Foreign Exchange Archives

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.

The market gives and the market takes away!

Today on Wall Street, the Dow lost 146 points to bring the average down to 13,211. The S & P 500 dropped 18 to end the day at 1455 while the Nasdaq gave up 37 to close at 2546. Even though most of the day was spent in positive territory, the bears won the battle today with a down market on bad news from the mortgage sector.

Bonds finished the day higher in value with the 10-year note closing with a yield of 4.74%. With news from the mortgage sector pushing the market down, bonds had an “end of day” rally in the last hour of the day.

In the world of economic news, consumer confidence beat expectations coming in at 112.6. This is the highest it has been in six years. Personal spending came in right at expectations at .1% and personal income came in slightly below expectations at .4%.

In Asia, the Hang Seng was up almost 2% at 23,023 and the Nikkei was down slightly at 17,318.

Economic Data Scheduled for Wednesday, August 1, 2007

(All times are U.S. Central Time)

9:00 AM: ISM Index (Consensus 55.5)
9:30 AM: EIA Weekly Energy Stocks (Estimate CL -700k)


3:30 PM: PMI Manufacturing Index (Consensus 54.0)

European Union
3:00 AM: PMI Manufacturing Index (Consensus 54.8)


Crude for Thought!

Energy futures: After September Crude Oil fell just short of hitting an all-time high of $78.40 for the near-term contract yesterday, a modest profit-taking sell-off is taking place in early trade as traders square their positions ahead of this morning’s EIA weekly energy stocks report. Current estimates are for Oil stocks to have fallen by approximately 700,000 barrels last week, with refinery utilization expected to have increased by 0.7%. Gasoline stocks are expected to have risen by 1.1 million barrels, and distillates – including Heating Oil – are expected to have increased by 1.4 million barrels last week. In early trade, September Crude Oil is trading at $77.69, down $0.52.

Stock Index futures: Yesterday’s sell-off in the U.S. stock market spread overseas, with major European stock indexes down between 1 and 2 percent in early trade. Continued concerns over the subprime loan situation have stock index traders in a selling mood. After falling as low as 1442.25 overnight, S&P 500 futures are starting to come back before the day session begins. In early trade, mini-S&P 500 futures are trading at 1454.75, down 7.25.

Japanese Yen: September Japanese Yen futures rose to 3-month highs this morning, as continued risk aversion selling by large speculators is causing an unwinding of the so-called “carry trades” supporting the Yen. The Australian and New Zealand Dollars and the Euro Currency are among leading currencies taking a hit as the Yen rises. In early trade, September Japanese Yen futures are trading at .8488, up 0.0019.


Bulls charge ahead at the close!

Today was quite the sea saw battle between the bulls and the bears in the US stock market. In the end, the bulls won today’s battle. The Dow closed the day at 13,366 gaining 154 points. The S & P ended the day 10 points on the positive side of the fence while the Nasdaq closed at 2553, up 7 points.

In the news, pending home sales came out with a surprise increase of 5% for the month of June. This could be a leading indicator of new and existing home sales for the report coming out at the end of August. The ISM index came in below expectations at 53.8. The concensus was 55.5.

Bond yields were on the rise today as the 10 year note closed the day with a yield of 4.78%.

In the overseas markets, the Nikkei closed yesterday at 16,870 (down 2.19%) and the Hang Seng closed at 24,455 (down 3.15%).

Economic Data Scheduled for Thursday, August 2, 2007

(All times are U.S. Central Time)

7:30 AM: Initial Jobless Claims (Consensus 310K)
9:00 AM: June Factory Orders (Consensus +1.0%)


6:00 AM: BOE Interest Rate Decision (Consensus 5.75%)

European Union
4:00 AM: June PPI Mom (Consensus +0.3%)
4:45 AM: ECB Interest Rate Decision


Stock Indexes Fly, Make Bears Cry!

Stock Index futures: Mini-S&P 500 futures are trading flat this morning after a flurry of buying hit the screen in the last 45 minutes of trading yesterday to send the index up 30 points at its peak and allow for a sharply higher close. European stock index futures are up as well, with gains of between 0.5% and just over 1% seen in afternoon trading in Europe. In early trade, September mini-S&P 500 futures are trading at 1472.00, up 2.00.

Natural Gas: September Natural Gas futures are pushing to the upside in the early going, as traders square positions ahead of this morning’s EIA storage report. Current estimates are for a 76 billion cubic feet (bcf) build in Natural Gas stocks last week. Currently, 2.763 trillion cubic feet (tcf) of Gas is in storage – a record high for this time of year. In early trade, September Natural Gas is trading at 6.395, up 0.043.

British Pound: September British Pound futures are trading slightly higher this morning after the Bank of England (BoE) voted to keep interest rates unchanged at 5.75%. Though widely expected, there is now talk that the BoE will raise rates 25 basis points at its September meeting. In early trade, September British Pound futures are trading at 2.0291, up 0.0024.

Economic reports out today: U.S. economic data is light today, as traders gear up for tomorrow’s Non-farm Payrolls report. Today’s agenda includes:

7:30 AM CDT: Initial Claims for 7/28 (consensus 310k vs. 301k prior)

9:00 AM CDT: June Factory Orders (consensus +1.0% vs. –0.5% prior)


Bad Day For Bond Bulls!

Treasury Bond futures fell sharply this afternoon, as funds moved out of government debt and into stocks following yesterday’s FOMC announcement. In addition, futures were under pressure after the auction of $13 billion in new 10-year Notes drew a higher-than-expected yield of 4.855%. Indirect bidders – including foreign central banks – bought a 32.1 percent of the total, which was below expectations. Technical traders noted the September Bond contract moved below the 100-day moving average, which spurred some additional long liquidation. 108-07 is seen as the next support point for September Bonds, with resistance now seen at 109-22. September Bonds closed at 108-30, down 1-08.

September Japanese Yen futures tumbled to 2-week lows, as traders unwound risk aversion trades. A rally in global stock markets after the Federal Reserve declaration of moderate growth expectations for the U.S. economy was the catalyst for large speculative traders to re-enter so called “carry trades,” which put pressure on low-yielding currencies such as the Yen. Sell-stops were seen triggered once the September contract moved below the 100-day moving average, adding further selling pressure on the afternoon. 0.8337 is seen as support for the September Yen, with resistance found at 0.8514. September Japanese Yen futures closed at 0.8403, down 0.0073.


Getting Pounded!

British Pound futures fell to 1-month lows this morning, as large speculators continue to unwind so-called “carry trades” in light of the stumbling world credit markets. The British Pound was one of the favorite currencies for the carry trade model against the Japanese Yen, as the Bank of England’s benchmark rate of 5.75% makes it quite attractive versus the 0.5% rate in Japan. Now that traders are taking a more risk-averse stance to try to free up liquidity, the Pound and other higher-yielding currencies are being sold to buy back the borrowed Yen. In addition, tomorrow’s report on consumer prices for July is expected to show that prices grew at the slowest pace in more than a year. If so, this combined with the recent liquidity crunch may be enough evidence to keep Bank of England officials from raising rates to 6% at their next meeting.

Looking at the daily chart for the September British Pound, we notice prices falling through the 50-day moving average of 2.0130 this morning, which triggered further liquidation selling. However, prices have rebounded a bit, as higher world stock indexes gave some supportive buying to the Pound at lower levels. Momentum as measured by the 14-day RSI remains weak, with a current reading of 35.98. Bears have yet to test major psychological support at the 2.0000 level, which if taken out will set up a test of the 100-day mobbing average at 1.9967. Resistance is found at the 20-day moving average at 2.0366. In early trade, September British Pound futures are trading at 2.0130, down 0.0091.


Inflation Fears Subside, Rates Stay at 5.75?

British Pound: September British Pound futures fell below $2.0000 for the first time in nearly 6 weeks, after the U.K’s inflation rate dropped more than analysts had expected. Consumer prices rose by 1.9% in July, down from 2.4% in June and below the 2.2% consensus estimate. This was the first time the rate fell below the Bank of England’s 2% target rate in 16 months and gives cause for the BoE to keep rates steady at 5.75%. In early trade, September British Pound futures are trading at 1.9990, down 0.0135.

Soybeans: Soybean futures traded lower overnight, as yesterday’s USDA crop progress report showed 56% of the U.S. Soybean crop rated good to excellent as of Sunday – unchanged from last week. Traders were looking for a 1 to 2 percent decline in the crop ratings, which caused prices to give back some of Monday’s rally overnight. At the end of the electronic session, November Soybeans were trading at $8.79 ¼, down 2 ½ cents.

Gold: A stronger U.S. Dollar has put Gold futures on the defensive this morning, as lower growth and inflation rates in Europe are taking some of the shine off the precious metals sector. In addition, Gold traders will be looking toward this morning’s release of the July Producer Price Index (PPI) as a gauge to wholesale inflation levels in the U.S. In early trade, December Gold was trading at $679.00, down $1.90.

Economic Data Scheduled for Monday, August 14, 2007

(All times are U.S. Central Time)

7:30 AM: July PPI (Consensus 0.1%, Core 0.2%)
7:30 AM: June Trade Balance (Consensus -$61.0 billion)


Bears Plunder the Currencies Down Under!

