Futures Set To Open Slightly Lower

INTEREST RATES

It took the Treasury market almost all day
Thursday to pull in strong buyers, but in the end the market managed an
impressive upside pulse. Apparently the slight recovery bounce in energy prices
after the big early slide, combined with the ongoing pattern of weak economic
numbers to pull in a wave of fresh buyers. We think that the gains off the May
low prior to Thursday morning, were mostly short covering moves, but around mid
session Thursday, it seemed like fresh buyers stepped into the fray.

STOCK INDICES

The stock market continues to make sneaky gains,
as the market has developed a pattern of opening higher, giving up the gains and
then managing to climb into the close in a fashion that doesn’t embolden the
bull camp. We have to think that the chance for lower energy prices is providing
the lion share of the bullish tilt and some traders might even be buying stocks
off the theme that the Fed is being put off from a near term rate hike, by the
weakened pace of the numbers. If the market were in fact running up off the idea
of a delay in the rate hike timing, that seems to be a theme with a weak
foundation.

DOW

With the June Dow regaining the critical pivot zone of 10,200 yesterday and
probing above that level again this morning, it would seem like a partially
bullish tilt exists. However, the inability to hold above 10,200 might only be a
minor sign of weakness. As long as the numbers today point to positive growth
and energy prices fail to show strength, we suspect that a pre-holiday rally is
possible. The big question will be whether or not the market will actually hold
an early rally. The bias is up but we doubt that aggressive volume will come in
from the sidelines to throw prices into a sharp run.

S&P

Like the Dow, the June S&P also managed to rise above a critical pivot point at
1120.00 and is attempting to hold that level in the early going today. The
economic numbers should provide a positive tilt but we are not sure if the
energy market is going to be compliant with the wishes of the bull camp. Near
term upside resistance and an early target is 1125.40 but the early numbers have
to hint at ongoing growth.

FOREIGN EXCHANGE

US DOLLAR

While the Dollar has managed a slight bounce
overnight that bounce comes after a major failure yesterday. In order to turn
off the selling pressure the Dollar is going to have to see a distinct turn in
the numbers. For the week the US saw a series of weaker than expected numbers
and that simply undermined the outlook for the US recovery and caused many
traders to downgrade the prospect of a US rate hike in June. We suspect that the
upcoming US payroll report will rekindle concerns of a June rate hike but we are
not sure the market is ready to embrace that future number. In the mean time,
there is a chance that week ending short covering could provide the Dollar with
some light buying but if the early numbers don’t come in strong, there will be
little hope for a bounce. In fact, one has to assume that the near term trend is
down until proven otherwise or until the numbers really get your attention. In
order to turn the trend around the June Dollar would have to climb above 89.17,
with an even more important pivot point seen up at 89.42. If one were interested
in picking a bottom into the coming payroll report, it is important to realize
that a long play is fighting the trend. Therefore, look to buy a July Dollar 91
call for 44 so as to have a defined risk.

EURO

With the Euro moderately overbought on the week and
Euro zone Consumer Confidence readings coming out weaker we would expect a mild
profit taking correction in the Euro. However, the trade is currently fixated on
vulnerabilities of the US and won’t give the weaker confidence numbers that much
attention. Even the Euro zone May business Index contracted but with the ECB
thinking that inflation will remain above targeted levels, it could be difficult
to alter the uptrend pattern in the Euro. Expect a light correction to 122.30 or
to 122.00 in the event that US numbers come in closer to strong readings, than
to muted readings.

YEN

We are actually surprised that the Yen isn’t sharply
higher this morning, as the numbers out of Japan were very impressive. Household
spending made the biggest gain since 1975 and industrial output rose sharply.
Household spending was one of the nagging problems in the deflationary spiral in
Japan and now it looks like the Japanese economy is entrenched in the recovery!
Therefore, a minor correction in the Yen is probably a buy. Near term support is
seen at 90.10; buy that level in the June Yen.

^next^

SWISS

The Swiss is certainly overbought and vulnerable
from a technical perspective but given the magnitude of the gains, one has to
think that an uptrend might be in place. We continue to think that the majority
of gains in the Swiss are coming from the weak US outlook and therefore traders
should remain long the Swiss but constantly aware of what attitudes are in the
US bond market. A turn down in US bonds might preclude a top in the Swiss!

BRITISH POUND

Like the Swiss, the Pound is extensively overbought
and potentially vulnerable to a profit taking setback. However, the trend looks
to be up and the correction might be shallow. Near term support is pegged at
182.50 but aggressive traders might buy a break to 183.00.

CANADIAN DOLLAR

The Canadian is also overbought and potentially in
need of a light correction. As long as the Canadian holds above 73.35, we assume
that the near term trend is pointing up. We do wonder how much of the bullish
fuel in the Canadian is coming directly off negative US economic sentiment. In
other words, we suspect that the Canadian rallies as long as US Treasuries are
strong.

METALS

OVERNIGHT

London A.M. Gold Fix $393.85 +$2.40 LME
COPPER STOCKS 133,775 mt tons -1,425 tns COMEX Gold stocks 4.391 ml -54,683 oz
Comex Silver stocks 119.0 ml -597,583 oz

GOLD

Given the severe breakdown in the Dollar this week,
the gold market has to be gaining confidence in the bull trend. With the Dollar
falling to the lowest level since early April we suspect that a number of gold
bulls from last fall might be enticed back into the market. In the action
Thursday it was clear that Chinese copper buying led many traders to believe
that renewed gold and silver buying by the Chinese was possibly in the cards.

SILVER

Silver does not seem to be trading on its own
fundamentals with market direction tied to gold and the Dollar. Weak economic
numbers would suggest that industrial demand for silver may be turning soft.
However, speculative buying is returning to the silver market as the Dollar
weakens on ideas that the Fed will hold off hiking rates next month.

PLATINUM

July platinum looks to have run into resistance near
the 850 level and a correction in the Dollar could pressure the market back to
the 835 to 831 support area this session. The supply situation remains tight for
platinum, but the market will need a stronger global growth outlook to recapture
price levels seen in April.

COPPER

The copper market mounted an impressive and
surprising rally Thursday. Few in the trade expected the Chinese to suddenly
show up with physical buying interest, but that combined with the chance for
less negative influence from the energy complex allows prices to breakout up.
Some in the trade suggest that a sharply lower Dollar provided the explosion in
copper, but we are skeptical of that explanation.

CRUDE COMPLEX

Energy prices appeared to be in a breakdown mode
on Thursday. However some of the extensive losses were rejected in the close,
leaving some semblance of optimism. While we suspect that energy prices were
extensively overbought and were vulnerable to a correction, it is clear that
part of the washout was prompted by a tempering of big picture fundamentals.

NATURAL GAS

The natural gas market came under pressure Thursday
in the wake of heavy selling in crude oil. However natural gas continues to hold
up much better than the rest of the energy complex, which is indicative of a
more committed long camp. Recent weather forecasts are beginning to project
conditions conducive to higher cooling use, but so far the actual physical
demand focus hasn’t been a major factor driving natural gas prices.