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June 2007 Archives

June 5, 2007

The European World Waits

Much of the currency world is awaiting the European Central Bank’s monetary policy decision. The European Central Bank’s interest rate decision is likely to make no impact, because the market has completely priced in a 25bp rate hike. This suggests that the EUR/USD will probably not budge on the actual rate announcement. Instead, what will move the Euro are the comments from ECB President Trichet at the accompanying press conference. We expect Trichet to remain optimistic about growth, but intentionally drop the words “strong vigilance,” regardless of whether he expects to raise interest rates beyond June or not. The markets will scour the accompanying statement for any clue on when the next tightening will occur.

Looking down, the Australian GDP recorded better than forecast 1.6% growth verses the 1.2% expected. This news has instantly raised market expectations of an RBA rate hike in the near future. Although the Reserve Bank of Australia chose to hold steady, keeping short term rates at 6.25%, if the Australian economy continues to demonstrate strong performance, the pressure on the monetary authorities to tighten will escalate considerably. The market’s attention will turn next to tonight’s employment change report due 0:30 GMT. Analysts expect a decline to 10K new jobs from 49.6K generated the month prior, but if employment data once again surprises to the upside the likelihood of another 25-basis point rate hike at RBA’s next meeting on July 3rd will be virtually guaranteed. Currently, the EUR/USD is down at 1.3502 and the AUD/USD is at .8428, with the GBP/USD sideways at 1.9933.

Canadian Dollar reaches new highs

S&P – Stock indexes are slightly higher this morning on speculation that M&A activity will continue to blossom. Kirk Kerkorian indicated that he is shopping around different options for his majority stake in MGM, signaling that he may sell his shares. Meanwhile, Freemont General, a troubled California lender, announced that it will sell its commercial real estate unit. Today is a release-free day, and in fact no economic data is being released until Thursday, when the market gets Durable Goods, New Home Sales and Initial Claims numbers to mull over. The recent trend for the S&P since bottoming out in March of last year has been to sell off near the end of the month. This is a sign that while the majority of players in the market are bullish, they are uneasy about the high index levels, and therefore liquidating positions to take profits at month’s end. The June S&P formed a gravestone doji pattern on the daily chart yesterday near the upper end of the uptrend channel. This signals a near-term bearish technical bias, especially when coupled with an overbought 74 percent reading on the 9-day RSI. Momentum remains strong at +39.60. Support comes in at 1518.80 and 1504.50, while resistance can be found at 1533.00 and 1540.20.

Corn – Corn jumped on news that China may slow exports and possibly import Corn, which gives bulls hope of lower ending stocks. Fundamentally, nothing has changed for Corn and the bias is neutral to bearish. Both planting and crop health are ahead of last year’s pace, which is evidently on traders’ minds this morning, with the December contract falling 5½ cents overnight. The weather looks good across the Midwest, with the exception of some farmers in the eastern part of the growing region griping that the rains may miss them. There are also reports from areas in Iowa and Nebraska that the heavy rains that they have experienced may have an adverse effect on recently seeded Corn. December Corn remains in slow downtrend, with 350 being the critical support area – both technically and psychologically. Declines beyond the 350 mark may trigger stops, accelerating the downtrend. Momentum turned positive yesterday to come in at +11 ¾ and the RSI comes in at a neutral 60 percent. In addition to 350, support can be found at 354 ½, while resistance comes in at 384 ¼ and 401.

Bonds – Bonds bounced back in late trading yesterday, as the stock market failed to hold early gains. The recent climb by the Greenback is indicating that investors are following the Fed’s tightening bias, which has impacted fixed income adversely. The strong stock market and record high gasoline prices have added to the Bond market’s woes. Thursday does offer a ray of hope for debt holders, as very weak New Home Sales and Durable Goods numbers may force the Fed to rethink its strategy. Yesterday’s bullish doji on the chart signaled an upward bias for the day, which has not panned out thus far. The June contract has broken support at 110-00, with 109-06 the next downside target. Momentum comes in at a bearish -1-12 and the RSI remains oversold at 23 percent, which may help support prices. Support can be found at 109-23 and 109-06, while resistance comes in at 110-24 and 111-05.

