September 2009

Daily Commodities Fundamentals: Commodities Gain on Renewed Dollar Weakness

North American Commodity Update, Last Updated 9/22/2009 5:51 PM EST (GMT = EDT +5:00)

Commodities – Energy

Crude Trades Higher on Dollar Weakness, Rally in Equities

Crude Oil (WTI)   $71.55                               +$1.84        +2.64%
The price of crude oil rose today for the first time since Wednesday as the commodity traded steadily in the upward direction all day.  Despite the plentiful supply that currently exists to meet world demand, oil is trading higher on weakness in the U.S. dollar and investors’ belief that oil demand will increase as the world economy continues to recover.  The G-20 meetings this week in Pittsburgh as well as the FOMC decision on U.S. benchmark interest rates should drive commodities as they will have a large impact on the U.S. Dollar.  Outside of weakness in the dollar, oil continues to show poor supply and demand fundamentals.  Although China’s net crude oil imports in August were second only to their July numbers, there is speculation that China is importing excess oil to build up stockpiles and hedge against the U.S. dollar.  On the supply side, it is expected that Department of Energy inventories of crude oil decreased by 1.4 million barrels last week, while gasoline and distillate inventories increased by 500 thousand barrels and 1.45 million barrels respectively.  Overall, a recovery of world demand for oil has yet to begin and state oil companies such as the Saudi Arabian Oil Company are very unlikely to start pumping crude from idle fields anytime soon.

Commodities – Metals

Metals Rally on Renewed Dollar Weakness, Upcoming FOMC Decision

Gold                   $1014.40                           +$10.50                              +1.05%
Gold made a strong move towards the upside today, trading as high as $1020 before finally settling at $1014. Dollar weakness was once again the main factor as the U.S. Dollar Index faltered to its lowest close of the year.  The G-20 meetings this week as well as the FOMC decision on U.S. benchmark interest rates should impact gold prices as they will drive the dollar.  It is expected that the Federal Reserve will keep its target rate for overnight bank loans at its current level of between zero and 0.25 percent.  At the G-20 meetings, countries will discuss the realignment of world economies which would include a reduction of the large U.S. budget deficit.  It will likely be a volatile week for the U.S. dollar and gold prices should follow suit.

Silver                 $17.09                   +$0.23                                +1.39%
Silver prices closed higher by over one percent as the metal strengthened from continued weakness in the dollar and rallies in world equity markets. Having more industrial use than gold, the commodity stands to benefit more so than gold from economic recovery.  The rise in silver prices was the first since the commodity hit its high close of the year on Wednesday.  From a technical perspective, silver is trading at a high RSI and its Bollinger Bands are widening.  Based on this data, we can expect volatile price swings from the commodity that will likely be driven by moves in the U.S. dollar.

Written by James Russell, CFDTrading Research
Questions/Comments about this article? Send them to JRussell@fxcm.com

Australian Equities Face Major Resistance

The ASX 200 (Australian Securities Exchange) made a high of 4750 on 9/17 and has traded down slightly since.  That 4750 level is significant because the August 2008 low was 4759, the 100% extension of the 3073-4079 rally is at 4716 and these levels are defended by channel resistance.  In other words, an extension of gains from here is a serious challenge.  RSI, which is overbought and divergent with the recent price high, also warns of a turn.

Dollar Enters Panic Stage

Euro / US Dollar

1.4850, which is the 100% extension of the 1.2327- 1.4723 rally, has been one of the levels that we’ve been focusing on as a possible turning point. Price is close to there now so watch carefully. There are also several resistance lines (up-sloping) that are at and just above current price. While the confluence of these levels (as well as RSI divergence on multiple time frames) warns of the potential for a top, trading from the short side remains difficult until a bearish price pattern emerges.

British Pound / US Dollar

Focus remains on the larger head and shoulders pattern that has been unfolding since early June. The neckline has held (as warned yesterday through a technical alert at DailyFX), and Cable has retraced half of its decline from  1.6573 thus far. A larger bearish bias is valid against there but confidence in a large downside move is low until a daily close below neckline support. 1.6400 (former support) may provide resistance.

Australian Dollar / US Dollar

“The AUDUSD continues to work higher towards the 78.6% of the decline from .9856-.6007, which is .9032. This level intersects with a potential resistance line on September 25.” That would be Friday.

New Zealand Dollar / US Dollar

Kiwi has gone vertical in what may be a blow-off top. The pair is at its highest level since August 2008 and levels to keep an eye on are .7250 (Fibonacci extension which is discussed in FX Technical Weekly), .7382 (January 2008 low) and .7444 (June 2008 low).

