The Hightower Report

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DOLLAR: After a two-sided night of trading, the Dollar finds itself slightly weaker going into the US opening. The risk aversion theme that has kept the Dollar close to 14-month highs may be fading somewhat as the market approaches the holiday weekend, but there are plenty of factors still in play that are likely to keep any extended move lower from occurring during this session. Comments from Chinese officials on the Korean situation and how European debt problems will affect the global economic recovery have reinforced the Dollar’s safe haven support, although that may dissipate if the general recovery in world equity markets extends itself into today. Today’s US Personal Income numbers may provide some direction if they surprise the market, but there are too many unresolved areas of concern for the market to contemplate a full scale Dollar retreat. Look for the Dollar to hold support near the 85.75 level, but the Dollar will still need some substantial news in order to move any further to the downside.

EURO: Although the June Euro has been able to extend yesterday’s recovery, much of that move has been due to end-of-month rebalancing in front of the holiday weekend. With the Chinese placing blame on European debt problems, and with news that the city of Rome was placed on a negative credit rating watch yesterday, the burden of proof for a recovery has been placed squarely on the June Euro’s shoulders. If world equity markets can find enough strength to have a second day of large gains, there may be some hope of a move beyond 1.25 but the concern of being long over a holiday weekend may act to limit any upside potential. The June Euro is likely to find resistance near the 1.2450 level, but the June Euro will need a new catalyst for an extended move towards the upside.

YEN: Already pressured by the erosion of safe-haven support, the June Yen was forced to deal with two negative Japanese economic numbers overnight. Japanese Unemployment was higher than expected, while the Japanese CPI had a larger than expected decline. With both numbers pointing towards an economy that needs to be revived quickly, the gains that the June Yen has posted over the past few weeks have to be seen as a huge economic liability. While the approaching holiday weekend may keep prices somewhat supported, the June Yen may look to again trade near support around the 109.40 level as quieter news and stronger equity markets remove a great deal of its risk aversion strength.

SWISS: A stronger than expected Swiss Leading Indicator number this morning may illustrate the relative strength of their economy versus the rest of Europe, but may have little in the way of immediate impact, as the Euro continues to recover this morning. Even so, look for the June Swiss to make a run at resistance levels near the 87.40 level, as a quieter pre-holiday trade should insure that the lows for the move have been put in earlier in the week.

POUND: The June Pound’s breakout of the recent trading range has seen little in the way of follow-through this morning, but prices have been able to withstand a weaker than expected UK Consumer Confidence number from last night. There appears to be enough positive pan-European sentiment out in the markets to hold the June Pound in positive territory, but the lack of upside momentum going into a holiday weekend should leave prices finding resistance near the 1.4650 level.

CANADIAN DOLLAR: June Canada continues to extend a recovery rally into today’s session, as the move away from risk aversion has been a major supportive factor for the commodity currencies over the past few days. With a relatively strong economic situation already in place, the June Canada is likely to see this move hold going into the weekend. Look for the June Canada to make a run at resistance near the 95.90 level, as quieter markets reinforce the strength of its recovery.

TODAY’S MARKET IDEAS: While the Dollar may be under pressure at the moment, the volatile trade overnight may indicate that caution be applied to holding any long position in the European currencies. Look for the June Canada to extend its recovery rally going into the weekend.

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DOLLAR: After some heavy initial pressure overnight versus the Euro, the Dollar has found some support as the reality of the Greece situation has taken some downside momentum out of the market. While having concrete details about a potential $40 billion EU/IMF aid package provided European currencies with a measure of support this morning and that in turn undermined the Dollar, it is important to remember that Greece still has to ask for this aid first, something that they have not done yet. The market may have to wait until Greece tries to sell some debt in the market this week before we see whether the aid package will be implemented. With little in the way of economic input from this side of the Atlantic, before the Treasury Budget announcement late in the session today, we may continue to see the focus of today’s trading remain on European issues. While well below its recent range, look for the Dollar to remain toward the upper end of today’s early trading range and possibly head back towards the chart gap area that was left just above the 80.85 level. A number of markets seem to have had a major knee jerk reaction to the EU Package news and have failed to sustain their initial reactions and that might suggest that all markets have indeed over reacted. Therefore we suspect that the June Dollar index will manage to hold above close-in support of 80.52 today. The Commitments of Traders Futures and Options report as of April 6th for US Dollar showed Non-Commercial traders were net long 30,248 contracts, a decrease of 5,040 contracts. The Commercial traders were net short 33,306 contracts, a decrease of 6,158 contracts. The Nonreportable traders were net long 3,058 contracts, a decrease of 1,117 contracts. Non-Commercial and Nonreportable combined traders held a net long position of 33,306 contracts. This represents a decrease of 6,157 contracts in the net long position held by these traders.

