Futures Point To A Stronger Open
INTEREST RATES
With the economic report slate mostly empty this
week and the Treasury market showing signs of failing at chart support, the bias
of the market looks to be pointing downward. While the COT report showed the
small spec and fund position in bonds to be net short 10,000 contracts, that
positioning was dramatically leveled from the prior historically large short
position. In other words, the market corrected its oversold technicals
conclusively and that would seem to allow bearish fundamental developments to
push bond prices down.
STOCK INDICES
A gap up overnight trade in the Dow would seem to
leave the market in a positive bias. The combination of slightly lower energy
prices and generally favorable views toward the world recovery is putting
investors in a mood to buy. Even the Chinese seem to be offering up some
supportive dialogue, as the Chinese are suggesting that they have managed to
stem some of the excessive speculation that plagued their economy earlier this
year.
DOW
As mentioned before the September Dow has managed a gap up trade overnight and
would seem to be poised to post more gains ahead. Since the US economic report
slate is thin, energy prices are soft, corporate news is generally positive and
few are ready to worry over the FOMC meeting, the path of least resistance is
pointing up. Near term upside targeting is seen at 10,490, with critical support
seen at 10,390.
S&P
The market is holding just under the recent highs and appears to have the
capacity for more gains. The net spec long position in the S&P is minimal,
leaving the market with plenty of buying fuel. However, we don’t see the coming
upside move, as an aggressive upward pulse, unless a flurry of corporate buyouts
surface, or some other surprise element provides a more significant spark. Near
term upside targeting comes in at 1142.20 and then again at 1144.50.
FOREIGN EXCHANGE
US DOLLAR
The Dollar seems to be pointing out below critical
chart support and into new low ground for the move, despite the fact that
optimism toward the US equity market is running pretty strong. However, it is
possible that the US is expected to get behind in the interest rate
differential, as the BOE is expected to hike rates again and the trade is
convinced that the US Fed is going to barely nudge rates up in the coming
meeting. Therefore, the US growth rate isn’t being seen as dominating, as the
growth rate being seen in the UK. With the Dollar probe below 89.42 it would
seem that the Dollar is vulnerable but the market did recoil away from that
level into the opening. With the US economic report slate rather thin for most
of the coming week, it is possible that the bears have a greater ability to
control the Dollar. We see the trading range in the September Dollar Index at
89.83, with the bottom of the trading range seen down at 88.80.
EURO
Like the Dollar, the September Euro also looks to be
caught in a trading range of 121.49 and 119.55. However, the Euro might be just
as vulnerable as the Dollar in the coming two weeks, as the ECB is hardly in a
position to declare that the European economy is growing or that the European
economy is going to grow at a pace that would require higher interest rates.
Critical pivot point support in the September Euro comes in at 120.10 and at
119.60. We still suspect that the big picture trend in the Euro is pointing down
and that the Euro is destined to return to the down trend channel range seen
from the February high to the April low.
YEN
Another impressive rally in the Nikkei and continued
optimism toward Chinese economic activity would seem to leave the Yen in a
strong position relative to other currencies. Apparently investors are very
interested in Japanese Blue Chip stocks and that would seem to confirm the
favorable macro economic outlook. Near term upside targeting in the September
Yen is seen at 92.80 and then again up at 93.21.
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SWISS
Despite the gains forged late last week, we are not
convinced that the Swiss is poised for a continuation of strength. In fact we
suspect that aggressive traders should be looking to get short the Swiss on a
rally to 80.48.
BRITISH POUND
Talk that the BOE might have to raise interest rates
again to keep housing prices from overheating, is apparently providing
consistent long interest in the Pound. However, until the September Pound can
manage a rise above 183.19 we doubt that the trade will rush into the long side.
Therefore more sideways action might be expected with near term critical support
seen at 181.20.
CANADIAN DOLLAR
A sharp decline in volume and open interest on the
recent decline would seem to give the bulls a minor advantage in the near term.
However, we are not sure that the Canadian is ready to restart the uptrend with
the type of rise seen in May. Fresh longs probably have to risk positions to at
least 72.42 but we think that the overall trend is pointing up.
METALS
OVERNIGHT
London A.M. Gold Fix $393.85 +$5.15 LME
COPPER STOCKS 112,175 mt tons -2,100 tns COMEX Gold stocks 4.403 ml Unch oz
Comex Silver stocks 117.7 ml -50,962oz
GOLD
Slightly weaker overnight International action and a
slightly higher US Dollar leaves the US gold market a little vulnerable on the
opening. It would seem that gold has weak overhead chart resistance around the
$395 level. Following the sharp rally last week the gold market might be a
little overbought from a short term perspective and with sagging volume and open
interest we are not convinced that prices are poised to move progressively
higher without clear and direct assistance from a weaker US Dollar.
SILVER
The silver market has what appears to be a weak
double top at $606 and critical pivot point support is seen at $587. The weekly
COT report in silver shows a net spec and fund long of 51,000 contracts, or a
minimal decline on the week. It does seem like open interest is beginning to
hook up and that could give credence to the idea that the current extended
consolidation pattern is going to be the basis of a critical bottom.
PLATINUM
The platinum market has added to the upside recovery
action seen for most of last week in the overnight action, but the market looks
to have significant overhead resistance just under $825. As of the low last
week, the platinum market had nearly a flat spec and fund long position but with
China promising to keep critical commodity supplies flowing inside that country
we suspect that platinum is generally going to remain in favor in the near term.
Critical support in platinum comes in down at $805.
COPPER
While the copper market looks to have an upward
bias, the news from China is mixed. While Chinese copper prices managed to close
slightly higher overnight the Asian trade is apparently balking at excessively
high Asian premiums. We suspect that the macro economic look will continue to be
supportive to copper prices but that gains will be hard won.
CRUDE COMPLEX
We suspect that market action in the energy
complex will become even more volatile as the market counts down to the shift of
power to self-government in Iraq at month end. The outlook for gasoline supplies
is extremely uncertain as we think terrorist attacks in general and attacks on
oil facilities in particular will escalate ahead of the June 30th power shift.
While the pledge by OPEC cartel members to pump more supply to world markets,
has helped to alleviate the severe supply concerns seen earlier in the month,
that extra supply could be derailed if terrorists see further success in
sabotaging Middle East oil facilities.
NATURAL GAS
Unless the market receives support from the rest of
the energy complex, August natural gas could be pressured by more profit taking
this session after prices saw sharp gains last week. A cooler forecast for the
Northeast this week and the restart of the huge Palo Verde nuclear plant, which
was shut for a time last week, provides a profit taking incentive. However, the
downside action will be limited by general concerns that supplies could still be
pinched later this summer.