Two of the favorite high-yielding currencies for traders putting on so called “carry trades” – the Australian Dollar and the New Zealand Dollar – have been hit hard of late, with the “Aussie” falling to lows not seen since May and the “Kiwi” dropping to levels last seen in April. The sharp declines have resulted from traders becoming more risk averse and looking for liquidity, as the subprime loan situation has spread outside of the U.S. The current 8.25% short-term rate in New Zealand and 6.50% rate in Australia have made these currencies favorites of large speculators and hedge funds as they borrow funds in low-yielding currencies such as the Japanese Yen (0.5% rate) and the Swiss Franc (2.50%) and invest in higher-yielding assets such as the “Aussie” and “Kiwi.” Now that these trades are being offset, the high-yielding currencies are being hit hard. If that weren’t enough, retail sales dropped for the second consecutive month in New Zealand, which has also put pressure on the currency, and business confidence in Australia was also weaker than expected last month, adding to “Aussie” woes.

Looking at the weekly chart for the New Zealand Dollar, we notice how quickly and sharply the market fell one the 20-week moving average was penetrated on a weekly closing basis. Just this week alone, “Kiwi” futures have lost 300 points, as sell stops are hit and liquidation selling continues. The next major support point is coming into view, with the 50-week moving average at 0.7070 being widely watched by technical traders. The 14-period RSI is hovering just above oversold levels with a reading of 30.12. Should the 0.7070 level fail t hold, the next major support point is seen at the March lows of 0.6722. Resistance is now seen at the May lows of 0.7230. In early trade, the September New Zealand Dollar is trading at 0.7134, down 0.0119, and the September Australian Dollar is trading at 0.8220, down 0.0120.
Mike Zarembski, Senior Futures Analyst


Another Volatile Day in the Markets!

Japanese Yen: Lead-month September Japanese Yen futures soared to highs last seen in July of 2006, as a sell-off in many of the major stock markets continues to inspire a flight to “safe haven “ securities such as short term government debt and traders continue to liquidate “carry trades.” Traders will also be closely watching today’s U.S. housing starts figures for July, with expectations for a slowdown to an annualized pace of 1.4 million versus 1.467 last month. In early trade, September Japanese Yen futures were hovering at 0.8788, up 0.0199.

S&P 500 futures: No recovery in early trade for U.S. Stock Index futures, as a sell-off in major world stock markets has caused the September mini-S&P 500 contract to fall below the 1400.00 level for the lead month contract for the first time since March. The beneficiary of the flight of funds from the stock indexes appears headed to U.S. Treasuries, with the yield on the two-year note falling to a 22-month low this morning. In the early going, September S&P 500 futures are trading at 1393.75, down 20.75.

Crude Oil: Lead month September Crude Oil gave back all of yesterday’s gains and then some in early trade, as fears of a global economic slowdown tied to falling equity markets caused fresh selling in the Crude market. This comes despite yesterday’s weekly EIA report showing U.S. Crude inventories falling by a larger-than-expected 5.17 million barrels last week. However, traders will be watching the track of Hurricane Dean, which is located about 500 miles east of Barbados early this morning. Though it is still too early to tell if the refinery operations along the U.S. Gulf Coast will be affected by this storm, traders are preparing for increased volatility in the Crude market going into the weekend. In early trade, September Crude Oil stands at $71.46, down $1.87.

Mike Zarembski, Senior Commodity Analyst

Economic Data Scheduled for Thursday, August 16, 2007

(All times in U.S. Central Time)

7:30 AM: July Housing Starts (Consensus 1.405 million)
7:30 AM: July Building Permits (Consensus 1.400 million)
7:30 AM: Initial Claims for week ending 8/11 (Consensus 315,000)
11:00 AM: Philadelphia Fed for August (Consensus 8.0)


Commodities Crash, But For How Long?

It was hard to find much green on the commodity quote boards today as liquidation selling pummeled nearly every commodity sector. Some of the highlights (or lowlights): December Cotton closed down the 300-point limit, September Lumber was down 9.50, November Soybeans were down 40 cents, December Gold was down $21.40, October Live Cattle was down 2.07, September Crude Oil dropped $2.33, and the list went on an on. The continuing shakeout from the credit crisis has spurred a flight to liquidity, with traders and investors looking to seek refuge in short-term government debt. Fundamentals were largely ignored in many markets, as forced liquidation of positions took center stage with margin calls looming. However, as of 2:46 PM Chicago time, the S&P 500 futures have staged a bit of a rally, and if they can finish unchanged or higher, we may see a different outcome in the commodity markets tomorrow.

Soybean futures were hit hardest in the grain complex sell-off this afternoon, with the most-active November contract falling the 50-cent limit at one point in the session to its lowest levels since mid-May. The entire commodity complex had been under pressure today due to the continued rush for liquidity in the wake of recent financial turmoil. Also weighing on the Soybean products was the improved chances for rainfall in the Midwest, including previously parched sections of the region. U.S. weekly Soybean exports came in at 313,300 metric tons for the week ending August 9th, with 236,000 mt for the 2006-07 marketing year. Soy products were not immune from the sell-off, as December Bean Oil posted triple-digit losses on the back of sharply lower Crude and Malaysian Palm Oil futures, and December Soy Meal broke through near-term resistance at the 20- and 100-day moving averages. The next support point for November Soybeans is seen at the psychologically important $8.00 level, with resistance found at the 100-day moving average of $8.34. November Soybeans closed at $8.14 ½, down 40 cents.


Traders Getting “Energized” for Today’s EIA Report!

Energy futures: After briefly falling below $69 on Tuesday, analysts will be watching for a rebound in Oil prices after this morning’s weekly EIA energy stocks report. Traders are anticipating between a 2.5 million and 3 million barrel decline in Crude stock last week, with the continued backwardation of Oil futures prices discouraging the storing of Oil. Gasoline stocks are expected to fall by between 600,000 and 800,000 barrels and Distillates – including Heating Oil – are expected to show a build of 800,000 barrels last week. In early trade, October Crude Oil is at $69.84, up $0.27, October RBOB Gasoline is at $1.8312, up $0.0135, and October Heating Oil is at $1.9770, up $0.0070.

Canadian Dollar: Fears that tightening credit concerns worldwide will force the Bank of Canada to change course and lower interest rates at its September 5th meeting have hurt the Canadian Dollar. With rates currently at 4.5%, the market initially was looking for one or perhaps two more rate hikes by the end of 2007, with inflation standing as the Bank’s top priority. However, in light of the recent credit crunch that view has changed, and short-term Canadian interest rate futures are now pricing in rate cuts by the end of the year. However, continued belief that the U.S. Federal Reserve will cut interest rates at its September 18 meeting has put a bid into the “loonie” this morning. In early trade, the September Canadian Dollar is sitting at 0.9456, up 0.0054.

Stock Indexes: Higher Stock Index futures in Europe are spilling over to the U.S. market, as traders believe the Federal Reserve will lower rates to help stem the credit crisis and keep the U.S. economy on track. This comes after yesterday’s meeting with Federal Reserve Chairman Ben Bernanke, Treasury Secretary Henry Paulson, and Senate Banking Committee Chairman Christopher Dodd, in which Dodd was quoted as saying that Bernanke agreed to use “all of the tools at his disposal'' to help stabilize the financial markets. Many analysts believe this includes lowering the Fed Funds rate at the Fed’s upcoming September 18th meeting. In early trade, September e-mini S&P500 futures are at 1460.75, up 10.50, and September Dow Jones futures are at 13191, up 74.

Mike Zarembski, Senior Commodity Analyst


Carry On My Wayward Traders!

Japanese Yen/currencies: It appears that an appetite for risk among traders and investors has returned in the currencies. September Japanese Yen futures are sharply lower this morning, as traders start to sell Yen and buy higher-yielding currencies such as the Australian and New Zealand Dollars, once again initiating the so-called “carry trade.” The resumption of this popular trade appears to be bolstered by stabilization in world equity markets, as well as assurances from central banks around the globe that they will step in to supply liquidity as necessary to the short-term credit markets. In the early going, September Japanese Yen is trading at 0.8591, down 0.0131, September Australian Dollar is trading at 0.8192, up 0.0134, and the September New Zealand Dollar is trading at 0.7154, up 0.158.

Chicago Wheat: Soft Red Winter Wheat futures continued their surge to near all-time high prices overnight, as several more nations are seeking Wheat purchases amid continuing tight world supplies. Taiwan, Japan and India are either looking to purchase or have already announced purchases of Wheat this morning. India is the second largest Wheat consumer behind China, and additional purchases from this region are strongly supportive to Wheat prices. In addition, there are concerns that Australia, the world’s third largest Wheat exporter, may experience warmer than normal temperatures this spring according to some forecasters, which has the potential to hurt crop yields. At the end of the overnight session, December Wheat was trading at $7.43, up 11 ¼ cents.

Sugar: October Sugar surged to near 2-week highs this morning, as Russia proposes to raise its raw Sugar duty from $140 per ton to $220 per ton. This news is expected to increase short-term demand as buyers obtain supplies ahead of the scheduled December increase. In early trade, October Sugar stands at 9.69, up 0.19.

