Euro Currency Breakdown

We have been watching the Euro closely here over the past few weeks and have noted that the 1.35 level has been a strong support zone on its price chart that has held the currency's downside for the last 8 months.

Today it broke through this strong level of support. As long as it held that zone, the range trade which had contained it was still intact. The top of the range was up between 1.39 - 1.40. The bottom was at or near 1.35.

From a technical analysis standpoint, the ideal price action would be a second close BELOW this 1.35 level to prove that today was not one of those many headfakes that we see more and more frequently in our markets these days.

The ADX is rising along with the -DMI ( Negative Directional Movement) indicating the bears are in control of this market and a trending move lower is looking more and more likely.

It all has come down to interest rate differentials. Traders are becoming convinced that the Fed is going to raise interest rates long before the Eurozone can even contemplate seeing them rise.

This sentiment is resulting in money flows into the Dollar at the expense of the European majors. Even the Yen gave way to the Dollar today.

This was a heavy weight for any further upward progress in gold especially with the overall commodity complex moving lower as evidenced by another move lower in the Goldman Sachs Commodity Index.

Were it not for the limit up move in cattle to new all time highs, and the resulting updraft that occurred in the hogs, the GSCI would have been even lower.

Simply put, the grain complex continues to sink under the weight of benign weather and increasing crop estimates, meaning that food costs can be expected to decline substantially later this year. While meat prices remain extremely high ( beef prices hit another all time high today) they will begin to back down as the year wears on.

Unleaded gasoline prices are still falling which is good news for the consumer. By the way, natural gas prices hit an 8 month low today for the same reason that the grains are sinking - benign weather means lower cooling demand.

 
Meanwhile the equity markets continue to shrug off one thing after another. Whether it be Ukraine, Gaza, Portuguese banks, whatever, they keep attracting buyers on dips in price as no money manager who expects to retain his clients wants to be out of this market.

How many times in recent past have you seen me put up a chart here noting a potential breakdown in the equity markets, especially the highly risk sensitive small caps as evidenced by the Russell 2000, only to see them mount a ferocious rally higher completely negating those short term negative chart signals?

Amazingly enough, the yield on the Ten Year continues to languish below the 2.7% level, even with stocks near all time highs. Real estate agents are overjoyed as their commission checks keep rolling in and piling up.

Equities remain the go-to game in town when it comes to catching and securing that much sought after entity known as "yield".

Until that changes, fighting the powerful stock market rally, except only for those who are ultra short term in their trading, is proving to be a fool's errand.

One could easily get the idea that there is not a single care in the world if all they did was observe the bond, stock and commodity markets. Falling food prices, falling gasoline prices, soaring 401K's and IRA's, cheap interest rates for home and land buyers.. hey - if we could just get those pesky red meat prices to come down sooner, this would be heaven for some!

Just look at the chart of the Ten Year Treasury... look at what has happened to its yield since January 1 of this year. It has worked lower and lower starting out near 3.03% and currently ending at 2.47. That is a larger than 50 basis point REDUCTION in rates all the while the chatter has grown that the Fed will increase rates sooner rather than later. Apparently the more one talks about them doing just that, the LOWER rates go.

Simply put, the market is not worried about inflation and until it is, no amount of our discussing this  version of the CPI index and that version of the PPI index or this doctored data or that doctored data is going to amount to a hill of beans.

Incidentally, crude oil failed at our old friend, the $105 level once again. I am closely monitoring that market to see whether or not it will retreat once more or decide to power higher.

Related to this, is the XLE; while it remains unable to breach its recent all time high, it seems to be holding together fairly well. If it can muster a strong close above 100.50 - 100.55, it should be able to retest its peak near 101.52. Several big names within the oil and gas sector remain near all time highs on their price charts. It is going to be interesting to observe their price action should crude oil move lower. Same goes for the opposite - namely, if crude goes higher.

Let me close this piece by moaning about the fact that we beef lovers are going to have to grin and bear it as we seek out some nice cuts for our bar-b-q smokers for a while longer yet. I always expected to get "sticker stock" from looking at the price of the new year car and truck models. I never expected to get it by looking at a package of hot dogs for Pete's sake!