Futures Point To A Stronger Open
INTEREST RATES
The Treasury market is a little lower again this
morning, partly because of the residual of the numbers on Tuesday and partly
because of the expectation for the numbers on Friday morning. Not only did the
Treasuries see stronger than expected US numbers on Tuesday, but the market also
got a little rising price warning shot from the ISM report. We suspect that
Treasury prices yesterday would have fallen much more aggressively Tuesday, if
energy prices weren’t exploding and in the process casting doubt on future
economic growth.
STOCK INDICES
The stock market is surprisingly resilient and
with the slight up tick in US economic numbers yesterday, some faith in the
recovery was restored. For equity prices to hang around the recent high levels
and in fact probe new high ground for the move, is pretty impressive. It might
even be possible for equities to extend gains today if the OPEC meeting manages
to yield even slightly weaker energy prices.
DOW
The June Dow comes into the action this morning poised for additional gains but
must do so on a thin report slate. However, the bias is positive because of
hopefulness ahead of the OPEC meeting. In other words, some speculators are
willing to bid up prices because they see the oil cartel taking the edge off
energy prices. Near term resistance is seen at 10,236 and then at 10,300.
Critical support is targeted at 10,193 and then again at 10,181.
S&P
In order to forge an upside breakout, the June S&P needs to mount a run above
1124.50, with the next resistance seen at 1127.50. We can’t argue against weak
bull control, but in order to forge a big gain, something has to come out of the
OPEC Beirut meeting to prick the speculative bubble in energy prices.
FOREIGN EXCHANGE
US DOLLAR
The Dollar seemed to get a temporary lift Tuesday
off the idea that the US seemed to be moving toward an exodus from Iraq. While
many doubt that the US will be able to get out of Iraq quickly, that political
millstone is a major issue for the Dollar. We also are a little surprised that
the favorable US economic numbers Tuesday didn’t serve to lift the Dollar more
aggressively and that really suggests to us that the trend in the Dollar is in
fact down. Overnight Euro zone numbers were stronger than expected and that
should keep the pressure on the Dollar. However, the trade might see a major
shift in sentiment, if world oil prices manage to decline off the OPEC meeting.
In other words, oil prices have pressured the Dollar, so a reversal might prompt
short covering in the Dollar. However, it is not a given that OPEC can even
control world oil prices! Therefore, the path of least resistance is down in the
Dollar with a target of 88.45.
EURO
The presence of improved German retail sales
readings helps the Euro firm up its overnight gains. An upside breakout takes
place with a rise above 122.90 in the June Euro, upon which the Euro then has an
upside objective of 123.48. Even Euro zone PPI readings were a little hotter and
that pretty much serves to eliminate the rate cut fears. We are not sure that
the trade is going to factor a European rate hike, before a US rate hike, but
that type of thinking could mean that the Euro manages a rise all the way up to
124.00.
YEN
The Yen has fallen significantly off the recent high
and the setback off the recent high undeserved. Therefore, we have to think that
the Yen is going to find support around the overnight low of 90.18 and will soon
return to the highs. One might note that the Yen does have significant overhead
resistance and that may make big gains hard to come by.
^next^
SWISS
The Swiss looks primed for a return to the January
and February highs and only a major capitulation in oil prices looks to shift
the sentiment away from the long side. Critical support in the June Swiss comes
in at 80.17 and a breakout takes place with a minimal rise to 80.50.
BRITISH POUND
Initial resistance is seen at 185.00 and once that
level is taken out, that level should become support. As in the Swiss, the only
thing that looks to discourage the upside in the Pound would be a major decline
in world oil prices, or an ultra strong US payroll report on Friday.
CANADIAN DOLLAR
Trend line support comes in today at 72.99 and it
would appear that the Canadian has forged a significant bottom and that prices
should be able to remain above 72.31. In other words, look to buy a minor break
to 73.15, risk the position to 72.20 and hold an initial objective of 74.35.
METALS
OVERNIGHT
London A.M. Gold Fix $395.85 Unch LME
COPPER STOCKS 131,250 mt tons -1,000 tns COMEX Gold stocks 4.391 ml -32 oz Comex
Silver stocks 118.4 ml -30,240 oz
GOLD
With the Dollar making another new low for the move
and the World Gold Council suggesting that 1st quarter demand for gold rose by
12% over last year, the bias would seem to be pointing up. Certainly the
presence of de-hedging contributed significantly to the demand gain and some may
suggest that is artificial demand, but as long as the de-hedging continues there
will be a pattern of tighter overall supplies. The mere fact that the de-hedging
pace actually expanded rapidly in the 1st quarter, seems to suggest that
conditions are conducive to higher gold prices but typically physical demand
isn’t nearly as critical to the trade, as flight to quality investment demand.
SILVER
Critical support in July silver comes in at $6.05
with even lower support coming in down at $5.96. Trend line support in silver
also comes in at $6.02. We see the near term path of least resistance to be down
in silver but corrections should be shallow and narrow in terms of time.
PLATINUM
The platinum market would seem to have a quasi
double top at $849 but the market might find support off the story that an
Australian firm was going to exercise its option to buy a majority interest in a
South African platinum project and that reiterates interest in the long side of
platinum. Critical support in July platinum comes in down around the $834 level.
COPPER
With Chinese copper prices higher overnight, the US
copper market is left with an upward tilt. Talk that the Chinese have made
progress in slowing their economy is seen as a positive, as that means the Bank
of China might not have to invoke additional tightening measures. With the World
Gold Council reporting a sharp increase in 1st quarter demand, many assume that
copper demand remains strong.
CRUDE COMPLEX
The energy complex exploded off the weekend
threat to Saudi production but the market might also have been responding to
concerns that Saudi Arabia has to wage a constant battle against political
forces and that could eventually result in a widespread uprising. For energy
prices to have soared, in the face of talk about discarding the OPEC quota
system, really suggests that the market is bulled up and fundamentally
overbought. The fact, that some OPEC members still oppose ditching the quota and
could have served to mitigate the potentially negative impact of the talk of
unrestrained OPEC production.
NATURAL GAS
We have to think that natural gas prices were simply
following the lead of the crude oil market Tuesday, as the weather forecast
isn’t exactly starting out with a warm pattern. In fact, considering the
temperature mix in the Northern US, it would seem that the pattern remains cool
and wet in the US and therefore one can hardly get bullish toward prices from a
demand perspective. Therefore, it might be time to consider a long a futures, in
conjunction with a double long put position.