US Dollar / Japanese Yen

Keep the long term outlook in perspective – “a 4th triangle ended in 2007 above 124.00 therefore the decline from that level is viewed as a 5th wave that will not be considered complete until price drops to an all-time low (below the 1995 low near 80).” After breaking above trendline resistance and trading to 92.50, the USDJPY has retraced a significant portion of its recent rally and is now near the topside of the former resistance line. That line is potential support but the decline is impulsive. Given that the larger trend is down, it is best to sell rallies when presented with bearish evidence. 91.60 is short term resistance.

US Dollar / Canadian Dollar

Barring a break above the resistance line, the USDCAD is vulnerable to a drop towards 1.0330 – which has been both support and resistance over the last several years. This level is also the 61.8% extension of the 1.3068-1.0782 decline (from 1.1730). Thus far, the 61.8% retracement of the rally from .9055 has held. The circled area could be a triangle, in which event the immediate move is higher towards 1.1100.

US Dollar / Swiss Franc

“The print below 1.0367 (December 2008 low) satisfies the minimum requirement for wave v of C. Divergence with momentum on nearly all time frames warns of a sharp turn against the Franc.” It would take a rally through 1.0526/channel resistance in order to proclaim with confidence that a low is in place. Until then, focus is on 1.0037.

Jamie Saettele publishes Daily Technicals every weekday morning, COT analysis (published Monday
mornings), technical analysis of currency crosses on Monday, Wednesday, and Friday (Euro and Yen
crosses), and intraday trading strategy as market action dictates. He is the author of Sentiment in the
Forex Market. Follow his intraday market commentary at DailyFX Forex Stream.

Contact Jamie at jsaettele@dailyfx.com if you would like to receive his reports via email.

Hang Seng Advances on Improved Outlook for Growth, ASX Falters

Asia Session Key Developments

• Asian Development Bank Raises Growth Forecast
• Price Pressures in Hong Kong Falter

Price action in the Asian equities market was mixed on Tuesday as investors await the FOMC interest rate decision due out tomorrow at 18:15 GMT, while the Nikkei remains closed for the holiday. Nevertheless, the Asian Development Bank raised its economic outlook for emerging economies in Asia, and projects economic activity to expand 3.9% this year amid an initial forecast for 3.4% rise in GDP, while the 2010 growth rate is expected to advance 6.4% amid a previous forecast for a reading of 6.0%. At the same time, price growth in Hong Kong fell the most in five-years as the consumer price index slipped at an annual rate of 1.6% in August, and global price pressures are likely to remain subdued throughout the second-half of the year as trade conditions remain weak.

Nikkei 225

Will be closed until Wednesday in observance of the Autumn Equinox holiday.

Hang Seng                         21,701.14

The Hang Seng climbed 228.29 points (1.06%) to end the session at 21,701.14, with the index advancing for the first time in three days as investors increased speculation for a global recovery. Seven of the nine components rallied on the day, with consumer services and technology leading the rally after adding 2.53% and 2.02% respectively. Shares of Esprit Holdings Ltd., the Hong Kong clothing company gained 3.87% after HSBC Holding Plc upgraded the stock to “overweight,” while China Mobile advanced 2.4% after announcing a 5.3M rise in new subscriptions during the previous month. At the same time, Cheung Kong Holdings added 1.72% after the billionaire owner, Li Ka-shing, increased his stake in the firm.

S&P/ASX 200 Index           4,663.70

Stocks in Australia weakened on Tuesday, with the ASX slipping 13.70 points (0.29%) to end at 4,663.70 as 8 of the 10 components tipped lower on the day. Utilities plunged 1.21% to lead the decline, followed by a 1.11% drop in oil & gas, while technology advanced 0.40% to stem the decline. Shares of Babcock & Brown Infrastructure slumped 3.77% after the firm’s board expressed concerns about the refinancing proposal from Royal Bank of Scotland, while Macquarie Airports advanced 3.00% as Macquarie Group announced it may repay the A$345M fee if the firm faces higher debt costs after ending its ties with the investment bank.  At the same time, Boart Longyear Group rose 5.17% following a shift in director’s interest, while Rio Tinto shed 0.54% after reaching an agreement with Switzerland’s Schweiter Technologies to sell its stake in Alcan Composite.

Notable Asian Session Event Risk / Economic Releases

Dow Remains Firm Increasing Potential For Bullish Break Higher

The Dow has seen momentum slowed after testing the 50.0% Fibo of 14,402-6,667, where a possibility of a retrace exists. Yet, the Blue chip index hasn’t shown signs that it is willing to give up its recent gains and a break above leaves 10,000 as the next barrier.

