Futures Point To A Weaker Open
INTEREST RATES
It would seem like the Treasury market managed to
recoil away from the lows yesterday in an aggressive fashion. Seeing the energy
price explosion yesterday certainly highlights the ongoing threat to the global
recovery and that is not lost on the Treasury market. After a scheduled economic
report drought, the US will see a series of numbers today and those numbers
would seem to present a little pressure on prices.
STOCK INDICES
The chart setup for today looks pretty negative
for the stock market and the bull camp has to be wondering what kind of
information is needed to wrestle control away from the bear camp. In retrospect,
the equity market was only presented with the potential for lower energy prices
and once energy prices recovered and zoomed to more new highs, it was once again
clear that the world economy was back under threat. The thing that is really
disconcerting is that more oil flow from OPEC won’t hit the US until mid July
and even then, the US refinery structure won’t necessarily make the increased
crude flow into gasoline.
DOW
With the poor price action overnight the June Dow would appear to be headed down
to critical support of 9,910. A trade below 9,865 negates the May 17th low
signal and opens the market up to a slide to 9,800. The path of least resistance
is down and something really significant might have to unfold, just to deter the
bear camp from pressing prices consistently lower in the coming sessions.
S&P
The S&P is poised for a swing lower. Near term downside support is targeted down
at 1084.20, with even lower targeting seen in the event that energy prices
manage another new high. In short, the negatives outnumber the positives and the
decently balanced technical condition is simply no match for the bearish
fundamental tilt.
FOREIGN EXCHANGE
US DOLLAR
We were fearful that soaring oil prices will have
the most negative influence on the US economy and with the US refinery industry
simply unwilling to meet the need for oil and the political setup in the US
unwilling to address the situation, the Dollar should be under pressure. Given
the prolific import flow into the US, it is clear that the US economy under
remain under the most direct threat of rising oil prices. Unfortunately for the
Dollar bulls even the political setup is negative to the Dollar. It really
wouldn’t matter what the Bush Administration offered up as a plan for Iraq, the
plan would end up under attack and that also leaves the Dollar under sustained
pressure. We see no reason for the Dollar to respect near term support of 90.00
unless the scheduled economic news comes in much stronger than expected.
EURO
In the face of pitiful economic numbers from the
Euro zone, the Euro has managed an upside breakout on the charts. In other
words, the Euro is not being driven by the macro economic differential and is
being driven higher by the vulnerabilities in the US. The IFo indicated that no
rate cut was needed in the euro zone and that more than anything provides the
Euro with a lift that is justified. Near term resistance and an important
channel resistance point is seen up at 120.76.
YEN
The Japanese economy is almost as reliant on energy
prices as the US economy and that more than anything discourages the Yen from
forging gains in the wake of weakness in the Dollar. Concerns over the auto
sector in Japan, is another issue that leaves the Yen in a vulnerable condition.
We don’t see the Yen falling aggressively but we see resistance at 89.04 and the
potential for a downside probe to 87.87.
^next^
SWISS
The Swiss short term trend is pointing up and the
losses in the Dollar should facilitate even more gains in the Swiss. Near term
upside targeting comes in up at 78.80 and then again at 79.10.
BRITISH POUND
The UK economy is apparently not going to knuckle
under to soaring energy prices and like the Canadian, the Pound might be the
primary benefactor of the rotation out of the Dollar. We think the 180 level has
become support instead of resistance and that near term upside targeting comes
in at 183.23.
CANADIAN DOLLAR
With the close above the moving average and the
recent daily price correlations, we think that the Canadian is poised for an
upward adjustment in prices. Near term resistance is 73.22 but even higher
targeting is seen at 73.45.
METALS
OVERNIGHT
London A.M. Gold Fix $387.60 +$3.75 LME
COPPER STOCKS 138,950 mt tons -800 tns COMEX Gold stocks 4.401 ml +50,875 oz
Comex Silver stocks 120.4 ml -2,983 oz
GOLD
With gold managing to peak out above the recent
highs on the charts and the Dollar peaking out below the recent lows on the
charts, we suspect more step wise gains in gold in the coming sessions. Other
than a falling Dollar we do suspect that gold is getting a partial lift from the
potential for economic uncertainty arising from the sharp energy price rise.
With the world doubting that Saudi Arabia can dampen the rise in world oil
prices and the OPEC President asking its members to produce as much oil as they
can, one might sense that the world is moving toward a potential macro economic
debacle.
SILVER
The silver continues to grind higher along side gold
but it would seem like gold is a primary force behind the silver rise. With the
gains yesterday and the overnight follow through, the July contract should now
see the $6.00 level as critical support. However, we just don’t get the sense
that the silver market is poised to return to a sustained bull trend, especially
since volume and open interest have declined on the May recovery bounce.
PLATINUM
A big range up move confirms that the platinum
market remains in favor but platinum is also seeing gains on declining volume
and open interest. Apparently the platinum market is seeing a direct benefit
from the lower Dollar, which could mean that available US supplies are being
sought. We continue to think that platinum has the best fundamental setup of all
the precious metals.
COPPER
Little direction seen from Chinese copper action
overnight and that could leave the US copper market directly tied to the US
equity market. We have to think that the resurgence in energy prices and the
inability to hold gains in world equity prices is a dampening influence on
copper prices. Traders might suggest that July copper has to rally to 130.70
just to reverse the down trend channel but late last week copper had already
managed to regain moving averages and in a sense shifted the short term trend up
in copper.
CRUDE COMPLEX
The energy complex surprised a number of traders
yesterday as it quickly rejected the early weakness and raced back to the highs.
While a number of refinery problems gave the market a physical reason to start
the rally yesterday, the trade was also doubtful that Saudi Arabia would be able
to get enough supply to the US and that the US refinery industry would be able
to build the already tight gasoline supply to a more comfortable level. A Gulf
of Mexico deep water oil platform was shut down yesterday because of a
mechanical problem with a pump (and may be down for a couple weeks) and that
gave the early sellers Monday something to worry about.
NATURAL GAS
The funds wasted no time jumping into natural gas,
as the BTU pull from crude oil was clearly present and the liquidation last week
apparently set the natural gas market up for a sharp extension upward. In the
near term this isn’t about actually supply and demand, it’s about the perception
of future supply and the perception of constantly growing future demand. On the
weekly chart, natural gas hasn’t even reached highs for the year! In fact, the
next resistance point on the weekly chart comes in up at 7.00, with current
weekly prices at $6.69.