“If the outlook for employment were to become relatively less favorable, if inflation did not appear to be moving back toward 2%, or if financial conditions — which have tightened recently — were judged to be insufficiently accommodative to allow us to attain our mandated objectives, the current pace of purchases could be maintained for longer,” Bernanke said today in prepared testimony before the House Financial Services Committee. Housing data was released today, showing that work began on 836,000 houses at an annualized rate last month, the least since August 2012.
Equities: At this point, right before Bernanke’s live testimony, the SEP13 E-mini S&P 500 is trading up 6.25 points to 1677.75. This is almost exactly at our key decision area for this market, and the market does look strong even at these levels. However, if Bernanke mentions anything about tapering later this year in his testimony, the market could correct lower and approach 1650. The market seems like it wants to go higher. The market made an overnight low of 1665.75, but found buyers at that area, enough to approach the contract high this morning. The market is showing its colors this morning, indicating that it is extremely dependent on the Fed’s actions, almost exclusively. The housing data was not that good, yet the market is higher today than it was yesterday.
Bonds: The SEP13 30-year bond futures are up 26 ticks to 135’25. We do believe the bond market has room to go higher, and we are focused on the spike high of this month at around 136’25 as our next upside target. Our key support area is 134’15. We believe the weak housing number also is providing impetus for the bond market to head higher. The MAR16 Eurodollar futures have also had a big retracement of their recent sell-off recently, trading up 11.5 ticks today to 9843.5. We have 9863 as a potentially major resistance level for this market.
Currencies: The U.S. Dollar Index is trading slightly up today to 82.83. We believe even at these levels, the dollar is potentially oversold, and could rally further to at least 83.10. The story of the currency markets overnight has been the British Pound. Upon release of the BOE minutes, the Pound shot up all the way to 152.62. The Japanese Yen has been in a range trade recently, right around the 100 level. Yesterday it was up, today it is down 40 ticks to 100.46. We believe the Yen could rally to around 103 over the next month or two, as the short term US monetary policy could be dovish, while the Japanese economic #’s have been coming out better than the forecasts.
Commodities: The gold market is trading down $11 to $1,279, after spiking higher to almost $1,300. We have what we believe to be a highly important barrier on the upside at $1,360, and a potential magnet level below at $1,230. It seems as though gold (and foreign currencies) has turned course this morning and are trading as though they have heard a “hawkish” tone from Bernanke today, or perhaps not as “dovish” as they were expecting or wanting. AUG13 crude oil is still strong, trading at around $106. We still believe buyers will be attracted to crude oil’s momentum and may make a push to $110, mainly based on middle east uncertainty.