EURO: The June Euro started out overnight trading above its trading range for the past few weeks, but it has been unable to build upon that sharp rally as the market appears to be somewhat skeptical of whether the EU aid package will live up to the initial hype. Although Greece is saying that they have not yet asked for this aid, it is clear that a 200 basis point benefit from where Greece debt currently trades and what the EU/IMF package will charge in interest almost compels them to go with the aid. Also, there are some strong doubts that this 16-nation consensus will hold, if other EU nations come forward asking for help, or if possible Greece repayment problems escalate into a test of the EU’s “no-bailout” clauses. The timing of these announcements over the weekend had no small part in the market’s severe reaction to this aid package, and has likely helped the June Euro put in a near-term high. While remaining well supported, it is more likely that the June Euro will move back towards Friday’s highs around the 1.35 level than make a test of the overnight highs near 1.37. The Commitments of Traders Futures and Options report as of April 6th for Euro showed Non-Commercial traders were net short 64,017 contracts, a decrease of 19,183 contracts. The Commercial traders were net long 73,813 contracts, a decrease of -22,152 contracts. The Non-reportable traders were net short 9,796 contracts, a decrease of 2,969 contracts. Non-Commercial and Non-reportable combined traders held a net short position of 73,813 contracts. This represents a decrease of 22,152 contracts in the net short position held by these traders.

YEN: Early strength from the broad-based Dollar weakness has dissipated, and the June Yen looks to be weaker going into the opening. Comments made by Bank of Japan officials indicate that there is a difference of opinion on the need for more Japanese rate cuts in the near future. However, the deflationary economy in Japan may ultimately have the final vote and that should keep the June Yen lagging behind most of the major currencies over the near future. Look for the June Yen to continue its move below the 107.00 level.

SWISS: The June Swiss has received the most carryover support from this weekend’s EU/IMF deal, gaining back much of what it lost from last week’s post-intervention sell off. However, the near-term easing of Greece debt tensions will continue to keep the June Swiss under pressure against the Euro and should keep the market well away from making new highs. Even so, the June Swiss is more likely to hold last night’s lows near the 94.25 levels, as its overnight move was nowhere near as violent as the June Euro move.

POUND: Although the June Pound has extended last Friday’s rally into this week, early strength has been eroding as the market appears tentative to move outside of its recent range. Political factors are starting to override economic numbers, as the first weekend of the election period saw agreement over the issue that a “hung” Parliament would be problematic for the UK economy. With the Dollar still likely to remain weak this morning, look for the June Pound to stay above the 1.54 level but it is also unlikely to make a move towards new highs.

CANADIAN DOLLAR: June Canada is still coming under pressure from Friday’s Canadian Employment numbers, but has held those lows and is still within sight of parity this morning. The weak US Dollar this morning may keep the market on the defensive, but given the underlying strength in the Canadian economy, it is unlikely that we will see a move below this recent trading range. June Canada may test the lows later today, but is also likely to head back towards the 99.75 level over the next day or so, with another attempt to break above 100.00 likely in the cards this week.

TODAY’S MARKET IDEAS: While European strength is likely to be the story of the day, we may have already seen the highs made during overnight trading. Look for a successful test of the lows today as a first step towards the June Canada making another run at parity with the US Dollar.

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DOLLAR: Despite news that Moody’s might have given Greece a decent shake on their Fiscal program overnight, the Dollar has managed to claw higher on the day. With the JAL bankruptcy overnight and a softer than expected German ZEW reading released overnight, it is possible that the US Dollar was seeing some macro economic differential buying, but that type of buying should have been checked by the news of more Chinese and Taiwanese tightening efforts. In looking ahead, the macro economic news flow is expected to be thin until Wednesday and Thursday and that could reduce the breadth of the daily trading range in the Dollar today. While the January 12th Commitment of Traders with Options report for US Dollar showed the Non-commercial position to be net long 33,550 contracts, with the Non-reportable position net long 2,887 contracts, that made the “combined” spec and fund position net long 36,437 contracts as of early last week. However, with the Dollar sitting marginally higher, than the level where the COT report was marked off, it is possible that the length of the Dollar positioning has become inflated somewhat. We see a critical pivot point in the March Dollar Index up at the 77.66 level and a move back above that level could project a near term rise to even numbers of 78.00. We think that a lack of up beat macro economic news from the Euro zone and also from the US will generally leave the Dollar with a slight edge.

