Oil Continues To Fall, Yen Takes a Plunge

U.S. 10-year Treasury bond prices continued to
fall today, on no news. Bond prices have been falling fairly steadily
since the beginning of December, when U.S. economic reports took a positive
turn, rebounding from a sluggish second half of 2006. Bonds initially shot
higher when the Fed began a rate-pause on slowing growth and moderating
inflation, and prices moved higher through the end of 2006. Growth and
inflation usually equal low bond prices, and economic weakness and slow growth
equate to higher bond prices. The housing market will remain a key
economic indicator for most investors moving into 2007; investors will continue
to closely monitor key housing reports for hints that more growth and confidence
are to come.

The yen fell to 4-year lows against the dollar
today, and moved lower against the euro, after a Japanese government report
showed a drop in retail sales last month. Japan has been under fire to
produce consistent positive economic reports to boost the yen, but has been
entirely unable to. The yen has been trading around lows for nearly a
month against both the euro and the dollar; last week political pressure from
the G-7 helped to boost the yen, but today’s report and currency action show
clear weakness in the yen. The international currency market favors
currencies backed by hot, inflationary economies. Europe has had no
trouble in producing positive, growth-oriented reports, and the U.S. is
beginning to turn itself around after a sluggish second half of 2006.
Investors will be paying close attention to the yen in the coming days.

Crude oil futures fell 2% today, on speculation
that U.S. inventories can easily handle any strain on supplies over the next few
weeks. Crude oil fell steadily through the second half of 2006, but has
begun to rebound into 2007. U.S. crude supplies are well-above the 5-year
average; the U.S. recently announced plans to double its strategic crude
reserves. OPEC has called for nearly 2 million barrels a day to be reduced
from global outputs, and has warned of more if prices do not stabilize.
However, confidence and supplies seem to be continuing to drive prices lower.
Natural gas futures fell over 3% today, driven lower by high inventory levels.

Gold futures fell around 0.4% today in trading,
driven lower by dollar strength against the euro and falling oil prices.
Gold usually trades inversely to the dollar and with oil, which is exactly what
happened today. Dollar strength and falling oil prices led to gold
selling; investors turn to gold as a safe-haven in the face of a falling dollar,
but yen weakness propelled gold higher. Copper prices fell over 3% on perceived
weakened demand and higher inventories across the globe.

Grain prices fell across the board. Corn
fell over 1% on speculation that President Bush will increase incentives to
boost grain supplies. Soy fell fractionally, and wheat also fell over 1%.

Economic News

No major U.S. economic news to report today.

John Lee


Start your trading day with

Futures Trend Matrix
designed to help you define the short-, intermediate-, and long-term trend for
more than 40 active futures contracts.