28 May 2009

June Treasury Bonds and June Treasury Notes were under tremendous pressure on Wednesday as new supply hit the market causing yields to soar higher. More downside pressure could hit these markets today as additional 10-Year Note supply gets auctioned. Investors are demanding higher yields because of the growing size of the government budget deficit. Will the supply/demand fundamentals continue to drive these futures instruments lower or will these technically oversold markets rebound?

Stock Indices continue to trade inside of a sizeable range. Buyers have been supporting these markets on dips, but dumping on the rallies. Aggressive traders are getting chopped up as the equity indices have retraced over the same prices several times during the week. Continue to trade the range until the market gives a clue as to which direction it wants to take. 875.00 is major support for the June E-mini S&P. This area has been tested several times during the past few weeks. Stops have to be building under this area but it is going to take a huge amount of selling and negative news to drive through this floor.

The U.S. Dollar is attempting to pick up strength this week. Last week no one wanted the Dollar in anticipation of a credit rating reduction by one of the rating services. This week, the strong interest in the Treasury auction by foreign buyers is demonstrating their belief in the U.S. government’s ability to finance its debt. This is leading to profit-taking after last week’s weakness. Traders are now focusing on the struggling financial condition of the Euro Zone and the possibility of another rate cut by the European Central Bank. Look for an opportunity to get short the Euro if it fails to get above 1.40 on this next rally.

The stronger Dollar is taking its toll on the precious metals markets as both August Gold and July Silver are struggling to hold on to last week’s gains. Although inflation may be a problem late this year or early next year, many longs are bailing out as the technical picture indicates that bullish traders may be thinking too far ahead.

July Crude Oil is holding on to $60 a barrel as comments from a Saudi oil minister are indicating that OPEC believes global demand is stabilizing. Although OPEC is not expected to make an additional cut in production, traders feel that the start of a global economic recovery will lead to increased demand which could send prices to $75.00 per barrel by the end of the year.

The trend remains up in July Soybeans but the upside momentum seems to be slowing as this market approaches a major 50% retracement price at 12.23. The stronger Dollar may have a short-term effect on demand but projections are for this market to post the lowest inventory numbers in five years at the end of the growing season. July Corn is stalling as dry weather is allowing some farmers to plant corn that has been delayed because of wet fields. Because of the increase in seedings, speculators are taking out the weather premium.

A strong rally may begin in July Cocoa, triggered by the soaring British Pound. Demand could increase for New York Cocoa because it is cheaper than Cocoa traded in London.

Despite bullish supply fundamentals, gains in July Coffee could be limited if the U.S. Dollar strengthens. This should be temporary as supply issues will continue to dominate this market for several months.

July Sugar continues to struggle at the 16.03 to 16.05 area. Traders are trying to figure out what effect India’s ban on forward contract trading will have on the current bull market. No one seems willing to put in a high tick out of fear of buying the top. India is trying to drive out excessive speculation because sugar has gotten too expensive.

July Cotton is still under pressure because China has stopped buying and is now auctioning its reserves in an effort to relieve a tight supply situation.

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