Mike Zarembski, Senior Commodity Analyst


Get Energized!

Energy Futures: Overnight buying has sent energy futures prices to the upside this morning, as traders prepare for the weekly release of the EIA energy stocks report. Gasoline will be in the spotlight, with traders looking for a decline of 1.8 to 2 million barrels last week. Crude inventories are also expected to show a decline, with estimates ranging from a decline of 600,000 to 1 million barrels. Distillate stocks – which include Heating Oil – are expected to show a 600,000-barrel rise. In early trade, October Crude Oil is trading at $71.99, up $0.26, October RBOB Gasoline is trading at $1.9305, up $0.0151, and October Heating Oil is trading at $2.0230, up $0.0072.

Soybeans: New crop November Soybeans traded lower in the overnight session, as traders expect the USDA will raise its estimate for the U.S. crop in the September 12th production report. Last week, Professional Farmers of America estimated the U.S. Soybean crop at 2.658 billion bushels versus the August USDA estimate of 2.625 billion bushels. Soybean crop conditions improved last week, with 55% of the crop now rated good-to-excellent, up 1% from last week. At the end of overnight trading, November Soybeans stood at $8.68, down 4 ¼ cents.

Japanese Yen: September Yen futures are trading lower for the first time this week, as traders have lowered expectations that the Bank of Japan will raise short-term rates by 0.5% anytime soon. In addition, higher U.S. Stock Index futures this morning have some traders re-establishing the so called “carry trade” using the Yen as the short side of the trade especially against the Australian and New Zealand Dollars. In early trade, September Japanese Yen futures are trading at 0.8721, down 0.0032.

Mike Zarembski, Senior Commodity Analyst

Economic Data Scheduled for Wednesday, August 29, 2007

(All times in U.S. Central Time)

9:30 AM: Weekly EIA Energy Stocks Report


Gold Can't Hold Above $690!

Gold: After trading at 5 ½ week highs and moving above the key $690 level yesterday, profit-taking selling has emerged in early Gold trade this morning, with weakness in European and Asian stock markets and a stronger U.S. Dollar index giving traders a reason to lighten up on long positions. Currently, December Gold is trading at $688.90, down $2.60

British Pound: Consumer confidence levels fell to 4-month lows this morning, as the Nationwide Building Society’s index of sentiment fell to a reading of 94 – its lowest level since April. The spending index bottomed out for the year, dropping 7 points to a reading of 79. This sent September British Pound futures lower, as traders believe the Bank of England will keep interest rates steady tomorrow. In early trade, September British Pound futures are trading at 2.0102, down 0.0039.

S&P 500 futures: September e-mini S&P 500 futures are giving back most of yesterday’s gains in early trade this morning, as traders fear recent upheaval in the credit markets will hurt earnings in the 3rd quarter. Also hurting stock futures was the forecast from the Organization for Economic Cooperation and Development lowering its 2007 growth estimate for the U.S. to 1.9%, down 0.2% from the previous forecast. In early trade, September e-mini S&P 500 futures were trading at 1479.50, down 10.00.

Mike Zarembski, Senior Commodity Analyst

Economic Data Scheduled for Tuesday, September 5, 2007
(All times in U.S. Central Time)
9:00 AM: Pending Home Sales for July
1:00 PM: Fed Beige Book


$76 Crude Oil, Yet Supplies are Adequate?

Energy Futures: Lead month October Crude Oil rose past the $76 level in early morning trade, as traders fear recent refinery outages may have crimped fuel supplies. Refinery utilization last week is expected to have fallen below the previous week’s 90.3% capacity rate, which would not bode well for increased supplies of Gasoline. Traders are gearing up for this morning’s weekly EIA energy stocks report, one day later than usual due to the Labor Day holiday. According to a Bloomberg survey, Crude Oil stocks may have fallen by 2.2 million barrels last week. Gasoline stocks were estimated to show a 1.3 million barrel decline. Next week’s OPEC meeting in Vienna is not expected to produce any policy changes in current output, as several Oil ministers have recently announced that the supply of Oil is adequate to meet current demand. In early trade, October Crude Oil is trading at $76.12, up $0.39, and October RBOB Gasoline is trading at $2.0070, up $0.0105.

Wheat: Profit-taking selling came into the Wheat market overnight, as prices eased off record highs made yesterday. However, Wheat tenders continue, with Japan purchasing 175,000 metric tons of milling Wheat from the U.S., Australia, and Canada this morning.
Australia continues to suffer from poor weather conditions, with South Australia state – the third largest producer for the country – now expected to produce nearly 25% less Wheat than previously expected. At the end of the overnight session, December Chicago Wheat was trading at $8.20 ¼, down 15 ¼ cents.

British Pound: September British Pound futures were trading slightly lower in early trade, after the Bank of England kept interest rates steady at 5.75%. This pause comes after 5 straight rate increases this year, and until recently many economists were looking for another increase to 6% by the start of the fourth quarter to help keep inflation in check. In early trade, September British Pound futures were trading at 2.0182, down 0.0021.

Mike Zarembski, Senior Commodity Analyst

Economic Data Scheduled for Thursday, September 6, 2007
(All times in U.S. Central Time)


7:30 AM: Initial claims wk-9/1 (Consensus 330,000)
7:30 AM: 2nd qtr Productivity revised (Consensus 2.4%)
9:00 AM: ISM Services for August (Consensus 54.5)
9:30 AM: EIA Energy Inventories


August Jobs Data Sends Shockwaves Through the Financial Markets!

What a way to end a holiday-shortened week, as traders brush off the “unofficial” end of summer and face a shockingly weak Non-farm Payrolls report for August. This morning the Labor Department reported that payrolls for August fell by 4,000 jobs versus pre-report expectations of a rise of between 90,000 and 110,000 jobs. As if that were not enough to send shivers through Fed officials, job creation figures for July were also revised down from the 92,000 originally reported to only 68,000, and June payrolls were lowered from 126,000 jobs to just 69,000. Once again, manufacturing jobs suffered, falling by 46,000 jobs last month – the sharpest drop in over 4 years. The slump in the U.S. housing market is starting to take its toll on the labor market as well, with the construction sector shedding 22,000 jobs. Not even government could help the labor market, as public sector jobs fell by 28,000. Service sector hiring was one of the few bright spots in today’s numbers, posting a fairly modest 60,000 jobs gain. The unemployment rate held steady at 4.6%, and average hourly earnings met expectations, rising by 0.3%.

Short-term interest rate futures were the biggest gainers on today’s news, with December Fed Funds futures pricing in a 4.25% Fed Funds rate by end of the year and a 50% chance that rates could be cut to 4%. The Fed Funds rate currently stands at 5.25%. The long end of the yield curve was also in a bullish mode, with December 30-year Bonds moving up by over one full point at the day’s peak. Stock indexes were down sharply across the board, with the Russell 2000 and S&P 400 mid-cap futures among the hardest hit. The U.S. Dollar plunged as traders continued to price in further interest rate cuts by the Fed, especially against the Japanese Yen and the Swiss Franc. So called “carry trades” were being unwound, with the Aussie/Yen and Kiwi/Yen combos bearing the brunt of the punishment. The metals complex had mixed messages for traders, with the precious metals – especially Gold – performing well, as investors move some assets over as a hedge against the volatile stock and bond market activity seen during the past few weeks. Meanwhile, base metals were weaker, with Copper falling moderately on concerns that a slowdown in the U.S. economy may turn into a recession that would adversely affect industrial activity. Today’s figures put an even bigger spotlight on the Fed’s next meeting scheduled for September 18th, as traders and economists look at not only what the Fed will do with interest rates, but how it views the overall health of the U.S. economy given recent economic data and events.

Mike Zarembski, Senior Commodity Analyst


Traders Sack the Greenback!

The U.S. Dollar continues to take a beating, with September Dollar Index futures at lows not seen since September of 1992, as fears of a slowdown in the U.S. economy signals a need for the Federal Reserve to cut interests rates. Friday’s employment report shocked traders, as August payrolls unexpectedly fell by 4000 jobs. This news, combined with the recent credit crisis brought on by the subprime loan situation, has suddenly renewed fears that a recession is possible. Yesterday, Fed Governor Mishkin and Fed Bank of San Francisco President Janet Yellen both spoke of slowing growth in the U.S. due to credit market woes. Fed Fund futures are now pricing in a 76% chance that the Fed will lower rates by 50 basis points at its September 18th meeting. This comes after the European Central Bank kept interest rates steady and did not rule out the possibility of a rate hike by the end of the year if the credit situation improves. The potential narrowing of the yield differentials between the U.S. and Europe is a negative for the U.S. Dollar, as Dollar-denominated investments become less attractive to foreign buyers. However, there are some analysts who believe the Dollar has become oversold at current levels and expect a rally, especially if investors start to liquidate foreign investments for the safety of U.S. Treasuries as the recent volatility surrounding the credit crunch continues.

Looking at the daily chart for the September Dollar Index, we notice prices holding well below all the major moving averages. Momentum is very weak as new contract lows are being made today. The 14-day RSI has moved into very oversold territory, with a reading of 18.93. 78.95 appears as the next support point for the September Dollar index, with the September 1992 lows of 78.43 being a major line in the sand for Dollar bulls. In early trade, September Dollar index futures are trading at 79.74, down 0.07.

