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The Treasury market continues to show a mild short covering tilt on the charts and a rise above 117-24 in the June bond contract this morning could further the upward bias off purely technical considerations. While the Fed hasn’t really made any noise about increasing their purchases of assets, in an effort tamp down key consumer interest rates, we think that issue is at least partially responsible for the 2 point rally off this week’s lows. If one only looked at the headline economic readings yesterday, you would have come away with a bearish macro economic view toward Treasury prices, but in digging down into the data, it was clear that residual slowing threats remain in place. While the market is fully anticipating a rather sharp decline in the US GDP readings today, the magnitude of the contraction in the economy in the report should foster some light additional short covering buying. We suggest that the market will mostly see weak technical short covering buying, as the trade doesn’t seem to be a buzz with talk that the Fed is poised to step up purchases of Treasuries or mortgage backed securities. In fact, it could take some specific reference or hint from the Fed from a speech somewhere to actually bring on fresh outright buying of bonds and notes. On the other hand, the upcoming COT positioning reports should confirm a greatly expanded net spec short positioning in the Treasury markets. While the report won’t catch all of the weakness (this week’s lows were made after the COT report was to be compiled) the magnitude of the short positioning could be a source of additional short covering buying interest early next week. Since the GDP readings were preempted with preliminary readings we suspect that the Chicago Purchasing Managers report could be the key focal point of the trade today. On the other hand, one should probably expect a slightly bearish (to Treasury prices) but less significant negative price reaction to the Michigan Sentiment readings. A normal retracement of the May slide in June bond prices would allow for a rally back to 118-25 without altering the downtrend pattern. In June notes, a similar retracement bounce could be seen up to 118-26 without altering the technical downtrend pattern. Given the intense focus on the level of Note Yields, it is likely that technical points and market action in the Note market will be seen as the most important indicator for the Treasury trade overall. In our opinion, just seeing the Treasury market bounce, in the face of somewhat decent economic readings and seeing the gains take place in the face of a mild rally in equity prices, highlights the Treasury markets oversold status and that in turn suggests that June Notes are capable of re-testing the 118-10 level, with a similar short term recovery target in June bonds today seen up at 118-02. In conclusion, a mild but weak upward bias looks to remain in place, with really aggressive upside action not in the cards, unless the Fed becomes more vocal about upcoming purchases! Unfortunately, for the bulls the Fed seems to have discounted the prospect of near term purchasing of Treasuries by suggesting they are not setting rates, they are merely attempting to facilitate liquidity in the credit markets.
Currency Market Commentary – 2009.05.29
by Dave Hightower on May 29, 2009
Below is a sample of our Daily Commentary. To get this comment, and our daily coverage of 15 additional markets and trade ideas, visit futures-research.com for your free 2 week trial!
DOLLAR: The Dollar has given up its bullish bias and in the process the June Dollar index contract has made what appears to be an extremely bearish technical trade on the charts. In fact, seeing the June Dollar fall below the 80.00 level, after consolidating at that level early this week, should give the bear camp an added resolve. Clearly a wave of macro economic optimism has fostered the downside pulse in the Dollar and since that optimism is apparently being seen in a number of different physical commodity markets, we have to think that the trade will be able to press the Dollar consistently lower. We suspect that a weak revision of the US GDP readings will do little to alter the downward bias in the Dollar today, unless the data flow today completely derails the US equity markets. In fact, decent readings from the Michigan sentiment report could be enough to turn up the pressure on the Dollar significantly and in turn put the June Dollar contract down to the lowest levels since September 29th.
EURO: While the Euro is catching a ride from the liquidation wave in the Dollar, the hope of a global recovery is probably the real driving force of the Euro gains this morning. In other words, the currency markets, into the March lows in the Euro, saw the Euro zone as the worst place to be and now that the macro economic outlook has improved, many traders think that the Euro is one of the more undervalued currencies. With German retail sales figures also positive overnight that would seem to add some upward momentum to the Euro today. There might be little resistance in the June Euro until the 141.19 level.
YEN: A big range up move after a reversal seems to take the Yen out of the flight to quality long liquidation mode and in turn puts the currency into a mode to benefit from an ongoing improvement in the global economy. In fact, very favorable growth readings from the Japanese overnight could set the Yen up for a quick return to the 105.92 level in the coming trading sessions. In short, a nice transition, from one fundamental theme to another, suggests that the bull camp in the Yen has indeed regained control.
SWISS: With a big range up extension move in the Swiss overnight, that would seem to reaffirm the bullish bias and perhaps set the June Swiss up for a return to levels above the 94.00 zone. In fact, an old gap area up at 93.89 could be a near term target for the Swiss in the coming two trading sessions.
POUND: A fresh new high for the move in the Pound reaffirms the view that the Pound is a recovery currency. With the outlook for the global economy seemingly improving by the day, we would not be surprised to see the June Pound rise to the 170 level before the market is forced to deal with next week’s US unemployment report. With a series of longer term technical levels reached with the rally this morning, we suspect that a combination of ongoing short covering and fresh outright buying is set to leave the bull camp in control.
CANADIAN DOLLAR: With a very impressive range up extension on the charts, strong oil prices and strong precious metals price action, the Canadian would seem to have a number of bullish themes to choose from. Near term upside targeting is seen up at the next gap area of 91.60 to 92.42 in the June contract. As long as the equity markets are on the rise, we suspect that the Canadian is in for even more gains ahead.
TODAY’S MARKET IDEAS: The Dollar is the odd man out today, expect most currencies to make big runs at the expense of the greenback.