Those of you who have been following this blog for a while should be familiar with my view that the currency world has been rather erratic of late. Many of the majors are in trading range market without any clearly defined trend.The Euro is no exception. It has been contained in a range bounded by 1.370 on the top and 1.350 on the bottom for the last 6 weeks. It has begun moving lower towards the bottom of the range this week however and is setting up therefore for an important test.I have felt that the European Monetary Authorities are not comfortable with the Euro near the 1.40 level in relation to the Dollar. That was made abundantly clear by Draghi's talking down of the currency in early May when he first broached the topic of lowering interest rates and potential forms of monetary stimulus that might be employed by the ECB to get the Eurozone economy moving.Traders took their cue from him and responded by selling the unit. However, the bears have as of yet been unable to take it down below 1.35 for some time now. This level is once again proving to be a key chart level that should be monitored. Neither of the indicators noted are near their respective oversold zones so IF (and this is unknown ) the Euro can break below that zone, it has the room to run down another full point initially and perhaps as low as 1.330. If it does, it will confirm a trending move as it will have broken out of its range trade. Time will make it clear.
How very tragic that so many innocent lives were taken in a moment. An otherwise routine flight turned into a horrible scene of death and devastation. Equity markets reacted strongly lower with many investors fearing this incident could result in a flaring of tensions and an escalation of conflict on a larger scale. The jury is still out on that but it certainly introduces another new unknown and if it is one thing that markets hate, it is unknowns.The old trading adage, "Sell first and ask questions later" was on display in full force in today's session.Safe havens were in vogue as the Yen moved sharply higher and US bonds put on more than a full point with the Ten Year yield sinking to 2.475%. That is the lowest it has been at in six weeks.I must say I am a bit disappointed in the gold price as the metal could not even stay above the $1320 level. With the backdrop of an Israeli ground operation against Hamas, and with this commercial airliner incident, one would think it would have garnered some more upside. Tomorrow is going to be an important day for the metal therefore. At least the HUI was very strong, a positive sign.Take a look at the Russell 2000, again, a very good barometer of risk appetite among investors/traders. The index closed below its 50 day moving average for the first time since early June. The two particular indicators I have chosen to display are both in bearish modes as well confirming the move lower.In looking at the chart I get the sense of a market trading in a broad range. It lacks the necessary momentum to get through the double top ( TOP of the RANGE) near 1220 but so far it has had enough buying to hold its support at the bottom of the range near 1080. Based on the chart pattern, and especially if events globally continue to unnerve investors for the short term, odds would seem to favor a move back down towards that support level once again.The Russell could chop around in a range for some time. It does not have to necessarily either fall out of bed and collapse lower nor does it have to go rip roaring higher. Trading range markets can trip up a lot of traders as they tend to get bearish as price moves to the bottom of the range and bullish as it moves to the top. However, unless we get a clear breakout from either side of the range, odds favor a continuation of the consolidation pattern.
This data, which is released once a month from the US Treasury Department, gives a fairly good sense of the appetite for Dollar denominated assets among Foreign investors and Foreign Central Banks.It is dated however and one must remember that. Today's data is for the month of May so you can see it is not especially timely. However, it still has value in my opinion. I am still eagerly waiting for the June data during which Treasury usually makes the adjustment from the country in which the Treasury transaction was completed to the country of origin.In looking over the Major Foreign Holders of Treasuries data ( broken down by country), a couple of things stand out. First, China and Japan, the two largest holders of our debt, both INCREASED their holdings during the month of May. China bought $7.7 billion worth while Japan bought $10.4 billion. Chinese holdings are down $26.4 billion from the same month last year. Japanese holdings on the other hand are up a staggering $116.4 billion from May 2013. Belgium, the center of the so-called "conspiracy" ( among the gold perma bulls ) for surreptitious buying of US Treasuries unloaded $4 billion of the things. I guess someone forgot to tell them this month that they are supposed to be buying the Treasuries that the US Federal Reserve has stopped buying for its QE program. Remember, the theory is that the tapering has not actually stopped even though the Fed has announced that it has begun tapering and is slowing its purchases of US Treasuries. You see, the Treasury buying is really still going on. It is just being done through back channels using Belgium as the epicenter.Sigh! It never does end does it with some of those folks.Overall, there was a pretty healthy increase among all of the buyers for May. They increased their holdings of Treasuries to $5.976 trillion, up from $5.960 trillion in April. That is a $15.1 billion increase. Compared to the same period last year ( May 2013), Treasury holdings are up $318 billion ( $5.976 to $5.658). So much for the demise of the US Dollar.Keep in mind that this particular data set is the "Holdings" data.As far as the NET PURCHASES DATA goes, Total NET Foreign Purchases for May increased by $25 billion. That is a big improvement from the previous month ( April) when the number was a negative $13.589 billion. A negative number means foreign investors, official institutions, etc. were selling ( there was a net OUTFLOW