Mike Zarembski, Senior Commodity Analyst


The Other “Carry Trade” Currency

The Swiss Franc has played second fiddle to the Japanese Yen as the currency of choice for the borrowing side of the so-called “carry trade.” In these setups, investors borrow funds in a low-yielding currency such as the Yen or the “Swissy,” and lend funds in a higher-yielding currency such as the Australian or New Zealand Dollar. The ultimate goal is to hopefully profit from the difference in yields, but risk comes into play if the borrowed currency rises more than the lending currency. Switzerland’s short-term rate is the second lowest of the major world economies, thus making it a solid choice as an alternative to the Yen for carry trade speculators. This morning, the Swiss National Bank is expected to raise interest by 25 basis points to 2.75% to help keep inflation under control. This move is counter to the ECB’s decision to keep rates steady, as fears of a slowdown in world economic growth due to the U.S. subprime loan situation and recent short-term credit crunches had central bankers shifting their focus temporarily away from inflation and more toward recent economic events. The Franc has already risen 2.1% versus the Greenback this month alone, and another rate hike may force traders to continue to unwind carry trades involving the Swissy, which might continue to stoke the Franc’s rise against the U.S. Dollar.

Looking at the weekly chart for Swiss Franc futures, we notice prices trading at highs not seen since 2005. Prices are above all of the major moving averages, and the uptrend – which officially started back in late 2005 – looks firmly intact. The 14-period RSI appears strong with a current reading of 67.32. 0.8756 is seen as the next major resistance point, with support found at 0.8375. December Swiss Franc futures are currently trading at 0.8516, up 0.0012.

Mike Zarembski, Senior Commodity Analyst


Can’t Go Up Every Week!

Ten-year Note futures: Barring any surprisingly weak U.S. economic data this morning, December Ten-year Note futures look to be headed for a down week, with flight-to-quality buying of U.S. government debt waning as the short-term credit crunch eases a bit. Traders are expecting today’s report on U.S. retail sales for August to show an increase of 0.5% versus a 0.3% rise in July. Also out this morning is the Reuters/University of Michigan Consumer Confidence Index, which is expected to show a reading of 83.5 for September, up 0.1 from August. In early trade, December Ten-year Notes were trading at 109-310, up 0-100.

Wheat: The long-awaited correction in Chicago Wheat futures has begun, after the “buy the rumor, sell the fact” decline in prices following Wednesday’s USDA crop production and supply/demand reports. Since reaching an all-time high of $9.11 ¼ on Wednesday, December Wheat has fallen as low as $8.28 in early trade this morning. Traders will be eagerly awaiting the September 18th crop estimate by the Australian Bureau of Agricultural and Resource Economics for the official estimate of the Australian Wheat crop. The USDA estimated the Australian crop at 21 million metric tons, down from 23 million metric tons in its August estimate. However, some private forecasters are calling for a crop as low as 12 million metric tons. At the end of the overnight session, December Wheat is trading at $8.36 ¼, down 8 ¾ cents.

Japanese Yen: Yen futures are poised for their first weekly loss in nearly three weeks, as an improvement in world equity markets and a slight easing of the recent credit crisis has traders starting to resume the so-called “carry trades.” The Yen was especially weak versus the New Zealand Dollar, with the high interest rate differential between the two countries making this pair among the most popular with speculators looking for high returns. In early trade, the December Japanese Yen was trading at 0.8810, up 0.0034.

Mike Zarembski, Senior Commodity Analyst

Economic Data Scheduled for Friday, September 14, 2007
(All times in U.S. Central Time)

7:30 AM: Retail Sales for August (Consensus 0.5%)
8:15 AM: Industrial Production for August (Consensus 0.3%)
8:15 AM: Capacity Utilization for August (Consensus 82.0%)
9:00 AM: Business Inventories for July (Consensus 0.3%)
9:00 AM: University of Michigan Sentiment Index for September (Consensus 83.5)


Fed Ignites Futures Traders With Surprising 50 Basis Point Rate Cut!

It was a wild afternoon for futures traders, especially after the Federal Reserve surprised some traders by lowering the Fed Funds rate by an aggressive 50 basis points to 4.75%. The FOMC vote was a unanimous 10-0 for the rate cut. The Fed also lowered the Discount Rate by 50 basis points to 5.25% – the second such cut in a month’s time. The news sparked an aggressive rally in Stock Index futures, with e-mini S&P 500 futures up well over 30 points at the peak. Bulls were also stampeding over to the metals sector, with December Gold trading over $730 per ounce, and December Silver leaping by nearly 25 cents. The energy complex was also sharply higher, with October Crude Oil futures moving above the $82.00 level for the first time. However, the cut was bad news for the U.S. Dollar, with the December Dollar index falling over 50 ticks at one point, as traders punished the greenback and the Japanese Yen. Long-term interest rate futures also posted sharp losses this afternoon. Traders now expect further interest rate cuts are in the offing, with March 2008 Eurodollar futures pricing in a 100% chance of a 4.5% Fed Funds rate by the first quarter of 2008, and an 88% chance of a 4.25% rate.

Mike Zarembski, Senior Commodity Analyst


Your European Vacation Just Got a Bit More Expensive!

Euro Currency: December Euro Currency futures climbed to a new all-time high this morning, as traders continue to sell the U.S. Dollar against the major currencies ahead of Federal Reserve Chairman Ben Bernanke’s appearance today before Congress. He is expected to comment on the risks to economic growth due to the U.S housing crisis. In early trade, December Euro futures are trading at 1.4053, up 0.0074.

Treasury futures: The Treasury yield curve continues to grow steeper, with the Two-year/Ten-year Note spread widening as much as 57 basis points – the widest spread since spring of 2005. The moves in the yield curve can be traced to expectations that recent Fed interest rate cuts and a slumping U.S. Dollar will raise inflation prospects. The longer end of the yield curve is normally more sensitive to changes in inflation expectations. Current cash market yields are 4.56% for the Ten-year Note and 4% for the Two-year Note in morning trade in London. In early trade, December Two-year Note futures are trading at 109-115, down 0-075, and the December Two-year Notes are trading at 103-1475, down 0-0050.

Crude Oil: Oil futures continue to post gains, as U.S. Crude stockpiles continue to fall. In yesterday’s EIA energy stocks report, Oil inventories fell by a larger than expected 3.8 million barrels last week. In addition, supplies in Cushing, Oklahoma – the delivery point for the NYMEX WTI Oil contract – fell by 1.7 million barrels to 18.3 million barrels. Traders continue to bid up prices in anticipation of increasing demand and the possibility of tight supplies going into the winter. In early trade, November Crude Oil is trading at $80.68, up $0.45.

Mike Zarembski, Senior Commodity Analyst

Economic Data Scheduled for Thursday, September 20, 2007
(All times in U.S. Central Time)

7:30 AM: Initial Jobless Claims – week ending 9/15 (Consensus 320k)
9:00 AM: Leading Indicators for August (Consensus 0.0%)
11:00 AM: Philadelphia Fed (Consensus 2.5)


El Peso Mexicano subió contra el dólar de Estados Unidos

(The Mexican Peso Gains Against the U.S. Dollar)
Mexican Peso: December Peso futures are trading near two-month highs in early trade, after Banco de Mexico kept interest rates steady at 7.25% of Friday, but maintained a “restrictive bias” which is leading traders to believe that the Bank will raise rates later this year due to rising inflation concerns. The interest rate differential between Mexico and the U.S. has risen to 2.5%-the highest since April of last year. In early trade December Mexican Peso futures were trading at 90775, up 75.

Crude Oil: Oil futures were moderately lower to start Sunday night trading, as workers returned to Oil facilities in the Gulf of Mexico after tropical storm threats have passed. In addition, a senior Iranian official said that current market fundamentals would not support Oil prices above $80 per barrel, as the current market backwardation will cut demand. In overnight trade, November Crude Oil was trading at $81.34, up $0.28.

Wheat: Chicago Wheat futures start the week where it left off on Friday with a sharp rally, as continued dry weather in Australia has traders looking for a further decline in Wheat production. Wheat futures in Australia hit a record A$492 per metric ton today, as weather forecasts now call for continued dry weather for the next 10 to 14 days. In overnight trade, December Wheat was trading at $8.90, up 16 cents.

Mike Zarembski Senior Commodity Analyst

Economic Data Scheduled for Monday, September 24, 2007
(All times in U.S. Central Time)


Great Britain


European Union
4:00 AM: Industrial New Orders for July (MoM) (Prior 4.4%)


The Other Dollars

Not every Dollar currency is in the dumps. The Australian and New Zealand Dollars are performing quite well, with traders moving funds down under to capture the wide interest rate differentials between the U.S. and these countries. Currently, Australia’s short-term rates are 1.75 points higher than the U.S. and New Zealand’s are a whopping 3.5 points higher! The outlook for a weakening U.S. economy has traders looking for additional interest rate cuts in the U.S. this year, which furthers the appeal of investing in Australian and New Zealand government debt, with the countries’ stability and relatively high yields attracting investors. Traders in these so-called “carry trades” also favor the Aussie and Kiwi against the Japanese Yen and the Swiss Franc – the most popular “borrowed” currencies.

