Futures Point To A Slightly Stronger Open
INTEREST RATES
In retrospect, the US economic report sweep on
Tuesday was negative to Treasuries, but the report flow was not so significant
that the big rally last week is put into question. We continue to think that
bonds will manage to hold a large portion of the gains posted in the wake of the
monthly payroll report, but with the action of the last 24 hours, it is clear
that prices favor a slightly lower support level than is currently being seen in
the trade. We doubt that the September bond will fall all the way back to the
April consolidation high of 107-05, in the coming session, simply because the
economic report slate is empty and a major bond fund manager has expressed
concern that rising global interest rates are set to rekindle the threat of
deflation.
STOCK INDICES
The market surprisingly seems to have a more
positive bias today and that probably comes from the fact that the US economic
reports on Tuesday were somewhat supportive. However, the majority of the
optimism seen into the opening this morning comes from the idea that corporate
earnings are set to improve. Yahoo is expected to post solid earnings growth due
to advertising gains, while most other companies expected to report, are
anticipated to come in with favorable results.
DOW
Critical support of 10,210 has apparently managed to hold and prices should be
able to forge at least a minor bounce up from that level on the technical and
fundamental tilt presented to the market this morning. Near term upside
targeting is seen today at 10,246, with the Dow expected to be driven upward by
earnings from the financial sector of the Dow. If the September Dow manages to
rise above the 10,246 level, it could be in position to rise all the way back to
the bottom of the June consolidation of 10,300.
S&P
The September S&P managed to find a bottom above the projected low of 1112 and
would seem to be poised to regain the critical pivot point of 1120. In the event
that energy prices remain under control, earnings reports provide positive
incentive and global geopolitical conditions remain sedate, it would not be
surprising to see the September S&P manage a 24 hour high up around 1134.50.
However, a trade back below 1115 should be considered a major short term
disappointment.
FOREIGN EXCHANGE
US DOLLAR
While it is unusual, the Dollar is falling sharply
in the face of what appears to be a stronger US equity market opening. With the
technical tilt in the Dollar extremely negative, it is not surprising that
sellers are dominating the action and with the US economic report slate empty
until Thursday morning, the only thing that might alter the downside track in
the Dollar would be stellar US corporate earnings. However, it would seem
unlikely that the Dollar will be able avoid a return to the April lows of 87.80.
The bottom of the channel in the September Dollar Index comes in at 87.13 and
that would be the lowest trade in the Dollar since February. In the end, we
doubt that US corporate earnings information will be capable of shifting the
attitude toward the Dollar away from the bear camp.
EURO
German manufacturing orders in May rose smartly and
were supposedly driven by big ticket items. In other words, the Euro zone
economy is looking a little more impressive and that was the one issue that was
lacking in the Euro bull case. Therefore, one can’t argue against more gains in
the Euro, especially with the US economic report slate empty today. The next
upside targeting in the September Euro comes in at the top of the uptrend
channel around 124.03. We doubt that the Euro zone economic outlook is such that
the trade will begin to talk about higher interest rates but the outlook is
certainly good enough to see investors favor the Euro over the Dollar.
YEN
While the Yen chart isn’t that impressive, the Yen
has managed to return to the top of the recent consolidation and will mount an
upside breakout with a trade above 92.65 today. News that Chinese growth in the
1st half would come in above 10%, should be supportive of the Yen and the
Japanese economy. Therefore, the fundamental look toward the Yen is improved,
but in order to put the Yen back into the uptrend channel, it will have to mount
a rise to 92.73.
^next^
SWISS
There is no question that the Swiss is poised to
surge higher on the charts, with the next upside target seen at 82.33. Since the
Dollar is going to offer little in the way of opposing information today, one
should expect the Swiss to pierce resistance at 81.66.
BRITISH POUND
The upward thrust in the Pound seems to target the
February highs of 187.12 and with the US report slate devoid of flow today,
traders should expect gains in the Pound to extend with little resistance.
CANADIAN DOLLAR
The Canadian has limited resistance at 75.71, which
some traders suggest is a double top. However, we see no reason for the Canadian
to halt the current rise without running up to the April high of 76.40. Top of
the uptrend channel in the September Canadian comes in at 75.94 but we see a
rise to the aforementioned target of 76.40.
METALS
OVERNIGHT
London A.M. Gold Fix $397.35 -$1.05 LME
COPPER STOCKS 99,625 mt tons Unchanged COMEX Gold stocks 4.399 ml Unchanged
Comex Silver stocks 118.3 ml Unchanged
GOLD
With the US Dollar streaking toward the April low
the gold market has come back into favor. However, because of the steep losses
Tuesday, most gold prices remain inside the prior days trading range. We see
little reason for the Dollar to cease its downside action as economic reports
have been disappointing and the trade should find little incentive to rush back
into the Dollar.
SILVER
Because of the firmer tilt in Asian gold, the silver
market should also have a positive bias, with near term pivot point resistance
seen at $6.08. We suspect that September silver will be unable to climb above
the top of the consolidation pattern and might continue to forge a lower high
pattern by staying below $6.225. As long as energy prices are firm, the world
economy is thought to be in an expansion and gold is providing positive
leadership, one has to assume that silver has value above the $5.50 level but
unless the market developments a more concentrated theme, we doubt that buying
interest is going to lift prices out of the three month old consolidation
pattern.
PLATINUM
It would appear from the platinum chart that a firm
low was forged last week around $765. With the Chinese Vice Premier suggesting
that 1st half growth in China will be above 10%, it is clear that growth
continues to run at a strong pace and that is the type of news that should
provide support to both platinum and copper prices. Since platinum has already
managed to climb out of minor consolidation pattern, it would not be surprising
to see a rise to the mid June consolidation of $797 to $809.
COPPER
With some Chinese arbitrage buying seen yesterday,
the lower Chinese futures action today is downplayed and the market is left with
pre-existing support off strike concerns. With favorable macro economic talk
regarding Chinese 1st half growth and news that a South Korean government agency
is soliciting for a 700,000 metric ton purchase, there would seem to be plenty
of bullish fodder to propel prices higher. The recent small spec and fund
positioning report also suggests that copper has plenty of buying capacity,
especially if the fundamental and technical setup provides a little incentive.
CRUDE COMPLEX
The energy complex appeared to see a perfect
storm of fundamental developments Tuesday, as the Yukos situation combined with
the weekend Iraqi problems to send prices soaring. However, it seems like the
Iraqi production is going to come back on line quicker than the trade expected.
Therefore, the trade is trying to look at long term fundamental issues, like the
ability of OPEC to meet rising demand and whether or not OPEC will actually go
ahead with the August production increase.
NATURAL GAS
We can’t help but think that the Wall Street Journal
article on coal is going to be supportive of natural gas, especially if slightly
warmer temps manage to entrench over the come two weeks. The fact that crude oil
is providing more consistent daily support to natural gas, could facilitate a
rise to the mid June highs of $6.63 basis the September natural gas contract.
However, in order to see natural gas prices rise all the way back to the June
highs, the trade will have to seize on the WSJ article on coal and see more
intense cooling demand.