The S&P broke above resistance at 1,052- the 50.0% Fibo of 14,402-6,667 leaving upside potential to 1,144-50.0% Fibo of 1,079-812.However we have started to see the broader index give back some of its gains which could signal that the level isn’t completely cleared leaving the possibility of a retrace to 1,000.

The NASDAQ after clearing resistance at 2,009 the 31.8% Fibo extension of 2,861- 1,265, has only psychological resistance at 2,200 left before a test of 2,250-61.8% Fibo.

Crude Oil Nears Important Support – Bounce Critical

Crude oil has fallen sharply on the day, testing its 50-day SMA and getting closer to long-standing trendline support. Potential price floors include the approximate trendline level at 68, while previous congestion near 67.50 likewise offers support. A break lower eyes extension towards August spike-lows near 65, while a hold of support keeps the commodity in its 12-month long ascending wedge formation. Resistance in said case would be eyed near 75.

Gold prices have thus far held important psychologically significant support at the 1000 mark, but price has been unable to break above substantial highs. Continued failure at said level would keep the commodity price in its long-term ascending triangle formation—leaving a return to trendline support near 950 as the more likely outcome. Closer price floors can be found at the psychologically significant 1000 mark.

Silver has hit extremely overbought territory on its run to fresh 12-month highs, and continued rejection of 17.000 would make further short-term corrections likely. Said level represents congestion from 2008 and has thus far provided a formidable price ceiling. Given daily RSI well-above overbought levels, corrections are likely. Near-term support is at recent congestion of 16.50, while the psychologically significant 16.00 mark could likewise provide a price floor.

Daily Commodities Fundamentals: Commodities Fall on Equity Concerns and Dollar Strength

Commodities – Energy

Crude Trades Lower on Stronger Dollar

Crude Oil (WTI)   $69.43                               -$2.61        -3.62%
Crude initially traded sideways to start the week before dropping sharply as European markets opened lower. The commodity eventually touched under $69 per barrel for the first time in the past four sessions, signaling that resistance above $72 has held firm. The second session of strength in the US dollar, along with concern in equities could lead to a further slide towards the $65 level. Indeed, oil has traded in a tight range between $68 and $75 since early August, and while a break in either direction is bound to occur in the near-future, the bearish case seems more compelling. Supplies of crude have dropped sharply in the past week, but at the same time driving demand from the peak summer season has ended, and stockpiles of distillate fuels continue to increase to new records. Also making the case against higher prices are clear signs that OPEC members remain unwilling to stick to low production targets, with high prices adding further incentives for many nations to ramp production.

Commodities – Metals

Metals Fall on Dollar Gains and Equities Fall

Gold                   $1005.00                           -$5.30                              -0.52%
Gold fell for a third session with a move below $1000 earlier in the session for the first time in four days. Strength in the US dollar affected the move, while the rapidity of the pace off the Thursday high above $1025 per troy ounce. may be a sign that the advance in the metal is at an end. Ultimately the price closed higher for the 5th week and a correction is not unlikely following the pace of advance. Near-term weakness in equities and further rebound in the greenback may lead to further declines in the price of the commodity.. Ultimately, the recent moves have largely been a reflection of currency activity, and the dollar remains the key force to watch to determine where gold heads.

Silver                 $16.855                   -$0.21                               -1.23%
Silver prices closed lower by just over one percent following an earlier dip that had the commodity down more than three percent. Dollar strength has largely played into the weakness seen, while concerns in equities have led the metal to post a sharper fall than gold trading. As further deterioration appears likely, Silver could see support at $16.25 while the long-term trend appears favorable as industrial demand for the commodity rises as economies recover. The metal remains close to overbought levels and has rallied by more than four dollars per ounce in the past month; a healthy correction appears to be underway following the magnitude of the recent move.

-Written by Roman Kadinsky, CFDTrading Research
Questions/Comments about this article? Send them to Rkadinsky@fxcm.com

European Stocks Sell Following Sharp Rally as Banks Consider Raising Capital

Europe Session Key Developments

•    Commodities Suffer as Dollar Climbs
•    Strong Indicators Fail to Lift Sentiment
•    Banks Consider Raising Capital

