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Crude is benefiting from a good jobs number, but I believe it has moved a little too far, too fast
On Friday morning, crude rose well above $95. But I don't think demand at this point supports $95 crude. Still, crude has obviously been helped by the strength of equities, which were buoyed on Friday by a better-than-expected April jobs report, as well as huge revisions of the March and February numbers.
I won't ignore the strength in the oil market today, but if we get to $96.50 to $97.00, I am looking to sell. After all, we have record supply in Cushing, even while demand for products is still lagging.
But I'm not selling forever. The market looks like it has established a range between $90 and $95, so if crude dips to the $90 area, I am a buyer.
Gold shorts covered on Friday morning. That led gold to press new swing highs to $1,487.20, which is our major resistance level.
After the European Central Bank lowered rates, many traders questioned how much of this was already priced into a euro that is currently about 5 cents from highs, and could not break 1.30 euros against the dollar upon the announcement. This hold has allowed commodities priced in dollars to rally back from a midweek sell-off. This has pushed gold higher, helping it to find a solid base at our $1,458 support over the last 24 hours, and to test the top side of our expected trading range ($1437.5 to $1487.5).
Now that we see nonfarm payroll data beat expectations,with 165,000 jobs added in April, gold will be even less attractive, as equities become the main focus for fund managers and institutions. However, we find the revisions from last month to be the major story Friday, as the March payrolls were revised from 88,000 to 138,000. This is a green light for equities, and gold's luster will continue to diminish.
Gold has consolidated in a range that we have defined to be between $1,437.50 and $1,487.50, and now we are trading $20 to $30 from the session's highs, as gold has proven to be just that: a range trade. A close below $1,437.50 will be very bearish, and will cause those who chased a run higher, as well as value investors, to once again hit the sidelines. This will likely cause a consolidation closer to the psychologically important $1,400 level at $1,402 to $1,404.20. The next line in the sand though will be $1,383.90. If that goes, then $1,320 and below will likely be in the cards.
On the other hand, if gold can consolidate above $1,466 on Friday, then major resistance will still be the $1,474 to $1,478.20 levels, and a close above there will negate the downside action.
Gold edged up on Thursday after the European Central Bank cut its main interest rate cut by 25 basis points to a record low of 0.50 percent.
Lower interest rates should favor gold as they encourage investors to put money into non-interest-bearing assets like the metal.
Spot gold rose to a session high of $1,473.40 an ounce after the rate decision and was last 0.9 percent higher at $1,469 per ounce.
It's all up to Ben Bernanke and his merry men.
Gold's smaller overnight range above $1,467 an ounce now has the bulls on their toes ahead of today's Federal Open Market Committee meeting, as we press below $1,450. Despite disappointing ADP employment data, which should encourage easing-related buying in the shiny metal, the $1,474.00 to $1,478.20 resistance levels have remained strong, and have kept gold in check far away from last week's swing highs.
This consolidation from between $1,437 to $1,487 is exactly the one I wrote about last week, with physical buyers and value hunters buying at these levels. Nonetheless, $1,500 will remain an enormous line in the sand.
Gold has taken out a pivotal support level below the $1,455.80 to $1,458.50 range and Friday's low of $1,447, but is hugging $1,450.This will likely remain ahead of the meeting today.
Gold's industrial counterparts began today heavy following poor Chinese manufacturing. Gold has since followed with a lack of physical buying as Asia and parts of Europe are on Labor Day holiday.
Additionally, traders are not making any big bets ahead of the FOMC meeting. A slightly dovish tone later today can potentially send gold back to test the session's highs. Some analysts expect a slowdown of bond purchasing by the Fed in the fourth quarter of 2013, from $85 billion to $50 billion. That would be a premature overcompensation for an economy that has not shown the necessary strength for that type of action given such data as from ADP and ISM this morning.
Nonetheless, if a bond purchasing slowdown is announced, we will likely see gold stretch below $1,437.50 to $1,438.00 support levels.
A European Central Bank interest rate decision tomorrow can be a bigger event than whatever the FOMC does today. Many expect the ECB to lower its benchmark rate, which would be bullish for gold priced in euros.