EURO: With a downward bias in the March Euro early this morning it would appear that the bearish bias from late last week remains in force into the opening today. While the January 12th Commitment of Traders with Options report for Euro showed the Non-commercial position to be net short 15,925 contracts, with the Non-reportable position net long 4,837 contracts, that made the “combined” spec and fund position net short only 11,088 contracts as of early last week. Therefore, the Euro might be building a larger net short positioning, but that positioning isn’t extreme enough to take the negative bias away from the Euro. In fact, the macro economic and geopolitical news from the Euro zone recently has been disappointing and that should leave the March Euro in a position to fall down to the 1.4250 level. In fact, in the face of mostly discouraging global economic news, a low of 1.4215 could be seen this week.

YEN: The Yen is showing some signs of short covering and perhaps even some temporary outright buying. In fact, with a series of currencies losing their bid overnight, the fear of Chinese tightening and a Bankruptcy at JAL announced that could give the carry traders a fresh measure of confidence. In our view, one can’t rule out a temporary trading range of 111 to 110.00 in the March Yen early this week, but in the wake of the slightest improvement in numbers, we would suggest that traders look to add to shorts or continue to acquire long dated out of the money Yen put options.

SWISS: Like the Euro, the Swiss is clearly disappointed with the pace of the global recovery effort. With many global equity markets seemingly in a negative bias, it is likely that the trade will continue to pressure the March Swiss down toward the next consolidation support zone of 96.37. The Swiss bulls need something positive from the IBM earnings and or from the scheduled US economic readings, in order to throw off the modest downward bias that is in place.

POUND: With a massive range up breakout on the Charts, it would appear that the Pound is poised to win by default. Perhaps some very hot annualized inflation readings from the UK overnight have provided the Pound with its edge today but the lack of competition is perhaps the biggest element in the Pound bull’s camp. In fact, with little in the way of alternative leadership today, the March Pound could easily see a rise back above the 1.65 level in the coming two trading sessions.

CANADIAN DOLLAR: With the Swiss and Euro out of favor and the Dollar only showing moderate interest this morning, the Canadian is somewhat locked in place. However, one might have expected the Canadian to be under some pressure in the wake of the slackening global macro economic outlook, unless of course the trade sees the Chinese tightening moves, as a sign that the Chinese economy is strong enough, that the central bank is endeavoring to begin the battle against inflation. The March Canadian has close in support at 96.88 and we see no reason for that level to fail, unless global equity markets come under more definitive selling pressure ahead.

TODAY’S MARKET IDEAS: The only clear leadership markets are the Pound and the Dollar.

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DOLLAR: With the March Dollar Index closing below the 78.00 level yesterday and the Greenback tracking lower initially this morning it would appear as if interest in riskier instruments remains in place. We also think that the trade has temporarily lost respect for the US economy and in turn has temporarily lost its expectation that US rates are going to rise anytime soon. Therefore, the path of least resistance is pointing downward in the Dollar and it may continue to point lower until there is a distinctly strong US economic reading, or perhaps some surprise international flight to quality development. It is also likely that the overbought technical position of the Dollar is contributing to the weakness this morning, as the most recent COT report put the “combined” spec and fund Net Long position in US Dollar at new record level of 41,167 contracts. Therefore, the Dollar was clearly overbought technically and perhaps a bit overdone fundamentally around the recent highs and that could clear the way for a temporary slide. However, we suspect that the big down trend pattern in the Dollar has ended and that traders will eventually see a resilient Dollar trade ahead. In fact, in the early going today, the market clearly rejected the 77.39 level in a rather definitive fashion.

