Credit Crisis Clearing?
Dow – Dow futures are slightly higher in overnight trading on positive credit market comments from Hank Paulson and the Bank of England. The U.S. Treasury Secretary suggested that the credit crisis was “closer to the end” and indicated that the economy is still growing at a very modest pace, backed up by yesterday's 0.6 percent advanced GDP figure. The BOE repeated the assessment that the worst may have passed, noting that appetite for risk and confidence will eventually make their way back into the credit markets. England's central bank also pointed out that balance sheet losses may be overstated due to “large discounts for illiquidity and uncertainty." Stock indexes have made decent progress of late, while fixed income and commodity markets – aside from energies and grains – seem to have faltered, suggesting that capital is returning to the equity market. Yesterday's FOMC statement was fairly neutral for the market. The quarter point rate cut was exactly what the market was expecting and the statement signaled the end of rate cuts, but was not as hawkish as many had expected. The June Mini Dow continues to trade above resistance at 12,770, signaling that the market may be beginning an up-trend. Price action is very sluggish and momentum is relatively flat, hinting that the market may labor in moving higher. Support comes in at 12725, 12642 and 12500, while resistance can be found at 12949, 13090 and 13173.
Crude Oil – The Oil market is trading lower this morning on a stronger U.S. Dollar. Exxon is resuming talks with Petroleum & Natural Gas Senior Staff Association of Nigeria in hopes of ending a weeklong strike that has cut over 800,000 barrels a day in production. Yesterday's EIA data suggests the U.S. is well supplied with Crude Oil, but Gasoline supplies remain uncertain ahead of the busy summer driving season. The FOMC statement was not as bearish for Oil prices as many had expected, with the Fed failing to emphasize inflation. Nonetheless, the central bank looks like it will at least take a break from its rate-cutting cycle, which may hurt demand. June Crude offered further confirmation of a short-term reversal from a spinning top formation. Yesterday's close below the 18-day moving average indicates that a near-term high may be in place. Momentum seems to be rebounding slightly this morning, despite the bearish price action, which can be seen as somewhat positive. Support comes in at 112.27, 111.09 and 108.87, while resistance can be found at 115.67, 117.89 and 119.07.
Dollar Index – The Dollar Index is trading higher this morning, aided by beliefs that the Fed may be done cutting rates. The June Dollar failed to get a lift from the FOMC statement yesterday, as currency traders were looking for a heavier emphasis on inflation. With the recent rebound in the stock market and a credit crisis seemingly nearing its end, the U.S. may receive an infusion of overseas funds to help support prices. The daily June Dollar chart is consolidating after rebounding from contract lows, suggesting prices may have more upside potential. The crossover of the 9- and 18-day moving averages to the upside is a positive development, and the contract is currently trading above the 50-day moving average – solid advances beyond the average may signal a reversal of the downtrend. Aiding the bullish technical sentiment, momentum is showing bullish divergence from RSI and remains above the zero line. Support comes in at 72.49, 72.26 and 71.86, while resistance can be found at 73.12, 73.53 and 73.75.
Rob Kurzatkowski, Commodity Analyst
