Futures Point To A Slightly Stronger Open

INTEREST RATES

01/14 OVERNIGHT CHANGE to 04:14 AM:BONDS+3 The
Treasury market doesn’t seem to be impacted that much by the potential change in
the Forex markets. However, because of the recent slack economic report flow, we
would expect the Treasuries to remain supported in the face of a change in the
currency markets. Certainly seeing less BOJ intervention (near term), could rob
the market of some buying power but on the other hand, seeing intervention
threats from the ECB could potentially add another major buying source to the
equation.

STOCK INDICES

01/14 OVRNIGHT CHG to 04:14 AM:S&P+130, DOW16,
NIKKEI +13 , FTSE+11 The stock market deserved a correction off the recent high
but it is clear that the trade is not working toward a major washout event. In
fact, the break early this week seemed to go a long way toward balancing short
term technicals, which could give the market a better bottom chance in the
coming sessions. Apparently there are some stocks benefiting from ECB comments
that hint at intervention against the rising Euro.

DOW

We would be looking for the Dow to continue making lower lows, with the chance
for a bottom Thursday afternoon down around 10,398 or the market might fall to
10,290, if the Thursday morning numbers are disappointing. Right now, the most
positive thing that one can say about the Dow is that the technicals are not
going to feed the downside momentum.

S&P

The general divergence between the Dow and the S&P continues with the S&P
showing much more bottoming interest than the Dow. Therefore, maybe the S&P has
already made a solid near term bottom, but like the Dow, the S&P would seem to
lack a strong fundamental reason to resume the upward track. The numbers today
don’t look to provide a fundamental catalyst to get long, but aggressive traders
might become a buyer on a break to 1118.60 using a stop down at 1113.20. A break
down to 1113 might put the small spec long in the S&P at the lowest level in
months and that could set the market up for a strong position buy!

FOREIGN EXCHANGE

US DOLLAR

The Dollar has managed to climb above a critical
down trend channel resistance line and with comments from the ECB threatening
possible intervention, there is the chance for change in the air. However, in
the past the markets usually move to challenge Central Bank statements and
therefore one might expect the market to force the ECB to act by pushing the
Dollar down and boosting the Euro. In the mean time, weak handed shorts in the
Dollar look to step aside and that provides the market with a temporary lift. As
we have said a number of times, it might take a coordinated intervention to stop
the Dollar slide but considering the entrenched nature of the Dollar slide, we
doubt that a simple threat will change the trend. In fact, it could take a
series of central banks threatening to act against the Dollar, to scare the
shorts away from the Dollar. If the US economy were stronger, we could see a
direct bottoming of the Dollar but there really isn’t even a hint of a change
coming in the interest rate differential or high odds that the jobless recovery
distinction is going to leave the US economy. Therefore, expect a bounce to
perhaps 86.52 but then expect the trend to try and reassert itself. As suggested
before, it is time to exit short Dollar futures plays and replace them with
puts.

EURO

Until now, the market has not seen the ECB actually
threaten to sell Euros! Therefore, the bulls probably still control but risk has
risen to those positions. With three ECB officials and several other politicians
hinting at a need to control the Euro, one has to take the threat seriously. In
fact, we have to think that the ECB has more capacity to intervene than the BOJ
or the US! As we suggested yesterday it is probably time to begin running profit
stops on long Euro or consider exiting the positions and replacing with cheap
calls. We don’t think the fundamentals have changed, but the risk and reward has
made long Euro plays less attractive.

YEN

The BOJ can now exhale, as they might be getting
some help in their quest to support the Dollar, which in turns limits the rise
in the Yen. The change of pace couldn’t have come at a better time, as Japanese
machinery orders declined sharply in November and without the threat of
coordinated intervention, the Yen might have come out of the formation on the
upside. In short, the chance for an upside breakout is reduced and risk to longs
increases. Now more than ever, we think a short futures/long multiple call play
is the way to go in the Yen, as a decline below 93.00 is possible on any given
morning that the central banks choose to rush into the Dollar!

SWISS

Trend line support in the Swiss was tested and might
have been broken overnight. Run tight stops on longs and be prepared to move to
the sidelines.

BRITISH POUND

The Pound was the most consistent trend of the past
three months, but the threat of fundamental change causes the market to pause
and possibly correct to 181.35. However, a favorable UK jobless claims reading
this morning could truncate the correction in the Pound.

CANADIAN DOLLAR

We are really suspicious of the Canadian because a
large measure of the breakneck gains off the August low, might have come off the
persistent Dollar weakness. Therefore, traders have to expect a widening of
daily ranges and potentially a wild setback to 77.00 basis the March contract.

METALS

OVERNIGHT

GLD-2.30, SLV-6.20, PLAT-2.70 London A.M.
Gold fix $421.00 -$3.50 LME COPPER STOCKS 408,700 tons -3,200 tons COMEX Gold
stocks 3.17 ml +50,134 oz Comex Silver stocks 125.3 ml oz Unchanged

GOLD

The gold market is showing weaker pricing this
morning after Chinese gold and London gold posted weaker action and that should
leave the bears with a slight bit of control. With the Dollar managing a minor
breakout up on the charts overnight, gold could come under additional pressure
today. In fact, with the ECB hinting that they could sell Euros to control the
exchange rate, it is possible that the ECB is contemplating intervention.

SILVER

Around the highs this week, silver was up a full
$2.00 from the October lows and that is certainly an overbought market. However,
we are not sure that silver is going to track the Dollar as tightly as the gold
market tracks the Dollar. In the end, pressure in gold should pressure silver.

PLATINUM

While platinum has been trading in its own world, it
does pay attention to the other precious metals markets and was moderately
overbought around the highs Tuesday. The strike in Canada served to boost
platinum prices, as the Falconbridge facility producers 250,000 oz of PGM a
year. Therefore, one might contribute the majority of the January rally to the
labor situation.

COPPER

Chinese copper prices were slightly higher overnight
but the early US action is showing some weakness. It would seem that the
Highland Valley Unions rejected the management offer, which means that recent
price gains in copper remain in place. Dow Jones newswires are suggesting that
Chinese demand growth increased by 25% in the first ten months of 2003 and that
keeps the market underpinned.

CRUDE COMPLEX

Since the market was fully aware of the coming
cold in the Midwest and East, it seems as if there is a little buy the rumor
sell the fact taking place. In fact, when one considers that the current winter
season in the Midwest so far is one of the mildest on record (basis Chicago
meteorological records), one can hardly expect demand to be booming. It is also
clear that optimism toward the US recovery is being tempered and cyclical demand
was certainly a reason behind some of the buying of the last 6 months.

NATURAL GAS

As mentioned in the regular energy complex comment,
the winter track in the Midwest is still running pretty mild and with the
outlook on the economy also cooling off, it isn’t surprising to see natural gas
correct aggressively. In fact, with the inventory report looming, the market
violating critical chart support and seeing weaker regular energy complex
prices, we now think that March crude oil might correct back to $6.00. In fact,
if the inventory report allows the annual surplus to build again, we might not
be surprised to see the March contract slide all the way down to $5.80 before
bottoming.