FXST: Demand for Higher Risk Assets Diminishes After Opening
The U.S. equity futures markets opened higher as expected, but buying quickly dried up and the markets backed off from the highs. Some traders feel that this market has gone up too far too fast and do not see value at current price levels. This usually means a short-term correction is due.
Tomorrow’s testimony before Congress by Fed Chairman Bernanke may have something to do with the developing weakness as investors may have decided to take a little off of the table following the recent surge. Bernanke is expected to answer questions regarding the date when he expects the U.S. economy to begin to turn upward. He is also expected to offer guidance regarding the Fed’s exit strategy from the current emergency situation.
September Treasury Bonds and Notes strengthened this morning after equity markets backed-off from the highs. This too may be positioning evening ahead of Bernanke’s testimony or just a reaction to money leaving the stock market.
Foreign currency markets opened higher as expected with the exception of the September Japanese Yen. Demand for higher risk assets seemed to diminish following the sell-off from the highs in the equity markets. Should the equities turn negative, the Yen may turn positive as traders repatriate money back to Japan.
August Gold was a big winner overnight but has since backed off about $6.00 from the high. With the Dollar gaining strength during the morning session, gold traders lightened up their positions as the need for a hedge against inflation diminished.
News that improved weather conditions may increase the size of the November Soybean and December Corn crops is hurting upside price action today. Shorts are still in control of this market and are not expected to ease up until there is a bona fide reason to do so. Pressure will be on this market until the weakest long is knocked out.
Improved crop conditions are putting pressure on September Orange Juice and December Cotton this morning. The weaker Dollar and speculation that improvements in the U.S. economy may lead to increased demand for September Coffee and September Cocoa helped boost prices on the opening. These two markets have since backed off their highs as the Dollar strengthened intraday.
