The U.S. economy contracted in the first quarter by the most since the depths of the last recession. Gross domestic product fell at a 2.9 percent annualized rate, more than forecast and the worst reading since the same three months in 2009. Another report showed orders for business equipment climbed in May. ISIL now controls most of a “central swath” of Iraq, is “solidifying gains” and poses “a legitimate threat to Baghdad,” Rear Admiral John Kirby, the Defense Department spokesman, told reporters in a briefing at the Pentagon.
Currencies: The U.S. Dollar Index (NYBOT:DXU14) is back down today, after a recent rally. The USD is down 15 ticks to 80.24, while the Euro is up 34 ticks to 1.3640, after not being able to sustain a move lower below 1.35. Interestingly the Euro is finding some buying this week, even though Draghi is pledging to be extremely accommodating with monetary policy. The Canadian dollar is up 16 ticks to 93.07, We would not be surprised to see more rallying in the Canadian, possibly even to our major resistance level of around 94.15. The Pound has not been able to hold above 1.70, but we do believe the Pound’s rally may not be over, just taking a breath. 1.72 is our next major level.
Commodities: Gold (COMEX:GCN14) and silver continue their recent strength today, with August gold (COMEX:GCQ14) above $1,320, and July silver (COMEX:SIN14) above the $21 level. Our next key gold level comes in at around $1,331, and we do think that gold may make a run for that level. Silver’s next key level for us is $21.60. August crude oil (NYMEX:CLQ14) seems to be a very interesting market these days, with a lot of people calling for lower prices based on supply, but conversely the market is not headed lower, probably due to the classic fear premium due to Iraq developments. We would not at all be surprised to see crude oil try to head towards the $110 level. If crude oil continues to go higher, we expect the S&P 500 (CME:SPN14) to head lower.
Equities: The E-mini S&P 500 (CME:ESU14) are up 3.5 points to 1946.75, after an afternoon sell-off yesterday that took the market below 1940, albeit briefly. We believe that two forces may cause serious headwinds to further rallies: 1) the situation in IRAQ, which could cause much higher oil prices, as well as overall investor jitters, and 2) the potential for US rates to rise next year, thus potentially hurting the housing market and spending. We did recently think the market may continue higher to our key trendline resistance at around 1985, but yesterday’s sell-off and today’s consolidation (along with today’s disappointing GDP number) makes us think perhaps the SP500 may try to head lower from here, possibly to recent lows of around 1920.
Bonds: The U.S. bonds (CBOT:USU14) are up 23 ticks to 136’24, bouncing off a very key trendline yesterday. The 134’20 area looks like important support for bonds going forward. We believe the bonds may have a “bid” to them as the Iraq situation does not look like it will calm down anytime soon. Even though the taper is on, the bonds really have not had a sustained downmove like some were expecting. We believe this could be due to the forward interest rate guidance the Fed is giving, indicating that rates might not be raised immediately after the taper is complete.