The strong overnight rallies from yesterday’s lows may be signs that shorts are getting ready to cover their profitable positions in the June Treasury Bonds and June Treasury Notes. Although at times yesterday, yields were able to rise they did not close on their highs, indicating that selling pressure may subside now that this week’s Treasury auctions are coming to a finish. The longer term concerns remain inflation and how the Fed is going to exit from its currently disastrous strategy. Rising mortgage rates are of particular concern to the Fed at this time, but no one has the answer yet as to how the Fed is going to re-enter the government debt markets in an attempt to lower rates again.

Equity indices continued to tread water on Thursday, trading inside several ranges it had created this month. Bullish traders are concerned that rising interest rates will cause borrowing costs to increase in the future causing corporate profits to drop. Other traders are looking at possible inflation as a bullish factor as bond holders may seek better returns in the equity markets

Technically, the longer the market stays in a range, the bigger the move once the market leaves the range. At this time, the main range in the June E-mini S&P 500 is 927.75 to 876.75. The middle of this range at 902.25 is acting like a pivot. This morning this market is trading on the bullish side of the pivot so it is in a strong position to challenge the high for the week at 912.75. The next upside target is 923.50. A break under 902.25 is a sign of weakness and will indicate a further decline to 896.50.

The U.S. Dollar is getting crushed overnight. Increased trader appetite for risk is the main reason as traders have once again become more confident that the global economy is in the process of bottoming. The June Euro and June British Pounds are in the process of breaking through major 50% price areas. Closing over these levels means the rallies are likely to continue. Stronger equities and firmer crude oil is bullish for the Canadian Dollar.

Earlier this week, the weaker U.S. Dollar helped August Gold gain upside traction as this market powered through a key Fibonacci retracement price at 954.90. Overnight the market took out a recent main top at 971.00. This now sets up a test of the high for the year at 1009.00. Traders are buying gold in anticipation of a spike in inflation. Concerns are being raised as to whether the Fed has the weapons to defend the economy against inflation.

July Crude Oil is well on its way to its first objective of $70. Several weeks ago Iran, Venezuela and Russia all agreed that crude would have to hit this price to be profitable, and it looks as if this forecast will come true. News that OPEC would not cut production a third time has been well received by the market. Traders are now focusing on more signs of a global economic recovery to increase demand.

July Soybeans have formed a minor top at 12.00 3/4. This is a sign that momentum has slowed down. The next upside target remains 12.23, but this market may have to pull back in order to attract fresh buying. In the worst case scenario, the market may break all the way back to 10.88. The supply/demand fundamentals support a rally, but this week’s stronger Dollar has put a lid on demand.

July Sugar appears to be distributing with resistance at 16.03 – 16.05. The Main Trend remains up with a pair of Main Bottoms holding as support at 15.11 and 14.90. Downside pressure could take this market through an uptrending Gann Angle at 15.22. This will be the first sign of weakness which could set up a sharp decline to 14.55 to 14.20.

The long-term fundamentals remain bullish with demand expected to outstrip supply. The problem with this market at this time centers on the Indian government’s decision to ban forward contracting. This action was designed to prevent excessive speculation which has been driving prices higher. Everyone knows that India has to import sugar this year, but India wants to be able to control the terms. Expectations are for this market to break so that India will have a chance to buy at cheaper prices. If this market does not correct then India may ban futures trading.

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