Daily Futures Commentary June 26, 2009

Overnight China renewed talk of a super world currency to replace the Dollar as the world’s reserve currency. They also called for the IMF to manage the funds. Last night’s announcement fueled selling in the U.S. Dollar.

The weaker U.S. Dollar is supporting higher prices in the precious metals. August Gold turned the main trend up on the move through 944.00. The charts indicate that upside momentum could take this market to 952.60 then 962.00. The fast move from the recent bottom makes this market vulnerable 928.80 to 925.00 however.

Continue to monitor the movement to replace the Dollar as the world’s reserve currency. This is the only fundamental news driving supporting the market at this time. The recent announcement by the Fed and the government reports are indicating that inflation is not an issue at this time.

This week’s Treasury auctions have been deemed a success. Yields fell because of the greater demand for Treasury Notes. This helped drive up September Treasury Note and September Treasury Bond futures. The short-term picture looks as if these markets have room to the upside. All of the recent doom and gloom talk of the U.S.’s ability to fund its debt may have encouraged traders to short more futures contracts than necessary. This is helping to support the current short-covering rally.

Equity markets have made a strong recovery from earlier in the week. The current rally is supporting my claim over the past several weeks that investors are more interested in buying dips rather than breakouts in this market.

Although stock indices are unchanged for the week, the strong comeback indicates that they may have the power to test the recent highs one more time. This test is very important because of it fails, the indices are likely to begin to rollover to the downside. A clue as to whether the equity markets have the muscle to rally much higher from current levels is how the September E-mini S&P 500 reacts at 918.50 to 926.50. If sellers step up inside this zone then look for the start of a decline.

Some traders feel that equity markets will begin to unravel early next month when earning reports begin to be released. Cycles watchers are pinpointing July 10th for the start of a substantial summer decline.

The weaker Dollar is helping to support a short-covering rally in September Crude Oil. This current rally is critical to the structure of the market. A failure to make a new high on this current move will indicate that the selling is greater than the buying at current levels.

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