EURO: Like the Dollar, the Euro seems to be garnering a large portion of its action from technical balancing influences, instead of classic fundamental issues. Nonetheless, the Euro did see a “combined” spec and fund position that was net short 20,513 contracts as of early last week and therefore the sharp bounce off the 1.4250 level isn’t that surprising. In looking at the flow of euro zone economic data, there doesn’t appear to be a classic fundamental reason to consistently push up the Euro, but given ongoing economic euphoria in the equity markets, it is possible that the Euro will see some risk orientated buying. However, while the German jobless situation seemed to improve in December, we just don’t see the economic condition in the Euro zone as an attraction for capital. At least in the short term, the bulls look to have an edge, with a temporary move back above 1.45 possible, before the prowess of the US economy regains the upper hand later this week.

YEN: With a weaker Dollar seen over the last two trading sessions and the US Fed reiterating the need to leave interest rates down, the carry traders are emboldened again. However, we would see a return to levels above 109.50 as an opportunity to get short the Yen at a higher level, as recovery is ahead and eventually the carry trade will be unwound. With the magnitude of the November through December washout simply massive in size, the first retracement point of the break in the March Yen was all the way up at 111.35, but we doubt that the market will see that much of a sustained recovery ahead. Let the market bounce a little before adding or implementing fresh long term short side plays.

SWISS: In the March Swiss, a normal retracement of the November through December slide would seem to allow for a recovery bounce back to 97.30 this morning without even altering the downtrend pattern. The 50% retracement level for the Swiss is now seen up at 97.94 and a close above that level would get our attention and cause us to doubt our longer term bearish view toward the currency. However, as in other currencies, temporary weakness in the Dollar allows for some short covering in non Dollar currencies.

POUND: The Pound clearly lost its bullish momentum in the prior trading session and with the range down washout action this morning, it is clear that the fear of the UK debt load is once again behind the weakness in the Pound. A close below 1.60 today could project a further slide down to 1.5912 in the coming trading sessions. In short, the inability to hold up in the face of an early Dollar slide really highlights the Pound as one of the weakest currencies.

CANADIAN DOLLAR: While the Canadian remains poised just under its recent highs, we think that the Canadian needs a bit of a perfect macro economic storm just to continue to rise toward the 98.00 level. In other words, the Canadian needs a weaker Dollar, up beat macro economic sentiment and perhaps even noted ongoing gains in equity markets to catch what we would call a further recovery wave of buying. The path of least resistance looks to be pointing upward, but further gains might be difficult to engineer and the risk to longs has risen.

TODAY’S MARKET IDEAS: Temporary technical balancing in the Dollar provides a temporary rally window for the Yen, Euro and Swiss.

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DOLLAR: The Dollar is clearly losing a portion of the flight to quality support which seemed to be lifting the Dollar ahead of the Tuesday highs. Some players thought that the Dollar was being undermined because of its proximity to Mexico, while others suggested that non Dollar currencies simply looked cheap in the event that the swine flu situation was set to be contained or even temporarily controlled. With some slightly favorable Euro zone economic readings released overnight and modest gains in European equity shares this morning, the Dollar might remain under light liquidation pressure in the trade today. Near term downside targeting in the June Dollar index is seen at 84.63 and then again down at 84.46. In looking ahead to the US data flow today, the market is generally expecting a negative GDP reading from the US but if the number is not as weak as expected, that might temper some of the residual selling pressure on the Dollar. There is also an FOMC meeting statement later today, but since the Fed seems to have run out of typical easing tools, the trade isn’t expecting anything surprising from the Fed window. Therefore, seeing a mostly uneventful trading session today, could favor the bear camp in the Dollar.

EURO: With a quasi range up extension in the Euro this morning and that action following a somewhat impressive afternoon recovery in the prior trading session, the Euro looks to be poised to carve out even more gains. In fact, seeing a Euro zone Business and Consumer confidence reading improve overnight, would seem to leave the bull camp in control of the Euro today. To a large degree, the Euro is seeing short covering buying, but the Euro is also seen as an undervalued currency in the event that the swine flu situation is temporarily reigned in. While the June Euro looks to be bullishly poised on the charts today, it will run into a two month old down trend channel resistance line at 133.35 today and at 133.20 on Thursday.

YEN: Like the Dollar, the Yen is seeing flight to quality long liquidation. With a holiday in Japan today, one might have expected a narrower overnight trading range but instead the market has seen a noted downside extension on the charts. To extract the swine flu component (it is still unclear if that is justified yet) the June Yen would have to fall back below 102.97. In the event that swine flu is actually coming under control and global equity markets show further strength, we suspect that the June Yen will see a further decline back down to the middle of a 102.50 to 101.28 trading range.

