U.S. equity markets are called better as tensions have eased regarding Goldman Sachs’ legal problems. Stock traders are also a little more optimistic because of the opening of some air routes in Europe. Technically, all three indices are currently retracing a little more than 50% of the recent decline. This is a key area as the markets are in positions to post secondary lower tops. Currently the main trend is up with no sign of a let up until the current rally fails and a major swing bottom on the daily chart is violated.
June Treasury Notes and Treasury Bonds are trading mixed. Traders don’t seem to know which direction to play. Worries about Greece and Goldman Sachs are sending mixed signals so traders have nothing to revert to other than the abundance of supply in the markets. Look for a choppy two-sided trade.
June Gold is trading better because of the weaker Dollar. Like stocks, this market may be making a retracement of its recent down swing. The main trend is up, but it may take the formation of a secondary lower top to trigger strong selling pressure.
Oversold conditions and a pick-up in demand for higher yielding assets are helping to boost June Crude Oil. Renewed air activity in Europe is increasing demand for jet fuel which is also supportive news. The current chart pattern suggests a rally back to 85.50 is likely over the near-term.
Speculation that Greece may require additional rescue aid to finance its economy could weigh on the Euro the rest of this week. At this time, the June Euro is trading better; this could change following the New York opening. Additional factors that could hurt the Euro’s performance are ongoing travel disruptions in Europe because of the volcanic eruption and the widening Greek government/German Bund spreads.
The spread of volcanic ash over Europe could develop into a major economic problem for the Euro Zone economy if the eruption turns into a long-term issue. This natural disaster could wreak havoc on the economies in the Zone leading to delayed interest rate hikes and expected fiscal tightening. While the rest of the world will be hiking interest rates, the European Central Bank may be forced to wait until the economy shows a sustained improvement.
Although it was reported that German investor confidence improved more than forecast this month, the lingering Greece issues could trigger a shift in investor sentiment especially if it is combined with a slowdown in the Euro Zone recovery. Greek borrowing costs have more than doubled at the sale of 13-week bills. This prompted Bundesbank President Axel Weber to say that Greece may need more assistance. At this time, investors seem to be looking for a short-term fix to a long-term problem. Another call for financial aid from the European Union could begin to erode confidence in the Euro’s ability to survive. All of this news indicates that traders should continue to look to sell rallies while maintaining a bearish bias for the Euro.
A better-than-than expected surge in U.K. Consumer Prices raised questions about the recent assessment by the Bank of England that a deflationary trend was going to emerge because of the weak economy. The BoE recently commented that the short-term rise in inflation over the past two months amounted to an aberration and that deflation was the real threat.
The June British Pound rallied into a major .618 retracement level following the news that British inflation rose in March to 3.4% from 3.0% in February. This unexpected hike in consumer prices makes it unlikely that the BoE will increase the amount of quantitative aid at its next meeting on May 6th. Gains could be limited today because of lingering concerns over the possibility of a hung parliament after the May 6th election.
Higher crude oil and gold are helping to give the Canadian Dollar a boost. In addition, traders expect Bank of Canada Governor Mark Carney to signal that the central bank is poised to raise interest rates in the near future. Although the BoC is expected to leave interest rates unchanged at 0.25% at today’s meeting, it is expected to present a more hawkish policy statement. Financial market traders are pricing in a rate hike on June 1 rather than the previous guess of July 1. Traders cite the strong economy and the prospect of further rate hikes as the main reasons why the June Canadian Dollar should continue to appreciate.
The easing of tensions over the SEC/Goldman Sachs fraud lawsuit is encouraging demand for higher yielding assets which is helping to pressure the June Japanese Yen. Traders are also pressuring the Yen because of increased optimism that the global economic recovery remains on track. Since late last week, the Dollar appreciated against most majors as traders began to factor in the possibility of a prolonged economic drawdown because of the disruption from the volcano, the possibility of a revaluation of the Yuan and the threat of tougher financial regulations.
Overnight India’s central bank raised interest rates for the second consecutive month to 5.25%. It also ordered banks to set aside more cash in reserves. India is seeking to slow the highest inflation rate among the Group of 20 nations. This move by India brought attention to the Pacific Rim area because it may mean than China may be next in line to raise interest rates. 
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