Dollar Doldrums
Dollar Index – The U.S. Dollar continues to trade near all-time lows on weakness in financial stocks. The fallout from Freddie Mac and Fannie Mae continues to hang over the markets and the situation may worsen for both troubled lenders before it gets better. Both companies have stepped up their purchases of non-guaranteed subprime securities in recent months, opening the door for even larger write-downs in the near future. Making matters worse, profits at American Express tumbled due to a higher volume of consumer defaults, indicating the economic growth probably has not yet bottomed out. The banking crisis and weak consumer spending will likely preclude the Fed from raising rates this year, which favors the Euro and other overseas currencies and dims the chances of a larger-scale recovery. Fresh lows may lead to further unwinding of U.S. Dollar positions. The September Dollar Index chart shows the market in a solid downtrend, unable to even rally above the 9-day moving average in order to gain a bit of short-term upside momentum. If the market is able to hold recent lows and rally beyond the July 17 high of 72.675, the market may see a short-term recovery rally. Momentum has stayed fairly steady, despite recent price action, indicating the market may see a short-term bounce. Support comes in at 71.99, 71.76 and 71.515, while resistance may be found at 72.465, 72.71 and 72.94.
S&P – Disappointing earnings from American Express, as well as diminished growth outlooks from Apple and Texas Instruments, have sent stock futures tumbling in overnight trading. Traders who may have gotten a bit ahead of themselves on surprisingly good earnings reports last week and might be brought back to reality by this data. While larger money center banks appear to be seeing the light at the end of the tunnel, the worst may be yet to come for credit card companies and mortgage lenders. The increase in consumer defaults, coupled with a decreased appetite for discretionary purchases, may put credit card companies in a much more dire financial position. Because the card companies are generally not seen as quite as important in the grand scheme of the financial system as banks and mortgage lenders, the possibility of a government bailout is virtually non-existent. Technology stocks may continue to suffer the effects of an economic slowdown due to higher prices for necessities and the decreased purchasing power of consumers. Yesterday's spinning top candlestick pattern on the daily September e-mini S&P chart hinted at today's reversal of the recent uptrend, and traders may be looking for a weak close today to confirm a short-term reversal pattern. Rallies beyond the 1275 area and, more importantly, the psychological resistance at 1300 could attract bulls back to the market. Support comes in at 1254.75, 1247.75 and 1240.50, while resistance can be found at 1268.75, 1275.75 and 1285.75.
Gold – The sell-off in equities and lower U.S. Dollar has driven Gold prices higher in the early going. With economic conditions both in the U.S. and overseas weakening, traders may continue to pour money into Gold futures and ETFs. More importantly for the precious metals market, prices have somewhat detached themselves from energies and other commodities. Even if inflation begins to moderate, traders may opt to split their assets between precious metals and debt instruments to hedge against another ramp-up in inflation. Last week's decline in the August contract did not affect the technical outlook for Gold, as the market was able to confirm support at the previous resistance area of 950. Support comes in at 956.60, 949.50 and 943.30, while resistance can be found at 969.90, 976.10 and 983.20.
Rob Kurzatkowski, Commodity Analyst
