The Hightower Report

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DOLLAR: The Dollar appears to be holding just above the prior lows as if it is waiting for the final judgment on the Greek 10 Year debt offering. At least from the early indications, the debt offering went off fairly well and when one combines that sentiment, with the potential for decent US economic news, that could leave the bear camp with the near term edge in the Dollar. However, the Dollar might not fall aggressively because of the presence of the ultra critical US Non Farm payroll report on Friday morning. It is also possible that the Dollar is set to get some minor support from the latest Chinese tightening effort, but that support will probably be totally washed away because of another push in the US for the Volcker rule. In our opinion, pushing for the Volcker Rule should mean that some money will decide to flee the US Dollar. In conclusion, the bearish items seem to easily out number the bullish items, with favorable US data likely to continue lifting oversold Non Dollar currencies. Critical support in the March Dollar index is seen at 79.97 but a decline down to 79.75 would not be surprising today.

EURO: The Euro was recently oversold technically and perhaps under excess fundamental pressure. While the final results might offer up a surprise, the initial results from the Greek debt offering seem to have been good enough to keep anxiety levels low and that could provide the Euro with a further short covering lift. Unfortunately, Euro zone GDP readings overnight showed a gain of only +0.1% and the trade saw fresh Chinese tightening moves overnight and that seems to be limiting the Euro in the early going today. However, the Euro needs help to rally and we doubt that the rate decision from the ECB will offer any surprises, but we do think that favorable US numbers could prompt some additional buying of the March Euro. Initial support in the March Euro is seen at 1.3654 and there is a chance of a fresh new high for the week if the US numbers are positive.

YEN: The March Yen managed another range up move in the overnight action but it would appear that the Yen is managing the gains off information that might have been seen as bearish earlier in the week. Perhaps news of an earthquake in Taiwan overnight provided the Yen with a lift and perhaps the currency trade is expecting a disappointing US Non farm payroll reading on Friday morning. In any regard, we have been suggesting all week that the Yen was capable of rallying sharply this week and it wouldn’t be surprising to see a spike high and failure above the 114 level.

SWISS: The Swiss seems to be poised to rally but we get the sense that the rally would be mostly technical short covering. However, a temporary calm in the Greece situation and improved economic views toward the US recovery would probably prompt the March Swiss to rally back above the 94.20 level. For the time being, being long the Swiss is like being long the world economic outlook.

POUND: The Pound continues to benefit from a leveling of the Greece debt crisis and perhaps because of a slight improvement in the US economic outlook. In retrospect, one might also suggest that sentiment toward the Pound and the UK economy was really negative early in the week and therefore some short covering is deserved in the Pound. However, a UK Halifax house price reading for February fell overnight and therefore the bull camp in the Pound probably needs some help from world equity markets and also from the US economic report front. The March Pound would seem to have little resistance until the 1.5150 level, but being long the Pound, might mean really good numbers lift the currency slightly, while slack numbers resume aggressive selling interest.

CANADIAN DOLLAR: The Canadian Dollar remains in a bullish fundamental and technical posture. However, the Canadian is somewhat short term overbought and seemingly in need of a patently supportive US economic report flow to manage more gains straight away. The Canadian is sensing forward progress on the global economy, but we are a little uncomfortable suggesting fresh long plays in the upper quarter of the last 5 1/2 month trading range. Long term, we are bullish but buying at this level on the charts feels risky.

TODAY’S MARKET IDEAS: The bias in the Dollar would look to remain down especially if US numbers are decent and the Greek debt auction is deemed to be mostly successful.

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World stock markets showed some weakness overnight and that weakness might have come from any number of minor bearish themes. First of all, it is possible that the markets were simply banking some profits and were in need of technical balancing. It is also possible that news of a quake in the Asian region, sparked some weakness, or it is possible that fresh restrictions on borrowing in China provided a slight financial tremor. In looking at the developments from Greece overnight, it would seem as if that situation was mostly under control and therefore not the source of the sideways to lower overnight price action. One could also suggest that a very minimal rise in Euro zone GDP and or a decline in UK Halifax house price report were discouraging and possibly a source of minor selling in stocks. Our gut suggests that the initial weakness today, is the result of the Chinese tightening and the need to technically balance stock prices. In looking forward, we are slightly positive as the scheduled numbers today look to be indicative of ongoing growth and since the US Fed Beige Book yesterday afternoon also conceded to growth across most US Federal Reserve districts, the overall macro economic view should remain positive. However, it would seem like the US Administration is once again poised to push for the Volcker rule and that should be considered a limiting development.

