Coca-Cola fell 3% as volumes missed estimates, and a report today showed the cost of living in the U.S. rose in June as gasoline prices increased the most in four months. The CPI increased 0.5% after a 0.1% gain the prior month. Industrial production rose in June by the most in four months. Tomorrow, Federal Reserve Chairman Ben Bernanke starts his testimony before the House Financial Services Committee in Washington.
Equities: The SEP13 E-mini S&P 500 is down 4.5 points this morning to 1673. We believe 1677.50 is the key decision level for this market. If the market has trouble staying above 1677.50, we believe the market is susceptible to some selling. Our key level to the downside is 1644, and then before that 1664. We would not be surprised to see the market head to the low 1660s over the next couple of days as Bernanke testifies. Furthermore, the market might be weak today not only based on some mixed earnings reports from big corporate names, but also the increased inflation # is very likely taking a toll on the bulls’ enthusiasm.
Bonds: The SEP13 30-year bond futures are trading up 9 ticks today to 134’28. We believe the long term upside on this market is limited due to the potential future the market has in store of stimulus tapering. However, we could see a short term rally, especially if the stock market decides to roll over and make a profit-taking move lower. We continue to watch 133’16 as our key pivot level for this market. There has recently seemed to be strong buying interest at this area. Bernanke’s testimony has potential to be very market moving this week, so the bond market might be quiet before hearing what the Fed chairman declares.
Commodities: The gold market has found strong buying interest ever since dipping below $1,200. AUG13 gold is up $6.5 today to $1,290. We have $1,283 as a high volume area of recent trading, so this could potentially be a magnet level for gold, but we also would not be surprised to see another push higher to our first upside target at $1,305. We believe gold is susceptible to a quick move down, especially if Bernanke is more hawkish this week than he was when he last spoke. AUG13 crude oil is down $0.29 after hitting a high overnight of $107.18. We still believe crude has the potential to rally further.
Currencies: SEP13 Euro futures are up 62 ticks, SEP13 Pound futures have recovered from losses to be up 13 ticks, and the Aussie dollar is up big today to 91.82, trading 124 ticks higher from yesterday’s close. The Aussie is responding to the minutes of the last Australian central bank meeting. Really, for all major currencies, this week’s Bernanke testimony will likely provide a lot of fundamental information to potentially determine the course of the key currencies. The next big event for the Pound is the minutes release from the last BOE meeting. We believe this release could have a negative impact on the Pound. We are watching a currency spread, the EUR/GBP spread. This spread rallied overnight as the Euro rallied and the Pound sold off, and this spread looks to be in an uptrend at this point. We notice a potential bullish technical pattern with an upside target of 88000.