharply,
compared to year ago levels, the market is thinking that refunding levels will
hold steady and that should be considered a generally bullish development for
Treasuries.
STOCK INDICES
The stock market continues to hover near an
upside breakout point on the charts and managed to hold up despite a sharp
recovery in oil prices yesterday afternoon and in the wake of generally slack US
economic numbers. While the stock market seemed to benefit from a sell the
rumor, buy the fact situation in AIG Monday morning, but the market weakened
later in the session Monday off weak price action in Verizon and a recovery in
oil prices. While the stock market could be cheered on by the news that the US
government is expected to pay down its debt in the April through June time
frame, the impending US Fed rate hike threat is probably discouraging a number
of buyers from entering the fray.
DOW
The Dow continues to hold just under a critical pivot point on the charts at
10,255. In order to throw off the down trend pattern in effect since the March
highs, the June Dow will need to climb above and close above the down trend
channel resistance line at 10,258 today. We have noted a shift in volume and
open interest patterns since the April low, as the Dow futures are now seeing
volume and open interest expand on rallies and contract on breaks. Therefore,
the technical setup is slightly positive but this market has to overcome steep
down trend patterns on the charts and mostly entrenched bearish fundamental
sentiment. With most analysts expecting the fear of inflation to win out over
the concern for the slowing growing, we have to think that the Dow will at least
temporarily slide back toward the middle of the recent consolidation zone. In
fact, we can’t rule out a temporary slide to 10,161 in the June Dow today, but
we would consider that level a potential buying zone.
S&P
To turn the down trend pattern up in the S&P, the June contract will have to
manage a rise and close above 1167.55 today, but we suspect that a temporary dip
toward 1155.50 could be seen before the market re-gathers itself. Typically the
S&P hasn’t had a strong history of forging aggressive rallies, directly off a
consolidation pattern and that also suggests traders would be well advised to
wait for a moderate break to get long. In short, we doubt that lower US deficits
and lower energy prices are capable of initially offsetting another rate hike
and additional weak US scheduled economic readings. The bears could see the
tables turned on them in the event that the June S&P manages to forge a rise
above 1164.50 ahead of the FOMC meeting.
FOREIGN EXCHANGE
US DOLLAR
While an overwhelming majority of analysts expect a
25 basis point hike today the Dollar seems to be getting general support in
anticipation of the action today. However, we also have to think that the news
of debt pay down in the US helps the Dollar, as the twin deficit argument has
long been a mainstay of the bear camp in the Dollar. Furthermore, it is also
clear that the recent gains in the Dollar have come against a backdrop of sloppy
to weak US economic numbers. We also think that it is clear that the recent
gains in the Dollar have been hard fought and seem to be vulnerable to reversal
at any time. Certainly seeing the Chinese on holiday reduces the rumor mill with
respect to the Yuan situation but we must note that the US Treasury Secretary
again called for change in the Yuan yesterday afternoon. We suspect that the
anticipation of higher US interest rates will support the Dollar in the early
trade but after the fact, we suspect that the Dollar might begin a slide back
toward levels below 84.00. In order to push the Dollar up to the April highs,
the Fed will have to surprise the market with a 50 basis point hike or they will
have to be very upbeat toward the US economy.
EURO
The Euro continues to slide and with the Euro zone
buzz this morning rife with concern of slowing we suspect that the lead up to
the US FOMC will result in more minor Euro declines. With a contraction in
manufacturing in the Euro zone, being seen as quite dramatic, it shouldn’t be
difficult to keep the pressure on the Euro. In fact, unless the US Fed really
talks up the soft spot in the US economy, we doubt that the Euro will be able to
avoid more selling today. Near term support and targeting for the June Euro is
seen today at 128.22. Just seeing the US pay down some debt, might be cause for
the Euro to slide all the way down to the February low of 127.62.
YEN
It would appear as if the June Yen has moderate
resistance at 95.58 and we suspect that the holiday trade in Asia leaves the Yen
without as much support off the Chinese currency situation as has been present
recently. However, we suspect that the Yen will remain in an uptrend pattern
until the whole Chinese currency "re-peg" is put to rest one way or the other.
The 100 day moving average comes in up at 96.06 and near term critical support
is seen down at 95.08 and therefore we suspect that they Yen is set to waffle
for at least another session.