Looking at the daily chart for the December New Zealand Dollar, we notice prices continuing to hover near 6-week highs. Prices seem to be tracking closely to the 100-day moving average, and a weekly close above this key moving average would be considered a friendly sign towards the Kiwi. However, the 14-day RSI is hovering in overbought territory, with a current reading of 73.27. Resistance is seen at the recent highs of 0.7430, with major support found at 0.7173. In early trade, December New Zealand Dollars are trading at 0.7384, up 0.0020.

Mike Zarembski, Senior Commodity Analyst


Happy Fourth Quarter Everyone!

Copper: A potential strike at Southern Copper Corp. in Peru has sparked a rally in Copper futures this morning, as traders fear a slowdown of production if workers do indeed walk off the job tomorrow. Copper demand continues to outpace production, as demand from China – the world’s largest consumer of the red metal – continues unabated. The London Metal Exchange reported Copper stocks fell by 100 metric tons to stand at 130,675 mt. In early trade, December Copper is trading at 366.40, up 2.40.

Coffee: Traders awoke to the smell of a Coffee rally to start the quarter, as both London and New York Coffee futures were trading sharply higher on fears of potential crop damage in Brazil due to dry weather. Recent weather forecasts have taken rain out of the picture for the main Coffee-growing regions of Brazil this week. In early trade, December Arabica Coffee is trading at 134.55, up 5.90.

Japanese Yen: December Yen futures are on the defensive this morning, as higher world stock indexes over the past several sessions are providing confidence for traders to re-establish Yen carry trades. The Yen is especially weak against the New Zealand Dollar, as the wide interest rate differentials make this pair a favorite for carry trade speculators. In early trade, December Yen futures are trading at 0.8730, down 0.0067.

Mike Zarembski, Senior Commodity Analyst


Too Much of a Good Thing?

The end of the third quarter left smiles on the faces of Euro Currency bulls, as the 13-nation currency soared to all-time highs against the U.S. Dollar. This means that Dollar-denominated goods are cheaper for those holding Euros, and those vacations to Disneyland are now more affordable for European travelers. However, not everyone in Europe is happy about the currency’s strength – French President Nicolas Sarkozy is among the most vocal European leaders demanding that the European Central Bank (ECB) cut interest rates to stop the surging Euro. The belief is that the strong Euro is hurting European exports, with those supporting a weaker Euro citing a decline in German exports in July as a sign that a strong Euro is curtailing demand from American an Asian buyers. In addition, the spread of the recent credit crunch to Europe is also a cause for alarm, and may take some of the luster off the Euro as a speculative play.

Looking at the daily chart for December Euro Currency futures, we notice aggressive selling taking place after a new contract high was made at 1.4302 earlier in the session. The 14-day RSI reached extremely overbought levels on Friday, closing at 89.86 (readings over 70 are considered overbought). With prices moving up over 9 handles since the middle of August, a bit of profit-taking selling would not be out of line, especially if economic reports continue to show European business activities starting to slow. The next support point for the December Euro is seen at 1.4081, with resistance found at today’s highs of 1.4302. In early trade, December Euro Currency futures are trading at 1.4250, down 0.0043.

Mike Zarembski, Senior Commodity Analyst


Factory Orders Peak Traders’ Interest Ahead of Tomorrow’s Payrolls Report

Ten-year Notes: Interest rate traders are focused on tomorrow’s September non-farm payrolls report, but will have to digest what is expected to be a weak U.S. factory orders report first. The Commerce Department is expected to announce that factory orders in August fell 2.8%, according to a Bloomberg survey of economists. This compares to a 3.7% rise in July. In early trade, December Ten-year Note futures are trading at 109-105, down 0-045.

Copper: After a run to contract highs yesterday, December Copper is giving back some of its recent gains this morning, as officials of Southern Copper Corp. agreed to meet with workers at its Peruvian mines to try to settle the strike that started on October 2nd. Traders should expect trading to remain light in coming days, with China – the world’s largest consumer of Copper – on a weeklong holiday. In early trade, December Copper is trading at 373.20, down 2.15.

Euro Currency: December Euro Currency futures are little changed, as traders await an announcement by the European Central Bank on interest rates. The ECB is expected to leave rates steady at 4%, dashing hopes for a 25 basis point increase due to credit market concerns. In early trade, December Euro Currency futures are trading at 1.4127, up 0.001.

Mike Zarembski, Senior Commodity Analyst


Can a Currency Be Too Strong?

Euro Currency: December Euro Currency futures fell to 3-week lows in early trade, as European finance ministers attempt to talk down the Euro out of concerns that the currency has gotten too strong against the Dollar and the Japanese Yen. This has caused speculators long the Euro to start booking some profits. In early trade, December Euro Currency futures are trading at 1.4052, down 0.0106.

Cocoa: New York Cocoa prices are supportive this morning, defying bearish fundamentals of a rise in Ghana’s Cocoa production forecast and a sharply higher U.S. Dollar against the British Pound. In addition, the Cocoa harvest in the Ivory Coast has begun, which may spur some origin hedge selling on any rally attempts. In early trade, December Cocoa was trading at $1835, up $19.

Crude Oil: The sell-off continues in the Crude Oil market, as traders expect a build of U.S. Oil inventories last week. According to a Bloomberg survey of analysts, U.S. Oil stock rose by 1.5 million barrels last week, as refinery usage declined due to seasonal maintenance. As a reminder, this week’s EIA energy stocks report will be out on Thursday at 9:30 AM – instead of Wednesday – due to the Columbus Day holiday on Monday. In early trade, November Crude Oil is trading at $78.57, down $0.59.

Mike Zarembski, Senior Commodity Analyst


What Credit Crunch?

Copper: Copper futures are bucking negative news this morning to move higher in early trade. Workers for Southern Copper Corp. ended their weeklong strike after agreeing to let the government set wages. In addition, LME Copper stocks rose by 1,775 metric tons this morning. However, fund buyers took advantage of an earlier price dip to purchase Copper. 3-month Lead futures made a new all-time high of $3,860 per ton this morning. In early trade, December Copper is trading at 366.75, up 4.35.

Two-year Notes: Yields on Two-year Notes continue to rise, as the risk premium for buying Treasuries wanes. Also affecting yields was the reaction to the release of the Fed minutes from its September 18th meeting, which gave no indication that interests rates will be cut again after the 50 basis point reductions last month. In early trade, December Two-year Note futures were trading at 103-0600, down 0-0100.

Japanese Yen: December Yen futures continue to hover near 8-week lows, as traders re-establish so-called “carry trades.” Risk appetites appear to have increased, as traders look for higher-yielding assets in which to invest their borrowed funds. However, Yen futures continue to hover just above the 100-day moving average at 0.8556, which should act as support. In early trade, December Japanese Yen futures were trading at 0.8584, down 0.0020.

Mike Zarembski, Senior Commodity Analyst


Currency Notes

The U.S. Dollar continues to be predominately weaker against most of the major currencies, with the exception of the Japanese Yen. Equity, energy and metals markets are surging higher, helping to sustain the fundamental bearish spot market trend for the buck. Meanwhile, higher export commodity market prices for Crude Oil, Gold and Silver are boosting currency values relative to the greenback for countries such as Canada, Australia and New Zealand. However, these commodity markets are beginning to reach overvalued technical levels, which may lead to a downward short-term correction and negatively impact currency prices.

Investment funds are seen moving back into carry trades, fueling fresh selling of the Yen against the majors. Borrowing Yen to fund higher-yielding investments may remain an attractive strategy for the time being, after the Bank of Japan decided to leave interest rates unchanged at 0.5% yesterday. The risk for the Yen in this situation is the rapid unwinding of these carry trades in massive quantities, which can cause abnormal price movement to the upside that the Central Banks do not favor in the least. This has led to concern among politicians and voting bank members in Japan over the decision not to move rates higher – a debate that is likely to continue in the public forum until the Central Bank meets again on October 31st.

Euro traders have seen prices rebound up to 1.4240 after a mid-week drift lower from 1.4000. The 10-day moving average is seen crossing back into bullish territory with a sustained a break above 1.4140, and looks to consolidate at current levels. Fundamental and technical pressure is mounting for another test of all-time highs, with resistance at 1.4300 a potential target.

Today’s U.S. Dollar data includes a September month-over-month retail sales figure expected to come in slightly higher at .3%, as well as September Producer Prices, excluding the auto industry. The PPI measures average changes in selling prices received by domestic producers of goods and services over time from the perspective of the seller. Finally, the University of Michigan 5-year Survey – a trader favorite – may provide some indication as to whether consumers feel like spending their money. Given the rising cost of consumer goods – including food – this promises to be an interesting release.

At the end of the Asian session, the EUR/USD trades 1.4180, Dollar/Yen 117.45, Pound Sterling 2.0265, and Dollar Canada .9785.

