June Crude Oil is
trading lower after a government report showed a larger-than-expected
increase in domestic crude stocks last week. Additional pressure is
coming from the weaker Euro and stronger Dollar as traders sold off
higher risk assets. Losses were tempered by bigger-than-forecast
drawdowns in gasoline and heating oil stocks.
The main trend is
down on the daily chart and this market may be forming a secondary
lower top. Should the Euro collapse further, pressure could spillover
to the energy complex. The charts are saying this market is vulnerable
to a correction to 77.28.
The downgrade of Portugalâ€™s credit
rating and a failure to reach an agreement to provide financial aid to
the ailing Greek nation is pressuring the Euro, helping to weaken the
higher yielding stock equities, gold and crude oil. Speculative traders
are preventing the equity markets from melting down sharply because
they appear to be supporting the markets on dips.
Bonds are trading sharply lower after several days of consolidation.
While the media likes to talk about the stock market as a leading
economic indicator, I have always maintained that Bond traders are the
smartest investors in the world, and the overnight developments in the
bonds suggest that there is risk out there despite what the equity
markets are saying.
Pressure is mounting on the Treasuries
because investors are driving up yields in the face of the increasing
risk of holding on to debt. Everyone is issuing debt at this time from
corporations to governments. Because of the increased competition,
investors are in a position to ask for and receive the higher yields
The stronger Dollar is driving down June Gold.
Earlier this morning, June Gold broke the late February bottom at
$1088.50, but failed to attract heavy selling pressure that had been
anticipated. Although the initial reaction to the news out of Portugal
is encouraging the shorts, if the situation becomes dire for the Euro
once again like it did several weeks ago, then look for gold to find
support from investors betting on the demise of the Euro. General
demand for hard assets will help underpin this market should the Euro
The March Euro is continuing to plunge after Fitch
downgraded Portugalâ€™s credit rating. On-going concerns regarding
efforts by Greece to obtain financial aid from either the European
Union or International Monetary Fund and this latest development with
Portugal could worsen if additional credit rating cuts are applied to
Spain, Italy and Ireland. Traders are reacting as if this situation
will spread to other sovereign nations as the European Union continues
to drag its feet amidst the already dire Greek outlook.
mid-session the U.S. Dollar is higher across the broad against all
major currencies as investors seek protection from the drop in higher
yielding assets. Fear could spread throughout the markets into the
close if support for the Euro continues to erode. Investors are showing
their support for the Dollar by selling off equities, gold and crude
oil overnight. In addition, stops are being hit as the Dollar Index
soared to a new high for the year. This situation will spread to other
sovereign nations if the European Union continues to drag its feet
amidst the already dire Greek outlook.
After closing Tuesday off
its low following the news that France and Germany were leaning toward
accepting a Greece financial aid package from the IMF, the Euro
weakened shortly before the Fitch news on the notion that financial aid
from an outside entity would appear to be a weak signal from the
European Union. This was almost a complete about face from yesterdayâ€™s
late session rally which helped push up demand for higher yielding
assets and currencies.
According to the recent CFTCâ€™s Commitment
of Traders data, short traders continue to control the direction of the
Euro. Although efforts have begun to curb excessive short speculation
in the European single currency, it looks as if bearish speculators are
in control and have called the direction of this currency precisely.
Dollar is rising across the broad against all major currencies as
investors seek protection from the drop in higher yielding assets. Fear
could spread throughout the markets today if support for the Euro
continues to erode. Investors are showing their support for the Dollar
by selling off equities, gold and crude oil overnight. In addition, the
Dollar Index has soared to a new high for the year.