Many risk-on markets, including U.S. equity indexes, grains and soft commodities, are all having down days today before the ECB meets tomorrow and issues their interest rate and policy announcement. While there isn’t really any major fundamental news to cause the markets to sell-off today, there is simple profit taking after a very strong showing in January. Also, we believe market participants are squaring up positions before Mario Draghi issues his statement tomorrow, as he is known to have the potential to cause major market moves.
The euro currency is also down 55 ticks today after hitting a major resistance level recently at 1.37. Overall, it still seems like the euro is in an uptrend and we would not be surprised to see the 1.37 mark hit again soon, especially if Draghi talks positive about the euro region outlook.
Even with the very strong jobs report last Friday, U.S. treasuries are up today. The 10-year note is up 9.5 ticks, or +.23%. Tomorrow’s ECB announcement could indeed have a big effect on Treasuries. If Draghi sounds more dovish, then the Treasuries could rally further, but if Draghi gives an aura of renewed confidence in the euro economy then the Treasuries could fall. The fact that banks are repaying their ECB loans seems to be a good sign, so overall we are more in the camp that states bond prices should drop sharply before summer.
One interesting story today is Platinum. Platinum futures are up $26 today, or +1.55%. Mining disruptions in South Africa as well as a drop in supply from Russia have triggered fears of a deficit.
We focus more on the yen this morning. The Japanese yen, as many now know, has been in a major downtrend since the middle of last year. The yen has still been falling even through this month, and is down again today. It is tempting to “pick the bottom” in trading and profit from a potential retracement, but this is tough situation to try to do that. We believe the yen has further room to fall, and we mark the next support/target levels at 1.05 and then 1.01. The yen may fall further and then potentially consolidate between these levels.
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