FINANCIALS  
Treasuries are trading flat this week after Monday’s surge. Higher crude oil and better than expected economic reports are keeping a lid on any rallies.

A better than expected Second Quarter GDP report today could put downside pressure on this market. Because of the upcoming three-day weekend, trading has been thin and narrow. This may lead to a volatile break today if the market gets hit with negative news.

EQUITIES
At this time yesterday equity markets were looking at a lower opening, but a better than expected U.S. Durable Goods Report helped turn the markets around. While the action was positive on the short-term charts, the intermediate term charts are seeing this rally as only a retracement in a bear market.

Although the credit crisis is still a concern as well as news regarding potential bank failures, these two events have stayed out of the headlines this week. U.S. economic news has been the key to the strength this week as friendly news from Existing Home Sales, Consumer Confidence and Durable Goods has helped support this market under potentially very bearish conditions.

Today the market will focus on Second Quarter GDP. Pre-report estimates are for rise in GDP. As mentioned earlier in the week, this report could be a surprise with bearish consequences. Bullish traders are coming into the day worried that the worsening global economic slowdown may have had an adverse effect on the U.S. economy. If this number is less than expected, look for a sharp sell-off.

CURRENCIES
The September Euro is finding support from hawkish comments from a ranking ECB member. He told Bloomberg that speculation regarding an interest rate cut is premature. Higher crude oil because of hurricane concerns is also providing support.

The September British Pound is still under pressure from a worsening housing market in the U.K. Traders are beginning to price in a 1.5% interest rate reduction by the Bank of England before the end of the year. A less than expected U.S. GDP number may trigger some short-covering, but the long-term trend remains down.

The Swiss Franc and the Japanese Yen will get its direction from the U.S. equity markets. A better than expected U.S. GDP report will be bullish for stocks and is likely to increase the Swiss and Yen traders’ appetite for risk. This means a sell-off. If GDP is lower than expected, look for a sharply higher Swiss and Yen. A change in trend to up occurs at .9225 in the Swiss and .9259 in the Yen.

Higher crude oil and commodity prices should help support the Canadian Dollar. Both gold and crude oil are trading higher overnight. Crude is being driven by speculative buying in anticipation of major hurricane damage. Both of these commodities are essential elements of the Canadian economy.

ENERGIES
October Crude Oil completed its retracement of last week’s rally and reached the short-term retracement support just as the news about hurricane Gustav was hitting the market.

Traders are speculating that the hurricane will intensify as it nears key Gulf Coast refineries. A direct strike could trigger a huge rally as the target area refines about 42% of the country’s gasoline. The support base which has been built could support a rally to 129.81 over the short run. Watch for the up move to accelerate through 122.04.

If the hurricane turns towards the Yucatan Peninsula and toward Mexican refineries, crude oil will rally, but gains will be tempered as this area only refines about 1 million barrels of oil per day for U.S. consumption.

METALS
The December Gold chart is showing a secondary higher bottom formation which is a bullish sign. This market is being buoyed by a slowdown in the Dollar’s rally and higher crude oil. Based on the current chart formation, do not be surprised by a rally over the near-term to 888.00.

December Silver is moving higher with the gold and the crude oil. The weaker Dollar is also fueling buying. Expectations are for this market to challenge last week’s high at 15.23. If upside momentum is strong at that level, look for a further rally to 16.00.

October Platinum remains weak because of bearish fundamentals, but should move higher with the Silver and Gold. This move is most likely short-covering as there is no bottom formation at this time. Longer-term, the global economic slowdown is hurting demand for autos and thus platinum for catalytic convertors.

December Copper is beginning to look bullish again because of the weaker Dollar. The weaker Dollar is making this commodity an attractive buy at current levels. This market looks poised for a short-covering rally. Longer-term, global economic weakness is still expected to suppress demand.

GRAINS
November Soybeans and December Corn could rally today as a weaker Dollar is expected to boost exports for both commodities. In addition, higher energy prices may increase demand for these two bio-fuel commodities.

There is potentially bullish news for soybeans coming out of Argentina. Parts of the country are suffering through the worst drought in 40 years. A smaller crop out of this region will stress already tight global supplies. Dry weather in China is also providing some support. The charts indicate November Soybeans have a chance to rally to 1402 to 1457. Sharply higher crude oil would be the best trigger for this move.

Corn may correct to 567 before new buying comes in. A sharply higher crude oil market may cause panic short-covering over 628. If this action takes place, this market could rally to 651 to 686.
December Wheat could see weakness as a rally has failed to materialize at a major retracement zone at 864 to 843. A weaker Dollar today may attract some export buying.

SOFTS
December Cocoa is rallying because production is expected to be smaller than previously estimated. The charts indicate this market is in a position to challenge the double-top at 3035 to 3040. A break out over this level could send markets sharply higher. Another supportive factor is fund buying. Traders are ignoring lower demand at this time and focusing on the supply issues.

December Coffee reached the objective of 150.32 and sold off. The correction may take this market back to 142.00 before resuming the uptrend. Supply concerns are the major issue at this time. Brazilian growers are holding back their production as they await a price support program from the government. Look for buyers to step in on a pullback to 142.00.

October Sugar fell sharply lower on technically based selling pressure as the market neared a series of old tops. Look for the market to try to regroup at 13.40 to 13.30. There are still supply concerns because rainy weather is slowing down the harvest in Brazil. In addition, higher energy prices are also providing support because of sugar’s use as a bio-fuel. If support can be reestablished, then this market has a shot at 14.69.

Demand for December Cotton may return if the Dollar weakens. Mills have been big buyers this summer when cotton breaks under 70.00. Speculators are supporting this market in anticipation of hurricane damage if the storm reaches growing areas in southern Alabama. At a minimum speculators are anticipating flood and wind damage to crops.

November Orange Juice could feel selling pressure as Hurricane Gustav is forecast to miss Florida on its way to the New Orleans area. Speculators will now begin to focus on additional tropical storms in the Atlantic. Look for sideways-to-lower trading.

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