The index refuses to give up ground to the major pairs, and is stubbornly holding values above major support at 84.00 and now looking to test upside areas past 88.00. Even on days of equity and oil buying the greenback is finding buyers, so on a day that the equity market shed 4% it was easy for Usd bulls to take control. Treasury auctions and Fed buying should start to reduce naturally the value and appeal of the dollar in the eyes of its holders, but that will only happen if the equity markets can hold above 820 on the S&P it seems. The last ten days of trade have seen the index tested support and resistance, but the major pairs are now looking vulnerable to dollar buying. It seems not to be if the de-valuation comes, just when, but right now the speculative interest in long dollar positions is fighting to maintain status quo.
In trade on Monday the XLF, the financial sector ETF, dropped 1.21 points (-10.89%) to trade at 9.97 on huge volume of 263,000,000, compared to the 230,000,000 ETF's that change hands on a regular daily basis. The banking sector was moved lower on the earnings report from Bank of America that showed a large increase in bad debt and loan provisions. News that the stress test results for the banking industry are to be released in early May, and would show a massive disappointment in the condition of the U.S. banking industry did not help matters. Whilst the XLF remains under 12.00, which is a big resistance area, the whole equity market will struggle to move into the green and hold.
Treasury notes gained the most in a month on Monday as traders made the move away from riskier assets to bonds, following the path of least resistance on the day and moving yield values lower, by as much as 12 basis points on the 10 year note. The markets accepted that earning nothing on near-term Treasury notes was better than running the risk of hold equities that dropped on average 3.5% on Monday. The moves came after U.S. earnings reports raised questions as to whether the U.S. consumer could easily support the expansion phase of the business cycle. The massive amount of Fed buying at recent auctions has not impacted the rate at which trade desks buy into Treasuries on weak equity days.
The Federal Reserve sold a record number of new-issue notes last week, and created another mass of dollar backed Treasuries for the market to absorb. The Fed continued its’ short-dollar mandate by supporting the ninth buy-back operation since March 25th. There are many more Treasury auctions to come, and if equity markets find buyers it may be that the dollar denominated reserves may start to lose value.
Crude oil for May delivery was pushing into major a major swing point low at $45.50, lower by over 9.5% on the day, with a $4.70 loss. The 4 hour crude chart shows very little interest it seems for speculators to take things on the long side channel range that has been in place for four weeks now.
Gold Bullion for May delivery traded higher at $18.80 (2.0%) at $885 per ounce. Bullion held in the SPDR Gold ETF remained close to a record 1,120 metric tons, and all eyes will now be on the 05:30 EDT London fixings for bullion on Tuesday to see if gold gets bought as a part of the new carry trade.