DIA -.40%, SPY -.26%, QQQQ -.22%
10-Year Treasury -4/32 yielding 3.98%
Oil -94 cents to $57.26/bbl
Dollar +.6% versus yen/near unchanged versus euro

The markets lost a bit of ground today even though the Bureau of Economic Analysis announced: “Real gross domestic product — the output of goods and services produced by labor and property located in the United States — increased at an annual rate of 3.8 percent in the first quarter of 2005.”  Traders are waiting for the Fed’s announcement tomorrow to get a better read on what the central bank thinks of the economy.  The GDP news combined with the increased oil inventory numbers should have sent the market higher; separately each piece of news is strong, but combined they paint a very strong picture of the economy.

The 10-year Treasury lost 4/32 to yield 3.98%.  Two news items affected bond trading.  The first was the personal consumption expenditure component of the GDP revision, which was revised downward from 2.2% to 2%.  This is another measure of inflation and its downward revision indicated to traders that inflation was under control.  However, traders are also anticipating another rate increase tomorrow and as a result sold the 10-year in anticipation of tomorrow’s announcement.

Oil lost 94 cents to close at $57.26/bbl.  The Department of Energy reported an increase of 1.1 million barrels in oil supplies.  This is bearish for the oil market and is partially responsible for today’s sell-off.  Additionally, speculators are continuing to take some profits off the table.  Finally, the oil chart is overbought at current levels, indicating some selling is technically in order.

The dollar gained .6% versus the Yen and was near unchanged versus the euro.  The dollar/euro trade is near a technically important level, but has not broken through the trend.  Although forex traders are concerned about the EU economic situation, they are still looking at the twin deficits as a reason to not become too aggressive in their dollar purchases.  In addition, the dollar is technically overvalued versus the euro right now, indicating a pullback from current levels is in order.

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