Currency Analyst Heather Mitchell

The Loonie Takes Flight

Canadian Dollar: December Canadian Dollar futures rose to new intraday highs as traders began accumulating currencies in commodity-exporting nations. Canadian retail sales came in above analyst expectations, which helped stabilize prices above the 1.0325 mark. The strong retail number was led by auto sales, suggesting that confidence in the economy is very strong, as consumers tend not to purchase big ticket items in times of uncertainty. The Loonie did begin to drift away slowly from intraday highs as traders took some profits off the table, fearing being stuck in long positions at all-time highs. During the late-2005 to mid-2006 commodity bull run, traders began to accumulate commodity related currencies such as the Canadian and Australian Dollars to synthetically trade the commodity markets as a whole, while avoiding the violent price swings in commodities like Crude Oil and Copper. Technically, the daily December Canadian chart appears to indicate some consolidation or possibly a small correction ahead. The RSI recently peaked on October 15th, but the market continued to trek higher, which is typically seen as bearish. Since the beginning of the month, momentum has slowly drifted lower, even as prices have risen to record highs. Support comes in at 1.0175 and 1.0100, while resistance can be found at 1.0400 and 1.0435.

RBOB: While the Crude Oil market has been grabbing headlines, Gasoline prices have quietly risen to all-time highs. Whether RBOB prices are able to sustain these high levels remains to be seen. Refinery capacity has been underutilized compared to prior years, Heating Oil demand figures to get a seasonal rise and any type of military action by Turkey in Iraq will probably disrupt supply. On the other hand, Gasoline demand tends to diminish once the weather begins to cool and the seasonal trend is for lower inventories. Traders will probably be keeping an eye on the finished products numbers more so than Crude inventories. A sharp rise in distillate inventories would likely cause a sell-off, provided nothing changes on the geopolitical front. Mastercard reported that Gasoline demand is down 1.0 percent for the week, which can partially be attributed to the rising cost of fuel. December RBOB seems to have found some support in the 2.11-2.12 area. Momentum is beginning to show bullish divergence from RSI and price trend, which suggests short-term upside bias. The last three days of selling were partially driven by the overbought conditions on the RSI and slow stochastics. In addition to 2.10, support comes in at 2.07 and the 38.2 percent retracement of 2.04, while resistance can be found at 2.14 and contract highs of 2.19.

Wheat: Wheat closed limit-down in the December contract, as traders adjust for what is typically a weak export season. The thinking that Russia may hike export taxes more than previously stated spilled over to Monday's session, but traders lost faith in the news yesterday, which pulled the rug out from underneath the market. The lack of news has caused traders to get antsy and liquidate positions. Wheat also suffered a small technical setback, with the market unable to breach the 18-day moving average to the upside. The market is lower overnight, and December Wheat is trading below the 50-day moving average as of the 6:00 AM CST eCBOT halt. This would probably be viewed as a weak technical signal longer-term, as the contract has not traded below the average since mid-May. After confirming a head and shoulders top, the market did bounce a bit, but a close below recent lows could trigger an extended sell-off. Momentum has been weak and has outpaced both price and RSI to the downside. Support comes in at 815.50 and 760, while resistance can be found at 878 and 910.

Rob Kurzatkowski, Commodity Analyst


Hot Chocolate

Cocoa – Cocoa prices jumped sharply on news that black pod disease is spreading, and many farmers may not be able to contain the outbreak because the government agency that would normally provide financial assistance has had its funds frozen. World Cocoa output is expected to easily surpass demand by around 100,000 metric tons, provided the outbreak does not worsen beyond expectations. If the fungus problem becomes more widespread, the chances of a smaller crop of low quality increase significantly. It will be interesting to see if large Cocoa users such as chocolate makers react by purchasing current stocks to offset the possibility of higher prices in the future. December Cocoa confirmed a double bottom on the daily chart on Friday, which measures an upside move to 1980. The market is a bit overbought at the moment and is heading toward resistance at 2000, which could slow down further advances. Momentum remains strong, but is starting to lag behind both price and RSI. Support comes in at 1915 and 1890, while resistance can be found at 1980 and 2000.

Wheat – Wheat finished close to limit-up in the front month December contract on expectations that exports will remain strong. There is also a consensus building among traders that Australia will once again downsize its crop due to the severe drought there. Wheat is sharply lower this morning on a broad sell-off in commodities, with traders now thinking that yesterday’s rally was overdone. The recent run-up in energy prices has driven freight prices to new highs, which may curtail imports. The current winter Wheat crop is sprouting well ahead of schedule, but reports from southern Kansas and parts of Texas suggest planting may be behind in these states due to heavy and no rains, respectively. December Wheat remains bearish on the daily chart, and a close above 855 may be needed to swing short-term technicals higher. Momentum is showing some bullish divergence from RSI, suggesting some short-term firming or even strength. Support comes in at 790.25 and 760.50, while resistance can be found at 855 and 880.

Australian Dollar – The Aussie rallied to 23-year highs on overall Dollar weakness and strong commodity prices. The USD finished weaker against all of the majors except the Yen on expectations that the Fed will lower rates on Wednesday. Australia’s economy relies heavily on exports of raw materials – namely industrial metals – so the broad commodity rally was certainly a driving force for the Aussie. The December Aussie did give back a good chunk of early gains on the late-day Copper sell-off. High interest rates may keep the Aussie attractive going forward, but commodity liquidations and technically overbought levels may make hamper further advances. The December contract had a weak close, forming a bearish gravestone doji pattern on the daily chart. Momentum is showing bearish divergence from the RSI and price action which, in addition to the bearish chart pattern and overbought levels, suggests a negative short-term bias. Support comes in at .9050 and .8800, while resistance can be found at yesterday’s intraday highs of .9246.

Rob Kurzatkowski, Commodity Analyst


Euro Loses Ground, But Bullish Trend Continues

The Euro took a slight dip today, but remains up over 10% year to date. Yesterday's Fed interest rate cut sent the Dollar to a new all-time low versus the Euro, and today’s bears are likely just profit-taking from the overall bullish market.

Looking at the chart, we are still above both the 15- and 25-day moving averages. In fact, the moving averages are at 143 (15-day), and 142.5 (25-day), showing just how fast this is moving lately. In the slow stochastic indicator, we are approaching the 80 mark, but it's difficult to say if this will mean a reversal due to the strong overall trend. There is no resistance since we are making new highs (unless you want to consider yesterday’s close). However, the next level of support is around the 138 area which was reached last August.

One thing that will be of interest to both currency traders as well as stock index traders is the employment report that comes out tomorrow morning at 8:30 AM Eastern time. With the current prices in both currencies and stock indexes, this could have a major impact across several markets. With housing numbers continuing to move lower, Dollar bulls need a good number tomorrow.

Director of Education, Mike Tosaw


Currency Weekly Overview

Did anyone get the plate number of the truck that ran over the U.S Dollar? Current price levels in the forex market border on the obscene after Ben Bernanke and friends voted 9 to 1 to cut interest lending rates by another quarter point this week. The Euro surged through 1.4500 on the news, the Dollar/Canada dropped to .9450, the Pound/Dollar spiked to 2.0825, and the Dollar/Swissie dipped to 115.55.

Keep in mind, the Loonie hasn’t been this high against the buck since 1960, and the British Pound is trading at levels not seen since 1981! If we turn to the Dollar Index contract – which has been trading in New York since 1973 – at a base of 100, an all-time new low was seen at 76.43. This represents an almost 25% loss in value for the Dollar against the combination of the six major currencies – the Euro, Yen, Krona, Loonie, Pound and Swiss.

The decision to cut interest rates happened on the same day that the U.S. Bureau of Labor Statistics released a surprisingly strong 3rd quarter Gross Domestic Product report. GDP was forecasted to drop to 3.0% from the previous quarter’s report of 3.8, but actually came in higher at 3.9%, signaling economic growth. This bright spot may have factored into the Fed’s accompanying statement indicating that this cut might be the final action needed to stimulate the economy for the remainder of 2007.

Non-farm payrolls may come in above estimates, judging by Thursday’s ADP private sector employment report showing a 106,000 gain in jobs created for October. The median expectation this morning is for unemployment to remain steady at 4.7% and non-farm payrolls to decline from 110,000 to around 80,000 representing a cool down in the workforce. The non-farm payroll number represents roughly 80% of workers producing the entire U.S. gross domestic product. The Bureau of Labor Statistics releases this information on the first Friday of every month, providing FOMC policy-makers and economists with valuable insight regarding the current state of economic activity and a guide for future predictions of economic growth.

Those traders bearish on the Dollar may need to take pause ahead of the release at 8:30 AM Eastern, as we could see a bounce in the market should the report come in above expectations. Also due for release this morning are September Factory and Durable Goods Orders. Factory orders are forecast to come in minus .5% from the previous reading of minus 3.3%.

Currently, EUR/USD trades 1.4475, Pound/Dollar trades 2.0820, and Dollar/Swiss trades 1.1540.

Heather Mitchell, Currency Analyst

Dollar Sinks as China Bails

Plenty of developments around the markets today. Crude Oil inventories dropped by a lower-than-expected 800,000 barrels, meaning this wouldn't be the day for the flag to be planted atop the $100 peak. U.S. stock markets plunged on continued bad news related to the credit crunch.

But the continuing story to focus on is the U.S. Dollar, which managed to hit another all-time low today as China proclaimed its lack of confidence in the currency. With the large amount of money that China has tied up in the Dollar, the country's decision to back off is a factor that cannot be ignored – and the market certainly paid attention. China plans to shift up to 1.43 trillion of currency reserves out of the Dollar and into stronger currencies.

