U.S. equity markets are called lower this morning after being drilled by a hard sell-off on Wednesday. Some say that comments from Kansas City Fed President Hoenig triggered the break when he talked about a potential asset bubble forming and the need for higher interest rate. This gave worried traders an excuse to take profits after stocks reached lofty levels earlier in the week. The inability of the Dow to test 11,000 sent a psychological message to the market that maybe equities are over-priced.
June Treasury Bonds and Treasury Notes are under a little pressure this morning following Wednesday’s short-covering rally. Yesterday’s upside move was triggered by better than expected 10-Year auction demand. Yields fell as traders looked for safety due to escalating default problems in Greece. Treasury markets may weaken as traders do not expect to see similar demand for 30-Year bonds during today’s auction.
Overbought conditions and a stronger Dollar have June Gold in a holding pattern this morning. This market is trading lower, but not falling apart. Speculators are being encouraged to buy gold on the premise that Greece may default on its debt. This is triggering a flight into hard assets. There is no threat of inflation at this time. Traders are buying gold because of the lack of confidence in paper assets.
June Crude Oil is under pressure because of the stronger Dollar and weaker Euro. In addition, lower gold and equity prices are pressuring demand for higher risk assets. Wednesday’s U.S. supply and demand report was bearish, which means that the bulk of the recent rally can be attributed to speculative buying. The chart indicates that a break to 83.43 is possible over the near-term.
The U.S. Dollar is trading better against the Euro and British Pound as Forex traders await today’s European Central Bank and Bank of England Policy statements. The Dollar is also gaining against the commodity-linked currencies, helped by lower gold and crude oil. Weaker equity markets are putting additional pressure on higher risk currencies while underpinning the lower yielding Japanese Yen.
U.S. Treasury Secretary Geithner is in Beijing this morning to discuss the Chinese currency and other economic issues. The visit by Geithner is a good sign that China is open to the idea of letting its currency rise against the Dollar.
The June Euro is trading lower overnight. Pressure continues to mount on this currency because of growing concerns that Greece will default on its debt. The spread between Greek Bonds and German Bunds is widening, making it difficult for Greece to finance its debt.
News that German Industrial Production was unexpectedly flat in February is also helping to pressure this currency. A surprise drop in Euro Zone Retail Sales has solidified the thought that the European Central Bank will leave interest rates unchanged this morning. Based on the worsening Greek situation and the poor economy, some traders now believe the ECB will leave interest rates at historically low levels until early 2011. Investors will be watching ECB President Trichet’s comments this morning to see if he has anything new to say about Greece. Some traders expect him to reassure investors that the situation is under control and that nothing unexpected is developing.
Technically, this market is getting dangerously close to the recent main bottom at 1.3267. If today’s ECB policy statement takes on a more dovish tone than expected, look for selling pressure to drive this market to a new low for the year.
Traders were pleasantly surprised overnight on the news that U.K. Industrial Production was higher than expected. The report showed an increase of 1% versus a pre-report estimate of 0.5%. The June British Pound rallied on the news, but not enough to change the trend to up. Technically, this market will remain in a downtrend until the last swing top at 1.5381 is violated. This market is also having trouble piercing a 50% retracement level at 1.5297. Additional resistance comes in at a downtrending Gann angle at 1.5317.
This morning, the Bank of England is expected to leave interest rates unchanged at historically low levels. Despite some improvements in the economy since the last meeting in March, don’t be surprised if the BoE announces an expansion or an extension of its current quantitative easing program to give the economy an additional boost. The policy statement by the BoE may also address the widening budget deficit and its threat to the economic recovery.
Overnight, the June Swiss Franc turned the main trend to down on the daily chart after breaking the last main swing bottom at .9307. In addition, this currency pair crossed to the bear side of an uptrending Gann angle and a major retracement zone at .9355 to .9315. The weaker Euro is increasing the possibility of an intervention by the Swiss National Bank.
The weaker U.S. equity markets are helping to encourage Japanese investors to seek protection against a substantial sell-off. This repatriation of funds is supporting the June Japanese Yen.
Technically, this market is strengthening because of the closing price reversal pattern from earlier in the week. Based on the short-term range of 1.1148 to 1.0558, the current upside momentum and chart formation indicates a test of 1.0853 is likely over the near-term.
Fundamentally, weaker gold and crude oil is helping to pressure the June Canadian Dollar. Technically, Wednesday’s closing price reversal top was confirmed overnight. This pattern suggests a minimum 2 to 3 day break or a 50% retracement to .9864. 
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