Gold fell on Wednesday as buying slowed down due to holidays in China and parts of Europe, and as investors waited to see if the U.S. Federal Reserve would stick to its stimulus program to spur the economy.
The Fed's policy-making committee ends its meeting later in the day and is widely expected to keep the current pace of bond buying at $85 billion a month due to recent weak economic data.
This morning's ADP report shows that private employers added just 119,000 jobs in April employment data, which was well below estimates and is the lowest gain since September. This should serve as a well-timed reminder of the current forces driving markets.
(Read More: Spring Slowdown Paints Ugly Picture for Jobs: ADP)
Softness in the latest string of numbers, coupled with tame inflation, has eliminated any chance that the Fed will change their dovish rhetoric. Stocks and bonds have broken from the traditional risk-on/risk-off rotation which saw them moving in opposite directions, and they have become comfortable rallying together. This makes sense to me, as the Fed has pledged to keep a strong bid in the Treasurys, which forces everyone else to look for yield in risk assets.
Another element in this trade is a perception of less issuance by the Treasury as a response to increased tax receipts. Persistent Fed demand, coupled with less supply, could provide some extra torque in the move toward lower yields.
As for equities, we will get a glimpse of their underlying strength later today after the highly anticipated Fed announcement, and my guess is it will be just what the S&P futures need to take out the 1595 highs with conviction.
My current objective in the June S&P e-mini futures is 1624, and my target for the June 10-year note futures is 134.
Mark Dow, a former hedge fund manager who writes at the Behavioral Macro Blog, notes a key difference between the two. While "Apple is a bubble that has popped," Dow said, "gold is a bubble that is in the process of popping." For that reason, on Tuesday's "Futures Now," Dow advised going long Apple and short gold.
Apple and gold are certainly two charts that are at the front of investor's minds. After all, both appear to be making runs at technically important levels. For the first time in a month, Apple has managed to rise about its 50-day moving average. Gold, meanwhile, is edging closer to the psychologically important level of $1,500 an ounce.
U.S. drivers paid the least for gas in April than they have in at least three years, the AAA said on Tuesday, bringing hopes of relief at the pump just in time for the summer driving season.
The AAA said national gas prices averaged $3.55 per gallon, their least expensive in April since 2010. Over the course of the month, retail gasoline shed nearly 3 percent, or 13 cents per gallon—its largest percentage decline for the month in a decade, the agency said.
"Gas prices have fallen faster and earlier than ever before for this time of year, and it is saving motorists millions of dollars per day in lower fuel costs," said Avery Ash, a spokesman for the AAA.
Market watchers cite a combination of factors behind the move. Primarily, sliding crude oil prices in world markets, and a lack of major refinery outages that normally lead to fuel shortages and drive up prices, have helped to contain prices.
In particular, the steep drop in Brent crude—which has plunged from over $116 per barrel in February to under $103 on Tuesday—has trickled down to the pumps.
Bonds and stocks tend to move in opposite directions. But this year, they've traded like best buddies.
In 2013, the S&P 500 has risen over eleven percent, and 10-Year Treasurys are up over four percent. Of course, given that the Federal Reserve has been buying bonds, and thus helping stock market, perhaps these moves shouldn't come as too much of a surprise.
What's really driving copper?
We spend a lot of time dissecting the global supply and demand equation is order to explain copper's moves. I'm beginning to believe that this is wasted time, and what we should do instead is focus on the Japanese yen.
It doesn't seem a coincidence that copper (and gold and silver for that matter) found a floor days after the Japanese yen found its floor against the dollar, and then copper and the yen began rallying in tandem.This suggests that dollar strength is still a primary driver of commodity prices, and once that strength declines, copper should rally along with the yen. As a secondary driver, China will release the manufacturing managers' index number tonight, and I believe that the market may have been too pessimistic on its China outlook.
If July copper rises above this morning's highs and trades $3.250, that will be the signal of strength, and would lead me to adopt a bullish bias with an objective of $3.440. A trade below $3.150 will stop me out of the trade. If the June Japanese yen futures trade below 100, that would also change my opinion about copper.
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