On this news, investors started shifting money into Gold. Though prices for the day finished basically flat, at one point the December Comex contract was as high as 848. Tomorrow, traders will be watching the initial claims numbers to see how the employment picture is stacking up this week.

Mike Tosaw, Director of Education


The Week in Currency

Strong mid-week resistance at 1.4700 is preventing a further run-up for the Euro/U.S. Dollar pair, but traders continue to keep the uptrend intact. Monday presented some early buying opportunities for the Euro, as the market dipped below 1.4530 for the first time since November 6th. Traders nimble enough to get long saw bullish momentum expand, even in the face of technically overbought price levels. This is not new territory for the market, as the Euro/U.S. Dollar pair has a history of ignoring technical indicators and forging its own price path. Fundamentally, EU nations Germany, Norway, Spain and Italy all reported accelerated gross domestic product growth for the third quarter after poor second quarter showings.

French President Nicolas Sarkozy took the EU to task in the media recently for a lack of solid monetary policy compared to several other nations, and had critical words for the current European Central Bank policy limiting economic growth for his country as well. It appears the recently elected president is campaigning to have interest rates lowered to help foster economic expansion in France. However, it is important to note that the principal function of the ECB is to battle inflation, not necessarily to craft policy to control the strength or weakness of the Euro currency. The next ECB rate decision is scheduled for November 22nd, with expectations for a rate increase growing. Just how much influence Sarkozy has on the central bankers remains to be seen, however.

Volatility has seemingly touched every currency this week, with the sharp downside price movement in Crude Oil factoring into the gentle pullbacks in both the Canadian and Australian dollars. However, the most violent price swings battered the Dollar/Yen pair. The on again/off again attractiveness of the carry trade in this pair has caused significant high-low ranges, as savvy Japanese investors find ways to make their savings work harder. Though somewhat overlooked in terms of its ability to move the markets, the investing public tends to flex its muscle when it acts independently of large banks and government and institutional trading by moving away from the paltry half-percent interest offered by the Bank of Japan into higher-yielding currencies and investments abroad. The carry trade phenomenon can do some strange things in foreign exchange – the speed at which these trades are established and unwound caused an irrational boost to U.S. Dollar prices against the Yen, contradicting the Dollar's softness relative to every other currency.

Dollar-related data this morning includes the core consumer price index for October, a favorite inflation barometer used by the Fed. Median expectations call for an increase from 2.1% to 2.2% compared to 2006, and unchanged at .2% from last month. Sharp increases in CPI in short periods of time can be an indication of inflation on the horizon. CPI represents today's Dollar event risk, as the markets will likely react if the actual number deviates from the 2.2%.

Currently, Euro/U.S. Dollar trades
Aussie/U.S. Dollar trades
and U.S. Dollar/Canada trades

Heather Mitchell, Currency Analyst

Bulls Turn Green on the Greenback – For Now

Today's noteworthy mover was the Dollar Index. With the overall downtrend in the U.S. Dollar lately, today's was the biggest single-day gain in a long time, leading to questions about whether this is a harbinger for the long-term health of the currency.

A lot of Dollar bears, for instance, are saying that if the Fed cuts rates again in December – which it hinted at earlier this week – it will create a stability problem. After all, why would someone want to invest in our currency when the interest rates are not there? If we have another rate cut, foreign investors will not be motivated to invest in U.S. debt such as government bills, notes, or bonds.

Dollar bulls, on the other hand, may view this as a good opportunity to get into the Dollar. The stock market reacted positively last Tuesday when word came down about a possible rate cut. When the U.S. stock markets rally, foreign investors are attracted to our stock, which can stoke the market further and eventually give the Fed a good reason to raise rates as the economic cycle continues.

Looking at the chart, we are still below both the 15- and 25-day moving averages. The 25-day average acted as resistance several times today with the high brushing against it before sellers came into the picture. We have also moved closer to the top end on the fast stochastic, indicating potentially oversold conditions.

Tomorrow, we look forward to announcements regarding personal income, personal spending, and construction spending among other things.

Mike Tosaw, Director of Education


Dollar Fights Back

The Dollar posted gains today on some unexpected positive economic data. The Dollar Index (DXZ7) – which measures the greenback against a basket of world currencies – gained 1% on the day.

With the downtrend dominating the overall picture the last month few months, today we broke through a minor double top that was set a few weeks earlier. The interesting thing is that we are now above both the 15- and 25-day moving average, both of which acted as a minor support earlier this week.

Private sector hiring increased by 189,000 in November, shattering expectations of only a 60,000-job gain. With numbers like this coming out, any talk of a recession would seem to be on weak footing. Positive news about the U.S. economy helps the greenback, of course, but it will be interesting to see how this affects (or doesn’t affect) next week’s Fed meeting. If there is a pause in rate movement, it could mean good news for Dollar bulls.

Mike Tosaw, Director of Education


Currency Action This Week

The U.S. Dollar is performing stronger to close out the trading week, preventing the Euro from touching 1.5000. The buck was very sensitive to declines in the Gold and Silver markets while dodging the bullets of global event risk, beginning with worldwide central bank activity this week. The decision to cut interest rates to 5.5% in Great Britain and keep rates unchanged at 4% in the European Union both confirmed a growing fear of the unknown among central bankers – the mystery of just how bad the subprime credit market fallout will hurt the global economy, considering that defaults on mortgage loans in the U.S. are now at a 20-year high. The Bank of England adopted a more aggressive approach by cutting rates for the first time in 2 years, but the ECB only discussed the possibility of hiking rates before ultimately deciding to hold off on any action until next year. Meanwhile, the Bank of Canada surprised everyone with its decision to cut the base lending rate by a quarter of a point, setting off violent moves in the USD/CAD pair.

The Federal Open Market Committee gets its turn to make a policy statement on December 11th. Members have much to discuss about the current and future state of the American economy and its global performance on foreign exchange. Considering England, Europe and Canada have taken their concerns about Dollar weakness to the media, and the United Arab Emirates came within a hair of moving its currency reserve peg away from the buck, the pressure on Fed Chairman Ben Bernanke to steer the economy clear of disaster has rarely been so intense. Support from the Bush administration came in the form of a 5-year freeze on adjustable rate mortgages, which had been due for a potentially devastating reset in 2008. This is a pre-emptive strike to avert mortgage defaults for the estimated two million homeowners due for a substantial hike in their cost of living.

Looking forward to this mornings’ unemployment report at 8:30 AM Eastern, analysts predict a small increase in the jobless rate to 4.8% during November, compared to October’s report of 4.7%. Initial jobless claims reported Thursday showed a dip of benefit claims to 338,000, lower than the forecast of 340,000. And consumer credit will round out the week at 3:00 PM Eastern, with estimates calling for a rise of 2 billion from the previous report. As Americans' debt increases, economic growth slows, and food and gas costs continue to rise, it may not be long before consumers are the ones to demand relief from the weak U.S. Dollar.

Heather Mitchell, Currency Analyst

Gold Goes Below $800

The February Comex Gold contract (GCG8) took a turn to the down side today with a 2% drop. The low of the day was at 797, but Gold had fought back to 802 by the time of this writing. Elsewhere, the Dollar Index gained some ground against the world's currencies, with a high of 76.75 and a close around 76.56.

On the Gold chart, we see short-term highs becoming lower and lower during the last three periods. This has been the case since the beginning of November. There seems to be a bit of consolidation going on, with the lows getting higher as well. In the short term, trade is becoming more and more range-bound, which may be a sign of a breakout to either side with traders getting ready to ride the momentum either way. If it is to the upside, the highest level of resistance is around the 850 level while the downside shows a lot more room before support. If this is a top, it could be a long way down.

Tomorrow, we look forward to CPI data.

Mike Tosaw, Director of Education


The Greenback Finishes Green!

The U.S. Dollar Index (DXH8) finished the day to the upside today, closing at 77.62. Although it is obvious this is not a day to end all days for Dollar bulls, the buck has been making a bit of a statement lately.

There are rumors that the Fed will not lower interest rates again at its next meeting due to rising inflation numbers. Investors have also had more of an appetite for higher-yielding U.S. government bonds – which have also had a nice week to the upside, thank you very much. Combine these factors with the U.S. stock markets having a down week, and it becomes clear why bulls liked the Dollar.

On the chart, the Index is currently above both of our moving averages. This has been a one-week pop. The nearest point of resistance is at the 78 level, and we're close to hitting that right now. Beyond that level, the next resistance area doesn't emerge until after 80.

Recession will be the big question to start 2008, and the answer will play a big part in the fate of the Dollar.

Mike Tosaw, Director of Education


Dollar Not Dead Yet!

The Dollar Index had a positive day, ending at a price of 76.48 (DXH8). Within the last week, we have seen a bit of a retracement around the 76 mark, with the DAX even dipping below this point for a brief period. However, we are back on the upside today. Of the major currencies, only the Australian Dollar and the Peso saw gains against the Dollar, while the biggest loser on the day in the currency world was the Canadian Dollar, closing out with a loss of just under .8%.

