Futures Point To A Stronger Open
INTEREST RATES
The economic report slate is empty today but the
Treasury market will not lack information as the Chairman of the Federal Reserve
is due to testify today and there is also a heavy slate of critical US earnings
reports due out. The general view is that Greenspan will talk about the progress
in the US recovery, but will also suggest that it is too early to move to higher
interest rates. There are a number of stories about rising costs of raw inputs
and some general concern about inflation but the trade also expects the Chairman
to discount the inflation threat.
STOCK INDICES
On one hand, the stock market has acted rather
sloppy over the last 10 sessions, but on the other hand the market has certainly
managed to reject the mid month selling pressure and claw its way back. The
overall positive theme toward the recovery is in place, but recent reports have
mitigated optimism at the same time that the political front is rife with
negative stories. So far, the earnings cycle has been mundane but the slate
today is especially heavy and that could yield a bigger reaction in prices.
DOW
Overnight the June Dow managed a minor upside breakout with a move above 10,438.
However, we see the June Dow caught in a range bound by 10,361 to 10,550, until
there is clear improvement in the headline flow. Trend line support in the June
Dow comes in down at 10,367.
S&P
The June S&P encounters a critical pivot point at 1137 and has critical trend
line support today at 1126.85. The bias is up but the market just can’t seem to
get the buying engines to kick into gear. Prices look to crawl higher but need a
specific catalyst, maybe the Pfizer earnings will be enough to provide an early
kick to prices sharply higher.
FOREIGN EXCHANGE
US DOLLAR
The Dollar is showing an impressive tilt this
morning and with the early flow of US corporate earnings at least fostering
optimism and therefore we suspect that the Dollar will at least start out on
firm note. However, we are not sure how the currency markets are going to take
the Fed comments today, as some currency traders want the US economy to be so
strong that interest rates are forced higher. In other words, solid growth might
not be enough to drive the Dollar consistently higher, as it might also take a
more hawkish stance toward future interest rates to push the Dollar up. We
suspect that the political battle in the US will continue to restrain the
Dollar, as the current Administration is being bombarded by typical pre-election
wrangling. It would seem that rising inflation is an issue hitting a number of
economies worldwide and that is why the market will glean Greenspan comments for
any reference to inflation. In order to maintain a bullish tilt in the Dollar,
the June contract will have to maintain prices above 90.56.
EURO
Extremely negative technical action in the June Euro
would seem to project a downside breakout. In the mean time, the market would
appear to be set to slide to 118.60 support in the June Euro. The fact, the
German ZEW Index came out significantly below expectations is a direct blow to
the Euro. The expectations Index of the ZEW fell to 49.7 from 57.6 and that is a
massive slide. With the slightest optimism from the US Fed today, the Euro could
easily make a new low for the move.
YEN
Decent gains in the Nikkei overnight and slight
macro economic concern for the Euro zone, seems to leave the Yen in a favorable
position. In fact, the Yen seems to have forged a solid bottom down around 92.00
and would not seem to have significant resistance until the recent high of
93.18.
^next^
SWISS
The Swiss looks to be on a track to forge a new low
for the move in the coming four sessions. The US Fed dialogue today looks to
keep the pressure on the Swiss, as does the extremely disappointing German ZEW
readings. Sell rallies of 20-30 ticks in the Swiss, looking for a slide to
76.04.
BRITISH POUND
Surprisingly low inflation readings from the UK this
morning seems to exclude the UK economy from the same economic path being seen
in North America. In our view any economy with extremely muted price action,
suggests that the economy in question is soft. The path of least resistance on
the charts is down and the Pound looks set to return to the recent lows.
CANADIAN DOLLAR
From our perspective, the Canadian inflation numbers
were non-descript but the reaction in the currency confirms a disappointment. In
other words, the market was hoping for something hotter. The CPI readings would
seem to allow more even rate cuts if needed, or in the least suggests that any
rate hikes are far off into the future.
METALS
OVERNIGHT
London A.M. Gold Fix $398.80 -$6.50 LME
COPPER STOCKS 155,050 -2,275 tons COMEX Gold stocks 3.99 ml Unchanged Comex
Silver stocks 122.6 ml -996 oz
GOLD
The gold market continues to chop back and forth in
search of a consistent theme. In the action today the market will adopt a
slightly weak posture, partly because of the strengthening Dollar and partly
because of concerns that the US Federal Reserve Chairman will talk about raising
US interest rates. The market apparently is concerned that higher rates will
encourage more forward sales by producers, which is currently out of favor.
SILVER
We had hoped that the divergence between gold and
silver was a signal that an improving economy was supporting silver but in
retrospect, the divergence was only technical in nature. Considering the
overnight weakness the May silver might be headed back to critical support of
$6.85, with a critical support point already violated at $7.03 in the early
going. The problem for the bull camp is that they lack a theme.
PLATINUM
The platinum market charged up to the vicinity of
the highs and then failed. In fact, the last two months action has increasingly
shown a pattern of declining momentum. Critical support in July platinum comes
in at $922 and then again down at $916.2.
COPPER
The market has managed to hold most of the big gains
posted last week and would seem to be ready to make a decision. The decision to
return to contract highs or bank some profits is made all the more difficult by
the fact that Chinese traders were noted sellers overnight. Traders are citing
excessive premiums as cause of the negative overnight bias, but we also think
that the optimism toward the US recovery has mitigated and that is causing some
buyers to pull back from the market.
CRUDE COMPLEX
After an early flare, energy prices seemed to
settle back into the close Monday. Reports that Libya was cutting production, to
fall into compliance with OPEC agreements, gave the market an initial lift, as
did stories regarding strong US gasoline demand. The trade is pretty well
convinced that US gasoline demand is set to post another record this summer,
with many travel experts expecting terror fears to facilitate driving vacations
over air travel.
NATURAL GAS
As we have expected for several sessions, the
natural gas failed to hold chart support and now looks headed down in a
liquidation swing. Near term downside support is targeted at $5.50 and then at
$5.44, as the market did manage to fall below a critical moving average during
the action Monday. If the regular energy complex fails to resurrect itself that
could actually facilitate the downside in natural gas.