Futures Point To A Slightly Stronger Open
INTEREST RATES
The Treasury market enters the session today more
than a full point above the recent low and with the FOMC meeting looming, one
might expect an up tick in volatility. The general feeling is that the Fed will
take another minor step toward higher rates, with some suggesting that the only
change in the statement is that the Fed will remove their patient stance. A
number of widely respected players have suggested that the Fed might already be
behind the curve on the inflation issue and therefore, the Fed needs to close
the gap by being just a little more hawkish.
STOCK INDICES
For a change the stock market managed an
impressive rally to start the week out and did so without a specific headline
catalyst. Some might suggest that the ultra strong US construction spending
report Monday inspired the bull camp, while others suggest that the market was
simply pricing in some of the pent up bullish developments from the US numbers
last week and the most recent earnings report cycle. It is also possible that
the stock market is finally beginning to get beyond the initial negative
influence of the first rate hike.
DOW
For the near term, the 10,200 low looks to hold, but in order to turn the big
picture trend higher, the June Dow will have to manage a close above 10,440
today, 10,434 Wednesday and 10,428 on Thursday. We see the bottom of the current
channel range coming in at 10,186.
S&P
Technically the S&P remains in a down trend pattern. As mentioned before, we
don’t usually see the S&P making a critical bottoming off a double bottom
formation. Therefore, while we are cheered by the upside action in the S&P
Monday, we are not convinced that the market is ready to track consistently
higher. In order to turn the trend higher, the June S&P needs to rise above
1123. On the other hand, the bottom of the channel is all the way down at
1101.60. We would like to see a big failure off the FOMC meeting, as that is a
break we would like to buy into.
FOREIGN EXCHANGE
US DOLLAR
A major slide in the Dollar overnight would seem to
suggest that the market is anticipating no movement by the US Fed today. We are
a little surprised that the US numbers yesterday were not enough to underpin the
Dollar today. However, with inflation readings showing up in the Euro zone and
very strong UK retail sales figures there appears to be some outside macro
economic competition for the Dollar. At least for the action today, the Dollar
looks to remain under pressure and it might even be possible to see the Dollar
slide to the early April spike low of 89.65. Critical moving average support in
the June Dollar Index comes in at 89.61, which is just below that early April
low level. While it is possible that the factory orders report from the US is
strong enough to alter the near term track, we doubt that anything but an ultra
strong US payroll report on Friday is capable of turning the Dollar away from
the overnight washout.
EURO
While most consider the Euro zone economy to be
flat, the presence of hot PPI readings might make that economy look a little
better than it really is. The June Euro would manage to turn some technicals
into positive standing today with a climb back above 120.79. A longer term down
trend resistance line was already violated with the overnight gains but we are
hesitant to call an end to the down trend pattern, that has been in effect since
the February high.
YEN
Of the major currencies, the yen is showing the
least amount of gain off the sharp slide in the Dollar. Maybe the ongoing
holiday is robbing the Yen of upside and maybe the market is simply uninterested
in the long side of the Yen. We suspect that the June Yen is a sell on a rally
to 91.10.
^next^
SWISS
Overnight the Swiss has already seen several
critical technical reversals, the most critical of which was a move above the
moving average. There was also a rise above an entrenched down trend channel
line in the Swiss. Like the Euro we are not prepared to go with the upside in
the Swiss.
BRITISH POUND
one can hardly discount the stellar UK retail sales
reading in April, which showed a +30 reading from the prior reading of +17. In
other words, the UK economy appears to have rekindled aggressive growth and that
might in turn rekindle ideas of even higher UK rates. Trend line resistance is
violated with a rise above 178.54 today.
CANADIAN DOLLAR
Surprise weakness in the US Dollar pulls the
Canadian out of the fire and could create a temporary short covering wave.
However, the June Canadian has significant overhead resistance at 73.22 but it
would seem to be an easy trek for the Canadian to bounce back to that level.
METALS
OVERNIGHT
London A.M. Gold Fix $389.75 +$1.15 LME
COPPER STOCKS 151,200 mt tons -1,425 tns COMEX Gold stocks 4.142 ml -318 oz
Comex Silver stocks 121.6 ml -757,474 oz
GOLD
In our opinion the gold market will manage to move
higher today if the Fed stops short of threatening a rate hike. In other words,
if the Fed simply shows a gradual movement toward higher interest rates, the
Dollar will probably slide and that in turn could promote more short covering in
gold. However, we still think that the gold market lacks a consistent theme and
that a temporary rally in gold doesn’t mean that the upside is rekindled.
SILVER
Like gold, the silver market has managed to bounce
away from close-in consolidation support of $5.85, with near term resistance
coming in up around $6.32. Also like gold, the silver market continues to hold a
moderately overbought spec and fund long position and therefore critical support
levels of $5.84 must not be violated, or another washout wave might be
encountered. As long as gold doesn’t fail aggressively, we suspect that four
days of trade around the critical pivot point of $5.84 gives the July silver a
foundation of support.
PLATINUM
The July platinum appears to have recoiled
effectively from last week’s spike-low and might have the resolve to hold above
$800. However, the platinum market would seem to have significant overhead
resistance on the charts. We really don’t see much change in the general
condition of supply and demand, unless one really thinks that recent Chinese
tightening is going to rupture jewelry demand for platinum! Traders might be
lightly long July platinum but should not tolerate a trade below 791.
COPPER
While copper continues to show short covering
capacity, there would appear to be significant resistance on the charts up at
125.20. Labor concerns in Chile continue to be an offset to the fear that
Chinese demand is set to contract. LME copper stocks continue to decline, which
in a way reconfirms that world stocks are still tightening.
CRUDE COMPLEX
OPEC certainly wasn’t of a mind to talk down the
speculative bent driving energy prices Monday, as the Nigerian Oil Minister
suggested that fundamental developments and not political pressures were the
only factors likely to force OPEC to change its stance on production. A series
of minor US refinery glitches surfaced Monday and that, combined with the
weekend attacks on the Exxon refinery employees in Saudi Arabia, is all the
market needed to ramp up to new contract highs. With most energy prices
returning to the highest level since the first Gulf war, it is clear that supply
and demand conditions are at an extreme level.
NATURAL GAS
The natural gas market exploded, as funds apparently
see the natural gas market, as one of the more undervalued energy markets. With
early signs of decent cooling needs and an above normal 6 to 10 day forecast,
the weather bulls might also have contributed to the upward explosion. We have
to think that relative valuation models between crude and natural gas prices
fueled the renewed interest in natural gas and with the future supply of crude
oil becoming even more uncertain, it is not surprising that many buyers are
finding favor with natural gas prices.