Thursday, May 10, 2012

Morning Market Analysis; Risk Off

While there has been a lot of press about the dollar catching a safety bid over the last week, it's important to keep that bid in perspective.  The dollar's overall average is still trading in a range, and has been for the last three months.  Only if we see a break about the 22.4/22/5 area will the recent "rally" matter.

The euro, however, is a different story.  It has broken through support at the 130 level and is currently at the 128/129 level.  The reason for this is the recent electoral changes in the EU region; traders are concerned that Greece will eventually be forced to leave the EU area.

Yesterday, the Spanish ETF was one of the worst performers in the world,  dropping a little over 4%.  More importantly, prices moved through another support level, placing them at the lowest level in over 6 months.  In addition, consider these charts of Italy and France:

Both are showing the same technical price action at important support levels. 

Oil continues to move lower as well, with prices now below the 200 day EMA.  Pay particular attention to the individual candles; the long lower shadows tell us that prices dropped farther intra-day, but traders say enough value to add to these positions.  Long-term, the 96 handle is actually a pretty good price for oil for people that have a longer-term perspective.

Finally, the entire US treasury curve is rallying, with some prices (IEI, IEF and TLT) moving through important resistance levels. What's important about this trade is that, with inflation running at 2.7%, most of the US yield curve is underwater, indicating that traders are now more concerned with a return of capital rather than a return on capital.