SWISS: For some reason the Swiss, Euro, Canadian and Pound came under distinct pressure in the face of severe economic slowing fears and therefore seeing the Swiss bounce in the face of “hope” that the economy continues to recover is not that surprising. With critical down trend channel resistance seen at 88.03 and the June Swiss sitting right on that level in the early going today, it is possible that we will see a quasi upside breakout in the trade today.

POUND: With a range up extension in the June Pound this morning and favorable leadership being seen in global equity prices, it would appear that the recovery currencies (Pound and Canadian) are due for a near term lift at the expense of the US Dollar and the Yen. The Pound is also being supported by a favorable government debt auction in the prior session and also from favorable scheduled UK data flow from the CBI. In fact, favorable retail sales indications and the favorable technical action on the Pound charts would seem to project the June Pound up to the 148.72 level.

CANADIAN DOLLAR: A big range up extension in the June Canadian Dollar and similar strength in the Pound overnight looks to give the bull camp an edge in the action today. While some Canadian numbers might dull the bullish bias, there would seem to be little overall resistance in the June Canadian until the 83.28 level, especially if the swine flu situation becomes less of an issue throughout the trade today.

TODAY’S MARKET IDEAS: Improving sentiment puts the Dollar and Yen into a retreat versus the Euro, Swiss, Pound and Canadian.

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DOLLAR: While the market will see some news from a number of foreign central banks this morning, the direction of equity prices will probably be the primary driving force in the currency market in the coming two trading sessions. However, news that Euro zone consumer spending fell off the map in the latest readings, clearly suggests that areas outside of the US are also slowing rapidly and that is some justification for the continued flight toward the Dollar. With the corrective action in the Dollar yesterday, we suspect that some of the overbought technical condition of the Dollar was repaired and that a resumption of the up trend pattern is likely in the coming trading sessions. For one to suggest that the Dollar is poised to rally sharply, in the face of potentially disastrous claims and unemployment data window really highlights the bullish bias toward the Greenback. In fact, even if parts of the US auto sector go into a meltdown, it would not seem like the Dollar will be deterred from its upward track on the charts. However, the 89.74 level in the March Dollar index does seem to offer up some form of initial resistance today, but if the Dollar can rally through that level, in the aftermath of the ongoing claims data, that should reconfirm the upward bias.

EURO: The Euro tried to show some strength overnight but apparently the latest sweep of GDP readings from that economic area seems to have killed off the rally attempt. With Euro zone and German consumer spending/retail sales readings coming in soft overnight, the market continues to foment the opinion that the Euro zone hasn’t done everything it can to limit the extent of the damage to the Euro zone economy. We see down trend channel resistance up at 126.78 and even more significant resistance up at 127.50 and recovery attempts in the Euro should be sold, as the trend looks to remain down. In order to hold the 125.00 level over the coming two trading sessions, the Euro will have to see better than expected US economic readings, or some sign that the US financial situation is getting out of control again.

YEN: Despite the fact that global stock prices are showing renewed weakness this morning, the Yen remains out of favor and that really has to discourage the bull camp in the Yen. The next critical chart support level in the March Yen is seen down at 100 and we suspect that the Yen won’t be able to avoid a slide down to that level in the coming two trading sessions. The next lower downside targeting in the Yen is seen down at 99.10.

SWISS: We are not sure what impact will be seen on the Swiss in the wake of the ECB rate decision this morning, but it is really difficult to discount the negative chart formation in the March Swiss. We continue to think that the Euro zone has done too little to cushion the Euro zone against sustained slowing and for that reason we can’t throw off the downtrend pattern in the Swiss. Next downside targeting in the March Swiss is seen at 84.57.

POUND: With news that UK house prices fell to another new low, we suspect that it will only be a matter of time before the March Pound falls back to and below the 140 level. Perhaps the Pound will get a temporary recovery bounce off any news that the BOE is indeed poised to implement quantitative easing efforts. The mere threat of quantitative easing should give pause to the sellers in the Pound, even if that threat is a temporary influence.

CANADIAN DOLLAR: Now that global equity markets forged a temporary euphoria bounce and the Canadian has also forged a bounce off the lows that should make it easier to attack the Canadian for an anticipated move to fresh new lows.