It looks as though markets could get a breather this week. In various markets, from currencies and commodities to stocks and bonds, assets are reaching important support or resistance levels.
First up is the U.S. dollar. The U.S. Dollar Index is hitting a key support level and since the current trend is bullish for the greenback, a bounce off support is to be expected.
Commodities have benefited from the weak U.S. dollar, particularly gold, which has enjoyed an impressive rebound. Even more notable has been the move in gold mining shares; some junior miners gained several hundred percent off their lows. However, gold can behave differently from other commodities when it is favored for its monetary properties, which is likely with a potential shift in Fed policy coming up. Gold may or may not underperform then, but pullbacks in the commodity complex are likely.
The one wild card for commodities, specifically oil and gold, is the beating of war drums over Syria. Both commodities could rally if the U.S. decides to intervene in Syria. With the Russian backed, Iranian allied Syrian regime on one side, assorted anti-American terrorists/jihadists on the other (including Al-Qaeda), and the Egyptian "Arab Spring" results in full view, intervention stands little chance of improving the situation from where it was before the civil war began.
While military action always generates headlines, the big financial story remains interest rates. Luckily for the stock market bulls, a pullback in interest rates appears likely this week. This should carry through into emerging markets, where currencies such as the Indian rupee and the Indonesian rupiah should catch a bid. The markets are severely damaged though. It will take a couple weeks of strong performances by emerging market currencies, bonds and equities before investors start to declare the recent losses as a short-term bear market, rather than the start of a longer-term downtrend.
Big Picture: The second estimate of Q2 GDP comes out this week, with estimates looking for 2.1 percent growth. Also important in that report will be the GDP deflator, as well as the PCE prices on Friday. All of these data points will increasingly be seen not for what it means for the economy, but for what it means for Fed policy. Good news will be bad news this week, and vice versa, due to the assumed implications for central bank asset purchases.
Earnings: Here are the big names reporting this week. Tiffany & Co (NYSE:TIF), Krispy Kreme Doughnuts (KKD), Campbell Soup (NYSE:CPB), Salesforce.com (NYSE:CRM) and Joy Global (NYSE:JOY). That last firm should be the most important, since the mining equipment manufacturer will shed some light on the status of miners.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.