Dollar/Rate Weakness Setting the Tone | Morning Express
E-mini S&P (June) / NQ (June)
S&P, yesterday’s close: Settled at 4193.75, up 42.00
NQ, yesterday’s close: Settled at 13,635.25, up 230.25
Fundamentals: Monday was strong, and exactly what this market needed to set a course for record highs. The S&P cleared a wall of resistance and along with the NQ and Dow, they are all at two-week highs. Seemingly, the tough part is now in the rear-view mirror, a ping-ponging between a floor defined by March’s payroll strength and a ceiling left by the damage of April’s payroll reversal. A key component to Tech’s leadership is the rate story; as the NQ and S&P trade at two-week highs, inversely, the yield on the 10-year Treasury has trickled to two-week lows. Supporting the Treasury complex is no other than the Federal Reserve, whose balance sheet has expanded by $142 billion since April 28th, $92 billion of which came the week ending May 19th. Of course, transitory inflation pressures, a steadfastly dovish rhetoric from Fed committee members, geopolitics, and the reduction of prices in some commodities have all helped. Speaking of Fed committee members, in their latest coordinated effort, Fed Governor Brainard, Atlanta Fed President Bostic, and St. Louis Fed President Bullard all reiterated their patience with such unprecedented policy measures and the transitory inflation narrative yesterday. Despite mixed economic data from Germany this morning headlined by a contraction in Q1 GDP, the U.S. Dollar Index has still forged the lowest level since January 7th; the Fed is in the driver’s seat and this week culminates Friday with the Core PCE Index, their preferred inflation indicator.
Today, S&P House Price Index is due at 8:00 am CT, and followed by the closely watched Consumer Confidence read at 9:00 am CT. A speech from Fed Governor Quarles, New Home Sales and Richmond Fed Manufacturing are all also due at 9:00.
Technicals: As bulls, price action has done everything we want to see; yesterday, the S&P cleared rare major four-star resistance at 4183.50-4186 and when the index began digesting gains, it clearly held out above here. Similarly, the NQ tested through a crucial level of resistance at 13,625-13,657 and has held out above there since. Now, the S&P is chewing through our next area of significant resistance at 4202-4208.75 and the NQ now faces its at 13,790-13,818. With resistances staggard relative to each other’s, in a bull market move, this can work very powerfully; once one clears resistance it finds a tailwind that drags the other through its, and then vice versa. As the morning unfolds, continued price action above first supports that align with our momentum indicators at ... Sign up for a Free Trial at Blue Line Futures to have our entire fundamental and technical outlook, actionable bias, and proprietary levels for the markets you trade emailed each morning.
Crude Oil (July)
Yesterday’s close: Settled at 66.05, up 2.47
Fundamentals: Crude Oil started the week by posting its best day since April 14th, when it broke out of a month-long wedge consolidation. Although the ongoing talks to renew the Iran Nuclear Deal are grabbing headlines, this strength across the complex is everything we have expected. Why? Because this is the seasonal build-up into Memorial Weekend and the narrative is finding tailwinds from reopenings, vaccinations, and low infection rates across not only the U.S. but also Europe. Now, mix this with a broadly exuberant risk-landscape and less enthusiastic Iran talks. We now have a rebound to the highest levels of the year and a potential technical breakout on our hands. Still, traders must keep a pulse on Iran talks and inventory data that begins to trickle ahead of tomorrow’s official EIA report.
Technicals: Price action remains firm as it tests major three-star resistance at 66.45-66.70. We continue to hold a more Bullish outlook, but want to emphasize, if you followed use in buying weakness late last week, it will be in your best interest to lock in some gains. Remember, we said our flexibility at the previous test of this resistance allowed us to buy weakness. We have capitalized on such positions but remain long September futures and plan on monitoring that position closely heading into the weekend. As we have noted, Memorial Weekend can bring a near-term top. Still, continued action above our momentum indicator at ... Sign up for a Free Trial at Blue Line Futures to have our entire fundamental and technical outlook, actionable bias, and proprietary levels for the markets you trade emailed each morning.
Gold (June) / Silver (July)
Gold, yesterday’s close: Settled at 1884.5, up 7.8
Silver, yesterday’s close: Settled at 27.905, up 0.419
Fundamentals: To our disappointment, Gold and Silver have not capitalized off U.S. Dollar weakness and Treasury strength on the session to extend recent gains. The closely watched Consumer Confidence data is due at 9:00 am CT and we also look to comments from Fed Governor Quarles then. Overall, as we noted in the S&P section, the Federal Reserve’s balance sheet expansion in recent weeks helps explain the continuous bid underpinning the Treasury complex and the committee’s steadfast patience in one-off speeches has pressured the U.S. Dollar. Furthermore, the Chinese Yuan traded to the highest level since June 2018 overnight and this is very supportive to commodity prices and negates the frothy narrative the PBOC has exuded over base metals. Remember, we believe China is talking down the price of metals in order to buy at better levels. We find the landscape supportive for Gold and Silver as the week culminates into Friday’s Core PCE data Friday.
Technicals: We remain more Bullish in Bias as Gold, Silver, and the miners all consolidate in a wedge pattern after their recent runs. Although this consolidation cannot go on forever, and so far lays bullish groundwork, the longer it drags out it does become concerning. Our Pivots are our momentum indicators and will provide a point of balance for Gold and Silver; continued action above ... Sign up for a Free Trial at Blue Line Futures to have our entire fundamental and technical outlook, actionable bias, and proprietary levels for the markets you trade emailed each morning.
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