European Markets closed lower as dollar strength and concern that equities are overbought led to weakness in stocks and lower commodities. Energy and raw material producers posted considerable losses as the price of crude oil fell below $70 per barrel while metals saw considerable declines as well. Gold touched below $1000 for the first time in four sessions as the move may indicate growing concern over the pace of recovery. Banks included Royal Bank of Scotland and UniCredit have made comments that the firms may raise capital. That had traders worried as equity dilution is likely to result while the extent of loan losses remains highly uncertain.  Also leaving investors uneasy, analysts having hiked up estimates for third quarter earnings that companies could fail to meet if cost cutting efforts slow while demand remains weak. Adding to selling pressure was news in Asia, including grim statements by Chinese President Hu Jintao, while JPMorgan downgraded China stocks to “underweight” from “neutral.” Across the sea, Japan’s new regime signaled their intent to reduce the stimulus package ushered in by former Prime Minister Taro Aso. While the forecast for growth remains unquestionable in the minds of investors, there appears considerable risk in company profits as weakness in consumer spending continues to play a vital role in the outlook for recovery.

FTSE 100                      5,134.36                   -38.53               -0.74%
British stocks closed lower for the first time in seven days as eight of ten sectors fell with Basic Materials plunging 2.69% as metal prices declined. Despite losses of more than three percent in miners including Xstrata and Rio Tinto, Royal Bank of Scotland fell the most on the session at more than five percent on news the firm pay issue a rights offering for between three and five billion pounds. Overall, the FTSE has climbed more than 20% off its July lows and a correction may be finally taking place.

CAC 40                     3,812.16                   -15.68                 -0.41%
French equities closed lower by the least of the five majors as strength was noted in six of ten sectors, while Financials and Industrials led losses. Airbus manufacturer EADS fell the most at more than five percent as Brazil’s defense minister extended its deadline for jet fighter bids. Large index point movers, meanwhile, included steelmaker ArcelorMittal, down 3.57% on lower metal prices, and a 1.58% fall in BNP Paribas

DAX                         5,668.65                    -35.18             -0.62%
Germany’s DAX closed lower by more than half of one percent as nearly all sectors fell along with more than two-thirds of stocks. Industrials and Basic Materials fell more than 1% each as commodities fell and concern over equities sent investors flocking to take profits. Major losses on the day included a 3.84% drop in fertilizer producer K & S as rival Potash made a cut to its profit forecast for the year. Other large movers included a 3.17% fall in shares of steelmaker ThyssenKrupp and more than two percent declines for Commerzbank and Volkswagon.

IBEX 35                     11,727.40                   -49.90                -0.42%
Stocks in Spain closed lower by the least of the five majors as gains were noted in nearly a third of the 35 stocks tracked. Basic Materials fell the most at 2.52% while the Financial sector resulted in a 46 point drop in the index. Heavily weighted firms included Banco Bilbao and utility Iberdrola fell more than one percent each. Ultimately, confidence in Spanish equities remains high and the index has not seen a sharp decline in each of the three recent corrections.

S&P/MIB                        23,047.87                    -436.10                  -1.86%
Italian stocks fell the most of the five majors as the heavily weighted financial sector weighed down equities. Major declines included a 2.6% drop in UniCredit as Italy’s largest bank commented that it is planning to improve its capital ratios. Oil company Eni also saw a large move as its shares sank 3.9% as oil prices plummeted. Overall the index rallied more than 34% from its early July low to a top in the previous week and a correction is not unexpected following the rapidity of the move.

Written by Roman Kadinsky, CFDTrading Research
Please send any comments about this report to Rkadinsky@fxcm.com

Dollar Turnaround; Beginning of Reversal or Pullback?

Euro / US Dollar

I wrote Friday that “the recent break was from a triangle and triangles preceded terminal moves.  The rally from 1.4500 appears to be unfolding as a diagonal and may be complete.  Even so, one more high would probably complete the rally.  Watch 1.4850.”  The degree of weakness from 1.4772 brings forth the possibility that a larger bear move is underway.  Aggressive traders may wish to go short but should keep risk to 1.4750.  1.4675 is potential resistance.  It often does take several attempts when catching a turn though.  More risk averse should wait for additional pattern development before entering into commitments.

British Pound / US Dollar

The short side has worked well and the GBPUSD is now testing neckline support from the multi month head and shoulders top.  Short term traders should take profits if the pair fails to close below neckline today. A reaction would probably encounter resistance in the 1.6285-1.6320 area.  Risk on open shorts should be kept to 1.6450 (price should remain below 1.6400 in the event that a larger drop is underway).

Australian Dollar / US Dollar

“The AUDUSD continues to work higher towards the 78.6% of the decline from .9856-.6007, which is .9032.  This level intersects with a potential resistance line on September 24.”  I wrote Friday that “it is possible that the rally from .7700 is an ending diagonal and that wave iv of that diagonal is underway towards .8476.”  The pattern is playing out thus far.  There may be some support at .8539.  .8650/85 is short term resistance.