of capital instead of a NET INFLOW).NET PURCHASES of US equities showed another increase for May ( $10.78 billion). That comes on the heels of a net increase for April of nearly the same amount ( $10.19 billion). Foreign appetite for US stocks remains strong.NET PURCHASES of US government agency debt jumped to $4.169 billion after falling the previous month by $2.082 billion.The loser this month, among foreign investors, was US corporate debt. There were NET OUTFLOWS of $5.385 billion for May. That follows net outflows of $8.509 billion in April. This category is especially volatile however.All in all, demand for US dollar denominated assets among foreign investors/institutions/official sector was strong in May.One last thing for this set of comments - gold is moving higher today on news that the US has introduced a new set of sanctions against Russia over the Ukraine situation. Russia is not happy about it. Also, the escalation in tensions and the conflict over in Israel and the Gaza region with Hamas has fueled nervousness in stock markets and is bringing selling into equities, buying into bonds, and buying into gold. Gold is being driven of late by headlines.It looks as if it might want to run up into the former resistance zone ( $1330- $1340). Geopolitical tensions have put a "13" handle in front of it and is offering psychological support. You can look at the ADX and see the muddled mess on the chart. There is no clearly defined trend at the moment. As I have been writing this, news has come out that a passenger plane has been downed over the Ukraine. That is really fueling the safe haven bids...We'll have to get the details on this as they come out.
I thought that might be a catchy title because what happens across the markets, whenever we get one of these Fed Chair Testimony days, is more like what happens to Tokyo every time Godzilla goes on one of his rages.Most people think they know what is going to be said and when the Fed Chair surprises or disappoints, then we get all sorts of market reactions.The "surprise" today ( and I am hesitant to call it that) was that Janet Yellen and the rest of the Fed do not seem particularly worried about inflation. Ms. Yellen rightfully ( in my opinion ) pointed to the labor markets and the slack that remains in there. Frankly I wonder why anyone was the least bit surprised about that. It is widely known that while the labor markets are slowly, incrementally improving, they are anything but robust right now.Also, take yet another look at the Goldman Sachs Commodity Index, which I have been keenly focusing on for the last week or so. It is plunging lower.With the collapse in grain prices, and now with the crude oil complex surrendering much of its "geopolitical or fear" premium, energy prices are moving lower.Those two big sectors have pulled the entire commodity index into negative territory on the year. With slack remaining in the labor markets and with sinking commodity prices, it is difficult to make the case that inflation is a serious concern. This is what has concerned me about gold. It has moved higher recently solely based on geopolitical fears ( I am including the Portuguese bank situation in there) but as far as an inflation hedge, how can one argue that one needs to buy gold to protect against inflation right now when the commodity sector as a whole is moving lower? Those geopolitical events can provide support for the metal but once those events fade from traders' minds, then there is not much left to support these higher prices.You can point to the Dollar but like so many of the major currencies right now, it is stuck in a range trade and is certainly not collapsing lower.Some will buy gold as protection or a type of safe haven against falling equity prices but so far, stocks while they have bent, have not broken. As to be expected on a day during which gold is falling in price, we will get the usual " someone is dumping huge quantities of gold" nonsense, as if somehow that is evidence that the feds are knocking the gold price lower, but if the market perception, aided by the Fed Chairwoman, is that inflation is not a serious problem, then it is to be expected that gold would be sold off. If the entire commodity complex is moving lower, why not gold? We could all make the same breathless exclamation, "Someone is dumping huge quantities of crude oil on the market". Does that imply that some nefarious evildoer is working to depress the price of crude oil? Of course not! These continuous, simplistic notions that pop up like mushrooms after a summer rain every single time gold makes a sharp move lower, do a huge disservice to objective market observers and betray a naivety that borders on ignorance. Markets are constantly in a state of flux and perceptions change daily, sometimes within the day. Why should we expect markets to be stagnant? That is what makes trading/investing so very challenging. Perceptions are constantly changing and we have to adjust to these changes if we are to be successful. One gets the idea in reading the stuff from some of the gold perma bull sites, that nothing ever changes in markets in regards to how players see things on any given day. When markets change - good traders change. It is that simple. Take a look at the weekly chart of corn and you will see what I mean when I speak of falling grain prices. Corn prices are at a near 4 year low. There is a good possibility that they could fall even further as it has now entered what was a former congestion zone back in 2010. The bottom of that zone is near $3.40. This will have big implications for food costs as it will work to eventually bring down meat and poultry prices later this year and certainly by Q1 2015. Crude fell below the psychologically important $100/bbl level today. It just so happens that this level coincides very closely to the 200 day moving average, a big technical level, so the downside breach of $100 is not only a psychological blow to this market, but it is also a big technical blow. Crude is currently holding in the first support zone noted. If it loses the lower edge of that and cannot recover it, it should fall another $1.00. I will get some more up later on... it is a bit busy right now....
