Two overnight events are sending commodity markets sharply lower this morning. Firstly, the Group of Eight finance ministers hinted at an economic stimulus exit strategy and the Russians expressed confidence in the U.S. Dollar.
The Group of Eight finance ministers signaling an end to the economic stimulus plans was eventually going to happen. Signs of an economic recovery have been building for a couple of months. The ministers haven’t decided anything concrete at this time. This news is expected to serve as a message to others that exit strategies are being considered. They feel it is much better to announce an orderly exit rather than act haphazardly.
Russian Finance Minister Alexei Kudrin expressed confidence in the U.S. Dollar last night. This came after Russia and China had questioned the U.S. Dollar as the world’s currency. These comments reassured investors that it is too early to think of the Dollar as dead.
Forex traders are responding to these news events by jumping into the Dollar. This is putting downside pressure on all of the currencies this morning.
All metals futures contracts are down sharply lower overnight. The Main Trend is down in August Gold. This market is rapidly approaching a major 50% area at 929.00. July Silver is preparing to turn the trend down. July Copper spiked up last week and hit overbought status. Look for new downside pressure today as speculators bail out.
Surprisingly, the energy complex is trading better this morning. This could be a trap. The stronger Dollar usually leads to lower crude oil but not at this time. It looks like hedge fund buying is still supporting this market. When they decide to sell, you will know it.
Treasury Bonds and Notes are holding steady to better this morning but could accelerate to the downside if the stock market weakness gets ugly. This will be a combination of short-covering and flight-to-safety buying.
The stronger Dollar is dragging down equity markets. Lately traders have been aggressively buying dips. If this strategy continues then the market may recover all of its overnight losses.
If traders decide to cash in long positions because of the stronger Dollar and the threat of deflation then look for the equity markets to feel pressure all day.
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