SWISS
The pattern of lower lows continues in the Swiss and
with the US paying down debt, we have to think that the flight to quality issue
is downgraded as a potential factor for the bulls in the Swiss. In the near
term, we suspect that the June Swiss will see a slide down to 83.13 unless the
US Fed does something uncharacteristic in the FOMC meeting this afternoon. Those
that got short the September Swiss against a series of Swiss calls should
continue to hold the short futures looking for a downside target of 83.91.
BRITISH POUND
The Pound appears to be set to fall below the 100
day moving average at 188.55 this morning and with the CBI in the UK posting a
steep decline in retail sales for April it would seem like the selling is
justified. In fact, the CBI retail sales readings for April were the weakest in
almost 13 years and that might only be mitigated by the prospect of weak US auto
sales data. On the other hand, the UK election might also create some
uncertainty and some selling in the Pound. In the short term, we suspect that
the Pound is headed down to the 187.50 level in the June contract.
CANADIAN DOLLAR
While the Canadian did manage to recoil sharply away
from a big probe down on Monday, we are not sure that the Canadian is going to
be able to throw off the down trend pattern easily. It should also be noted that
volume and open interest is increasing on the slide and that would seem to give
the bears an addition measure of control. There is very little technical support
in the June Canadian until the 79.10 level.
METALS
OVERNIGHT
London Gold Fix $429.20 -$3.95 LME COPPER
STOCKS 61,000 metric tons +1,025 tons COMEX Gold stocks 6.034 ml oz -122,058 oz
COMEX SILVER stocks 103.9 ml Unchanged
GOLD
While some foreign markets were marginally lower
overnight, the selling was mostly a catch up reaction to the steep US losses on
Monday. Apparently a wave of funds decided to take profits off the compacted
rally last Friday morning and that would seem to suggest that long interest in
the gold is rather fleeting. With the Dollar showing an upside breakout move
early yesterday, US economic numbers coming in soft and the Fed expected to
continue its battle against inflation with another rate hike today, the bull
camp really doesn’t have much going for it.
SILVER
With the silver market violating a series of
critical support levels on the charts yesterday and the outlook for the US
economy slipping, we can understand the negative bias in silver prices.
Fortunately for the bull camp the silver market is also seeing volume and open
interest decline on price weakness and that could mitigate the magnitude of the
current liquidation wave. However, we are not sure that the coming numbers or
the technical posture of the silver market will prevent July silver from falling
back to the January and February consolidation zone.
PLATINUM
Surprisingly, the platinum market has held up
against weakness in most other metals markets. In fact, platinum prices showed
almost no weakness off the rising Dollar and the slower than expected US numbers
on Monday. We will continue to suggest that traders look to get short platinum
on strength, especially considering the potential change in the Chinese
currency, as we think that could trip up solid growth in the mainstay of the
world economy.
COPPER
While the copper market seemed to reject the
aggressive selling wave that hit the market early on Monday, the market is
simply not snapping back into the bullish mode as quickly as it has in the
recent past. With holidays in Japan and China we suspect that the market will
potentially be without some physical buying interest and that could give the
bears a near term edge. Furthermore, with the US Fed expected to hike interest
rates again today, US manufacturing readings coming in soft yesterday and oil
prices showing renewed strength yesterday afternoon, we have to think that the
path of least resistance in copper is down.
CRUDE COMPLEX
While the energy complex forged what appeared to
be another critical technical reversal yesterday, we are not sure that the
fundamental outlook has changed enough to blindly jump into the market on the
long side. In fact, the fundamental news released Monday would seem to favor the
bear camp as the IEA suggested they were looking into increased efficiency as a
way to lower demand. We also note that Kuwait was attempting to increase its
production capacity by 200,000 barrels per day but they also suggested that once
the capacity was on line, they would not simply throw that onto the market.
NATURAL GAS
We suspect recent below normal temperatures combined
with the bounce in crude oil yesterday to gave the natural gas market a big lift
on Monday. However, until the June natural gas manages a rise back above the
critical pivot point of $6.79, we have to assume that the bear camp retains a
measure of control over prices. However, a return to more mild or near normal US
temps later this week is tempering the market’s capacity to recover
aggressively.