USDA reports from the field are in for this week.It might be hard to believe but the corn crop actually improved even more. Last week it was rated at 75% Good/Excellent. This week, that category increased to 76%. The improvement came at the expense of the Fair category which dropped 1 point to 19 from 20. That one point drop in the Fair ended up in the Excellent category which increased to 22% from 21%.Improvements came in the Missouri crop. The big three, Iowa, Illinois and Indiana remained the same at a healthy 108, 111, and 108 on the ratings table with 100 considered normal. 34% of the crop is silking compared to last year's 15% and the 5 year average of 33%. The crop is way ahead of last year but right about on schedule. On the soybean front, the percentage of the crop rated Good/Excellent remained the same at 72%. There was a 1% increase in the crop rated Excellent at 16% compared to last week's 15%. That came out of the Good category which dropped one percentage point to 56% from last week's 57%.The Fair category lost 1% to the Poor category. 22% of the crop is rated Fair this week, down from 23% last week. 5% of the crop is rated Very Poor, up from 4% last week.41% of the crop is now blooming, way ahead of last year's 24% and compared to the 5 year average of 37%. That earlier bloom period is important as it puts the crop a bit ahead of schedule meaning the current benign weather will keep it supported ahead of any potential heat/dryness issues that might arise in August. There is a bit of chatter that this week's Polar Vortex (yes, you are reading that correctly) which is expected to hit the Mid-West later this week bringing unseasonably cool temperatures with it, might slow the crop down somewhat due to the lower overnight temps but I am not so sure about that. It takes soil a long time to cool off and a few days of cooler weather, along with sunshine I might add, is not going to impact soil temps all that much in my opinion. Mild day times temps will continue to eliminate any heat stress issues for these plants. As far as the big three go, the Iowa bean crop improved to 106, the Illinois crop improved to 108 and the Indiana crop remained unchanged at 105. Beans popped higher today on thoughts that possible hot/dry weather in August could crimp yields but that remains a ways off and thus far I have not seen any forecasts calling for that. What likely happened is that some shorts decided to book some profits after the market spiked up off its worst levels on Friday after the initial reaction to the bearish Supply and Demand report had run its course.Corn and wheat got bumped higher as well on ideas that the sharp fall in prices would generate some commercial buying interest. Switching gears here I am noticing that the gold miners ( HUI) is closing very near its low on the day. Ditto for the GDXJ which is down nearly 4.8% as I type up these comments. The long bond is a tad weaker today. Expectations are that Yellen, speaking on the behalf of the Fed and not herself, will sound a bit more hawkish view on interest rates. Some of this was also a factor in the gold price drop today. Some longs got nervous looking at the sharp spike in the number of NET LONGs among the hedge fund category. That number leapt from 51,280 the week of June 10 to last week's reading of 136,929. That is a significant increase in a mere three week period as it almost tripled. We'll have to see whether or not gold can remain with a "13" handle in front of it. Much will depend on Yellen's testimony and obviously how the market reacts to that or how it interprets her comments.I think people are coming around to the consensus that interest rate hikes are inevitable. No one seems to have the time nailed down however. That is what will be the focus.