S&P 500: Unfortunately for the bull camp, up trend channel support is seen all the way down at 1100.30, with a closer-in support level seen at 1112.80. We see a critical pivot point this morning into the scheduled US data, as the market has already managed a slight technical correction and the failure to bounce off decent US numbers and the initial results from the Greek auction would suggest that the bull camp is losing its desire.

DOW: The March Mini Dow showed some patently bearish technical action overnight as it managed to take out the prior two session’s lows. However, up trend channel support in the March Mini Dow is seen at 10,308 and that up trend channel support line rises to 10,335 on Friday. The market seems to be partially undermined, as a result of the renewed push for the Volcker exclusion and that might mean the US scheduled data will have to be distinctly positive this morning in order to rekindle speculative buying interest in the market, especially ahead of the ultra critical monthly payroll report on Friday morning.

NASDAQ: The March Nasdaq comes into the action this morning waffling around both sides of the 1850 level. Critical support is seen down at 1842.75 today and a failure of that level could promote noted stop loss selling pressure. Apparently some players are fearful of the monthly US payroll report on Friday morning and that should make today’s rather active flow of scheduled data rather important. In fact, unless the Greek debt sours from an initial favorable standing we suspect that liquidation pressure might be limited and easily reversed by US scheduled data flows.

TODAY’S MARKET IDEAS: Some technical corrective action underway and since anxiety off the Greece situation looks to be tempered, the market should be able to bounce off US data flows.

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Apparently Treasury prices were lifted late Wednesday in the face of some initial weakness in global equity prices, but it is possible that prices might have been lifted by early reports of yet another earthquake ( centered in Taiwan). Clearly Treasuries were lifted in the wake of the Fed Beige book yesterday perhaps because the Fed merely acknowledged the impact of severe February weather on the numbers and that theme has been offered up as an impact on the Friday numbers. However, the Fed Beige Book also noted growth across most Fed sections even though they made note of the weather impact. With the additional commentary that “layoffs slowed” and that hiring plans were anemic, that probably signaled to the market that the US jobs sector remains weak and with the key monthly reading just ahead, that prompted the Treasury market to recover and perhaps to see some fresh outright buying for a speculative play on the Friday payroll reports. We also think that renewed talk about the “Volcker Rule” rekindles some concern that Treasuries might once again be one of the few investments available to Banks. It also seems as if the Greece situation is mostly under control overnight, as that country launched a debt offering today and the results early on seemed to be mostly OK and that could serve to drain some flight to quality buying interest from the Treasury market.

In looking ahead to the scheduled data flow today, the markets will see a very active flow of data, with the weekly claims data, Pending Home sales and Factory orders. There is also a US Productivity reading to be released today and we suspect that will be supportive to Treasuries, as the job market remains soft enough, that employers are continuing to squeeze out production from an aggressively trimmed work force. However, until there is a higher degree of uncertainty on the hike/no hike question, the Productivity reading shouldn’t be seen as an overly important reading. In the other reports, the trade seems to be expecting a modest gain in Factory Orders and also in Pending Home sales and that could be limiting for Treasury prices, but only if the claims data, released ahead of the second set of data, manages to show some declines.

In conclusion, we think that the claims data will be the most important data of the day, with the Pending Home sales report, the report that might be capable of providing the biggest surprise. Therefore, we think that the upside will remain limited by the data today, with the June bonds potentially finding it difficult to rise above 117-17 and Notes above the 117-18 level. In fact, if the claims data shows the type of declines predicted by some economists, the Treasury market could see a mostly bearish track throughout the morning trading session. We suspect that ranges might be narrowed later today due to the US Non Farm payroll report on Friday morning, unless of course the stock market takes out the Tuesday lows off some fresh disconcerting development.