On the chart, the Dollar Index remains below the moving averages, which could be acting as a magnet for the greenback. If so, there is not much room for the bulls to run higher, with the next resistance level just below the 78 mark. Meanwhile, bears need keep in mind that the next level of support to the downside is just below 75 with nothing evident further down.

In related markets, the S&P 500 gained 18 points to cap the biggest day of a challenging year for the U.S. stock market thus far. Crude Oil lost .75%, while the 10-Year Note had slight gains.

Tomorrow brings initial claims and wholesale inventories numbers.

Mike Tosaw, Director of Education


Strong Economic Showing Fails to Rally Yen

Yen – The Yen is trading lower this morning, despite a stronger-than-expected GDP number in Japan. Price action indicates that the Yen carry trade is alive and well, with traders borrowing money in Japan and investing in higher-yielding assets in Europe and Australia. Talk of the BOJ possibly lowering interest rates may cool in the coming weeks, especially if the Japanese economy can show some follow-through to the GDP figure. A strengthening economy in Japan coupled with a slowdown in Europe may cause some unwinding of Euro/Yen carry trades. This view could be tempered by the fact that Australia is expected to keep raising interest rates due to inflationary concerns, which could hold back Yen rallies. March futures closed below support at .9300, but did manage to hold minor support created by January 10th highs at .9223. A late-day rally may result in a bullish hammer formation, which could signal a bullish reversal to the recent slide. Momentum is outpacing the RSI and price, indicating a near-term bullish bias. Support can be found at .9218, .9171 and .9096, while resistance comes in at .9340, .9415 and .9462.

Rob Kurzatkowski, Commodity Analyst


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Optimism to Start the Week

S&P – Despite disappointing job data, equity futures start off the week on an upbeat note on news that Washington Mutual will get a cash infusion from investors. The Fed is said not to be involved in the plan to shore up capital, which is good news for lenders, as it shows that there are private sector investors who see value for mortgage lenders and may see risks mitigating. Merrill Lynch’s comments that the credit markets may be “past their worst” added to the bullish sentiment in financial stocks. Stronger Crude Oil prices have driven energy company shares higher in the pre-market hours. Yahoo offered a stern rejection of Microsoft’s recent offer, citing declining share prices of the Redmond giant, and stood strong against the threat of a proxy fight. The technical outlook for the June e-mini S&P has improved significantly over the past two weeks. If the June contract is able to rally past resistance at 1392.50 and 1402.50, it would be a strong longer-term sign for the market. Momentum continues to move sharply higher, outpacing both price and RSI. Support comes in at 1361.50, 1351.00 and 1337.75, while resistance can be found at 1385.25, 1398.50 and 1409.00.

Dollar Index – The Dollar is slightly higher this morning after posting losses the past three sessions. The optimism from the stock index futures seems to have spilled over to the greenback. While employment data may be a black cloud over the greenback, recent signs that the economy may be improving suggest the Fed may not have to cut rates as aggressively as previously thought. Technically, the June Dollar has made some progress, rebounding from all-time lows, but failure to attack recent highs at 73.50 to this point is somewhat discouraging and could lead to further consolidation. The pattern has shifted from a possible double bottom to an equilateral triangle, which could signal a sharp breakout in either direction. Momentum has moved higher, despite the selling pressure late last week, signaling a somewhat positive near-term bias. Support comes in at 72.09, 71.82 and 71.545, while resistance can be found at 72.635, 72.91 and 73.18.

Rob Kurzatkowski, Commodity Analyst

Tough Times to Come?

S&P – Stock index futures are lower this morning on credit concerns and the $1.66 billion loss posted by bond insurer Ambac. Financial stocks have suffered the bulk of the damage thus far, but Oil and mining stocks are not far behind on losses in energy and metal futures. Further adding to the bearish sentiment, Boeing, UPS and Delta have all posted disappointing earnings figures. Due to a lack of economic data being released, today's trading will be earnings focused and volume should be fairly heavy. If the petroleum inventory report comes out bearish for Oil futures, the market may be able to stave off these early losses. On the other hand, a bullish report could send the market spiraling lower by mid-session.

The June e-mini S&P chart shows some promise, hinting that the market may be prepared to test the upper end of chart congestion at 1402.50. The market has held up better than it previously had at these levels, suggesting some of the panic and paranoia over recession has dissipated and traders are now focusing on forward earnings guidance instead of current economic conditions. Momentum is showing positive divergence from RSI at the moment, which is bullish over the near term. Support comes in at 1370.75, 1060.75 and 1050.75, while resistance can be found at 1390.75, 1400.75 and 1410.75.

Euro – The Euro is lower this morning on profit-taking and comments from ECB member states voicing their displeasure in the Dollar's sharp drop. The Eurozone may be forced to raise interest rates despite the credit crisis, which would likely lead to an even stronger Euro in the near term. A strong Euro would make EU countries less competitive in the global marketplace, which could lead to a slowdown in economic activity and a significant drop in the currency down the road, similar to what has happened with the Dollar. The declines in the Dollar have been a hot topic of discussion for the EU, with some states favoring the position of a strong currency versus the greenback, while others pointing out the loss of competitiveness for member nations. The largely socialist zone already has very high labor costs, and a loss of this competitive advantage may be the straw that breaks the camel's economic back.

The June Euro chart remains bullish and has held above the 9-day moving average in early trading. The pattern has been higher highs and lows, but the momentum indicator has been moving lower since peaking in mid-March and is a lackluster +0.0082 at the moment. This indicates that the uptrend remains vulnerable to selling pressure, but no reversal pattern has appeared to signal a correction. Support comes in at 1.5848, 1.5733 and 1.5664, while resistance can be found at 1.6032, 1.6101 and 1.6216.

Crude Oil – Oil is trading slightly lower this morning on the stabilization in the U.S. Dollar and talks to head off a strike at the Grangemouth refinery. Today's EIA report is expected to show a build in Crude Oil inventories of 1.5 million barrels, but a decline of almost 2 million barrels of gasoline. The gasoline figure has been a big driver for the market over the past several weeks and a large drawdown will likely continue this trend. On the flip side, if gasoline inventories show a much smaller draw than expected or a surprise build, a profit-taking sell-off may ensue.

June Crude is signaling the possibility of a reversal from record-high prices, but technicals can largely be thrown out the window in the early going due to the EIA report. Momentum has taken a sharp turn south, outpacing the RSI indicator and price to the downside, a bearish sign. Support comes in at 116.35, 114.62 and 113.31, while resistance can be found at 119.39, 120.70 and 122.43.

Rob Kurzatkowski, Commodity Analyst


Under Pressure

Crude Oil – Oil futures have given back some of yesterday's gains on expectations that today's EIA number will show builds across the board. Crude Oil inventories are expected to climb by 2.5 million barrels, while gasoline and distillate inventories are expected to show builds of 1 million barrels each. Geopolitical events have been the wild card of late, sparking rallies despite the fact that the U.S. has been stockpiling petroleum. Traders are also concerned that global diesel demand may outstrip supplies due to high demand from Asia and South America. The U.S. Dollar has not been much of a factor in recent trading sessions, holding relatively steady against the majors, but a sharp move either way could bring it into play once again. June Crude Oil remains technically positive, forming a bullish consolidation pattern on the chart. Sell-offs below the $120 a barrel mark may be needed to spark heavy selling. Momentum is sharply lower despite yesterday's rally, suggesting the market may be vulnerable the selling pressure. Support comes in at 123.61, 121.41 and 119.73, while resistance can be found at 127.49, 129.17 and 131.37.

Gold – Precious metal prices have not been able to benefit from the rise in energy prices to mount sustained rallies. The Dollar has made strong gains against the Euro in recent weeks, diminishing the value of Gold as a hedge against the weak greenback. The Fed, ECB and BOE have been talking up inflation in recent weeks, suggesting they may soon be taking steps to curb rising prices in their respective jurisdictions. Today's CPI report is expected to show inflation holding steady, with an upside surprise likely to be negative for precious metal prices, as it would hint toward further action by the Fed. June Gold remains technically weak on the chart, failing to rally above the $900 mark. Yesterday's slide triggered a downside breakout from a pennant on the chart, suggesting more downside may be in the cards. Momentum has dropped at an even faster pace than price and RSI, seemingly backing up the bearish chart pattern. Support comes in at 858.30, 846.90 and 832.50, while resistance can be found at 884.10, 898.50 and 909.90.

Euro – The Euro continues to lose ground on the U.S. Dollar, much to the liking of many EU officials. Financial ministers in several member states have viewed the strong Euro as a barrier to growth, sparking inflation and making the union's exports less competitive. While the ECB held rates steady at their last meeting, many analysts are still somewhat biased toward a rate cut in the future, while the Fed is expected, at the very least, to keep rates steady. Technically, the June Euro chart has been eerily similar to the Gold chart in recent weeks, with the market forming a bearish consolidation pattern. Unlike Gold, this pattern has not been validated, but momentum has taken a sharp turn lower, suggesting a larger breakdown may be in the works. Support comes in at 1.5392, 1.5330 and 1.5255, while resistance can be found at 1.5529, 1.5604 and 1.5666.

Rob Kurzatkowski, Commodity Analyst


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