June Gold Trading Higher

by James Hyerczyk, Brewer Futures Group, LLC | April 1, 2010

Stocks are trading higher overnight on the prospects of a global economic recovery following the release of better than expected European and Chinese manufacturing reports. The rally started overnight in Japan when the Nikkei average rose fueled by the weaker Yen. Talk that Japanese investors will seek better returns in foreign markets helped support the U.S. equity markets. News that China’s purchasing manager’s index was up more than expected also contributed to the rally.

The inability of U.S. stock markets to fall sharply after Wednesday’s worse than expected ADP jobs data is helping to lead to follow-through buying overnight. Traders bought early weakness yesterday indicating that the bulls are not ready to give up on this market despite its lofty price levels. The only thing holding back the June E-mini S&P 500 appears to be the lack of volume and participation by major stock players ahead of Friday’s U.S. Non-Farm Payrolls Report.

The indices are called higher this morning, but traders are not sure whether U.S. investors will chase this market higher. Five days of sideways trading has the major indices set up for a major move. The only thing missing at this time is a catalyst.

June Treasury Bonds are trading lower overnight following Wednesday’s short-covering rally. Oversold conditions and the worse than expected ADP jobs data helped contribute to yesterday’s rally. Yields have been rising because of increased competition from corporate bonds, but traders seem reluctant to take on more risk ahead of Friday’s U.S. jobs data. A weak initial claims number this morning could send T-Bonds higher but gains could be limited by the retracement zone at 116’19 to 117’00.

June Gold is trading higher, indicating stronger demand for higher yielding assets. Regaining a retracement level at $1115.20 will be a sign of higher markets to follow. Falling back below $1109.10 will be a sign of weakness. A weaker Dollar will underpin gold today.

Speculation that the global economic recovery is back on track is helping to boost June Crude Oil prices. Bullish manufacturing reports out of China and the U.K. are leading to speculation that demand will increase for energy. Strong upside momentum could drive this market to the high of the year at 85.95 now that the two tops at 83.70 and 83.80 have been cleared.

The U.S. Dollar is trading mixed in limited action. Higher metals, crude oil and equities indicate demand is strong for higher yielding assets. This may pressure the Dollar once the New York market opens. Trading conditions are thin because of Friday’s important U.S. Non-Farm Payrolls Report. Investors are shying away from taking large positions ahead of this report, thereby capping volatility.

The Dollar weakened on Wednesday following the release of a worse than expected ADP private employment report. Traders were looking for an increase of 40,000 jobs but the report showed a 24,000 job loss. This could be a sign that the economy is weakening and that the Fed will keep interest rates low for some time.

Today’s Weekly Initial Claims Report will shed further insight on the U.S. jobs outlook. Traders are expecting this week’s report to show initial claims of 440,000. Later in the morning, the U.S. reports ISM Manufacturing and Construction Spending. Both reports could trigger mild reactions but are not expected to be market movers because of this week’s focus on jobs data.

The June Euro is trading flat to lower following an uneventful overnight session. News that German retail sales in February fell 0.4% versus a forecast of flat failed to move the market. On Wednesday, the main trend turned up on the daily chart, but gains have been limited since this change took place. The daily chart indicates that a retracement zone at 1.3542 to 1.3607 is currently providing resistance. In addition a long-term down trend line at 1.3620 is also stopping the advance.

Bullish Euro traders have to be concerned about what is happening in the capital markets regarding Greece. Greek bond prices have been falling since their initial offering earlier in the week. This could be a sign of a lack of confidence in Greece’s ability to finance its debt. The falling bond prices are an indication that the recently approved rescue plan has failed to reduce borrowing costs. Greek bonds have basically become a burning match to investors.

June British Pound short-traders continue to cover positions in reaction to the positive 4Q GDP Report from earlier in the week. Thin trading conditions because of this week’s U.S. jobs data is also helping to drive this market higher, due to the absence of a major seller. The main trend is down but this market is rapidly approaching the last main top at 1.5381. A move through this price will turn the main trend to up. Based on the intermediate-term range of 1.5814 to 1.4780, traders should look for a possible technical bounce off a 50% price level at 1.5297. In addition, a downtrending Gann angle and .618 price level combine to form a resistance cluster at 1.5417 to 1.5419. Fundamentally, worries have eased concerning the economy and the U.K. credit rating, but traders are still worried about the U.K. budget deficit and the possibility of a hung parliament following the upcoming election.

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