Dollar continues to fall

The EUR/USD broke through the 1.3500 mark last night from positive PMI Service numbers, posting 57.3 verses 57.1 forecasted. The PMI is the gauge for the overall performance of the German service sector. The Services PMI interviews German executives on the status of sales, employment, and their outlook. Because the performance of the German service sector is extremely consistent over time, services do not impact final GDP figures as much as the more volatile figure on the manufacturing sector. For this reason Services PMI usually causes little market movement, but last night, Euro bulls needed only a little prompting to move higher. The rally which has a current high of 1.3553 was finally tempered by less than stellar Euro-Zone Retail sales that rose by only 0.2%, verses the expected 0.5%. In addition to the European front, the Japanese Yen has made its own mark against the US Dollar and the Euro. Posting impressive gains to 121.11 verses the Dollar and 163.89 verses the Euro the Yen has rallied in lock step with the Shanghai index which staged a massive turnaround, regaining more than 300 points after dropping to 3400 in midday trade only. to end up 96 points for the day. Market rumors that Chinese government and ministry officials are planning to discuss how to stabilize the market through governmental controls have helped the turnaround. Currently the EUR/USD is trading at 1.3528 with the USD/JPY at 121.32 and finally the EUR/JPY at 164.15.

June 6, 2007

Spread traders sparking Heating Oil rally!

Normally, Heating Oil futures are quiet in the summer, as traders focus on Gasoline supplies going into the peak US driving season. However, the past few sessions, Heating Oil has out- performed its product mate, as low Heating Oil stocks and unwinding of Gasoline/Heating Oil spreads by large speculative accounts have caught traders by surprise. Since May 24th, the July Gasoline/Heating Oil spread has lost 10 cents, mostly tied to unwinding of the spreads. With refineries continuing to ramp-up production of Gasoline to meet current demand, Heating Oil bulls may be the biggest beneficiary of current tight Gasoline supplies. Turning our attention to this morning's EIA energy stocks report, traders are looking for refinery utilization to have increased last week. Current estimates are for a 0.5% increase to stand at 91.6%, but well below the above 94% rate average for this time of year. Analysts are expecting a moderate 100,000 barrel build in Crude Oil stocks, a 1.5 million barrel increase in Gasoline, and an 800,000 barrel increase in Distillates. The market has started to diminish the concerns about the disruption to Oil shipments in the Persian Gulf from cyclone Gonu, as no major damage is expected in Oman.

Looking at the daily chart for the July Gasoline/Heating Oil spread, we notice a potential double-bottom pattern forming the past two weeks, with Major support found near a 40-cent Gasoline premium. The upside target is seen at the 100-day moving average near an 18-cent Gasoline premium.

Energy Traders Focus on Products

RBOB – RBOB Gasoline is down for the third consecutive day, as the market appears well-supplied at the moment. Prices at the pump have begun to stabilize around the nation with no major disruptions to refineries. Energy traders will be looking past the Crude Oil number, focused on the gasoline and distillates number. A broad sell-off in the petroleum complex is likely if RBOB inventories rise. The daily July RBOB chart looks bearish and is close to confirming a double top formation measuring the $2 mark on the downside. Momentum comes in at a bullish +.0662, and the RSI is a neutral 39 percent. Support can be found at 2.1300 and 2.1170, while resistance comes in at 2.2700 and 2.3190.

Copper – Copper is trading over 3 cents lower this morning, unable to get a lift from shrinking LME inventories. Workers at Mexico’s largest mine, Grupo Mexico, are expected to strike beginning June 10th if a resolution is not reached, which could interrupt supply. The hangover from sagging manufacturing reports and the uncertainty of China’s near-term economic growth is keeping markets lower. Technical weakness has also kept bulls on the sidelines. The daily chart looks bearish due to the recent crossover of the 20 and 50-day moving averages, coupled with the reversal of trend. July Copper has formed a wedge formation since mid-May, which also suggests further weakness if the lower boundary is breached. Momentum comes in at a bearish -27.40, and the RSI is a neutral 62 percent. Support can be found at 333.85 and 317.25, while resistance comes in at 350.00 and 369.70.

Gold – Gold is trading two dollars lower this morning, as traders remain indecisive about market direction after the recent run-up. Weaker energy prices kept the market lower yesterday, despite weakness in the stock market. Gold may be able to get a lift if today’s EIA inventory report shows tightening supplies. The precious metal market has been unable to find support, despite weaker equity prices. The August Gold chart appears to be forming a bull flag formation, signaling possible advances beyond the 680 resistance area. Momentum is beginning to show some bullish divergence from the RSI, suggesting a slight bullish bias for the remainder of the weak. Momentum comes in at a bearish -21.80, and the RSI is a neutral 61 percent. Support can be found at 668.00 and 657.50, while resistance comes in at 680.00 and 692.50.