New Zealand Dollar / US Dollar

Short term structure is not clear but as I wrote Friday, “Kiwi is top heavy”.  The bearish implications from the AUDUSD pattern extend to the NZDUSD as well.  .7070 is potential short term resistance and .6900 is support.  “A push to a new high would expose .7250.  This is where the rally from .6193 would be equal to 61.8% of the .4890-.6601 rally.  The level also rests in between 2 prominent former pivots (.7222 and .7384).”

US Dollar / Japanese Yen

Keep the long term outlook in perspective – “a 4th triangle ended in 2007 above 124.00 therefore the decline from that level is viewed as a 5th wave that will not be considered complete until price drops to an all-time low (below the 1995 low near 80).”  The USDJPY has soared through trendline resistance and is focus is now on 93.41.  91.90 and 91.70 are now supports.

US Dollar / Canadian Dollar

Barring a break above the resistance line, the USDCAD is vulnerable to a drop towards 1.0330 – which has been both support and resistance over the last several years.  This level is also the 61.8% extension of the 1.3068-1.0782 decline (from 1.1730).  Thus far, the 61.8% retracement of the rally from .9055 has held.  The circled area could be a triangle, in which event the immediate move is higher towards 1.1100.

US Dollar / Swiss Franc

“The print below 1.0367 (December 2008 low) satisfies the minimum requirement for wave v of C.  Divergence with momentum on nearly all time frames warns of a sharp turn against the Franc.”  The pair has turned up, at least for now.  It would take a rally through 1.0526/channel resistance in order to proclaim with confidence that a low is in place.

Jamie Saettele publishes Daily Technicals every weekday morning (930 am EST), COT analysis (published Monday mornings), technical analysis of currency crosses on Monday, Wednesday, and Friday (Euro and Yen crosses), and intraday trading strategy as market action dictates.  He is the author of Sentiment in the Forex Market.  Follow his intraday market commentary at DailyFX Forex Stream.

Contact Jamie at jsaettele@dailyfx.com if you would like to receive his reports via email.

Asian Stocks Mixed, Weighed by Falling Commodity Prices

Asia Session Key Developments

• President Obama Sees U.S. Emerging From Recession
• Global Commodities Falter as U.S. Dollar Advances

Price action in the Asian stock markets were mixed on Monday as trading in Japan, Singapore and India were halted for the holiday. Investors held a weary outlook for the equities market in China on speculation that the slew of newly issued IPO’s would curb demands for the current listings however, the Shanghai Composite edged 0.15% higher on the day to close at 2,967.01, led by a 3.34% gain in health care. At the same time, Metallurgical Corp of China Ltd, a construction company that helped built the Bird’s Nest for the 2008 Olympics in Beijing, surged 28% on its first day of trading on the Shanghai Stock Exchange, and the stock is scheduled to begin trading on the Hong Kong Stock Exchange on September 24.

Nikkei 225

Will be closed until Wednesday in observance of the Autumn Equinox holiday.

Hang Seng                         21,472.85

The Hang Seng declined on Monday on concern that a new wave of IPOs in China would limit funding into existing equities. The index closed at 21,472.85, dropping 150.60 points (0.70%), driven by a 2.19% drop in basic materials. Shares of Industrial & Commercial Bank of China slipped 2.3% after the chairman of the China Banking Regulator Commission said banks within the region are facing increased risk following the surge in lending while,  Aluminum Corp of China slumped 4.26% to lead the index lower on the back of falling commodity prices. At the same time, Li & Fung, the largest supplier of clothing and toys, jumped 7.23% to taper the downturn after President Barack Obama said that the U.S. is emerging from the recession.

S&P/ASX 200 Index           4,677.40

Stocks in Australia weakened on Monday following the slump in global commodity prices, with the ASX slipping 15.80 points (0.34%) to end at 4,677.40, led by a 1.19% drop in basic materials. At the same time, Technology slumped 0.65% on the day, while Telecommunications advanced 1.24%, with Healthcare adding 0.45% to temper the decline. Shares of Gunns Limited rose 5.68% amid speculation that the company may enter a joint venture to acquire Timbercorp’s land, trees, and forestry operations, while Macquarie Infrastructure advanced 5.56% as Global Airports offered a deal to obtain the management rights of Macquarie Airports. At the same time, Harvey Norman Holdings slipped 1.62% after Credit Suisse lowered the firms rating to ‘underperform’ from ‘neutral,’ while Macmahon Holdings surged 5.00% as a new iron mine in Western Australia is being contested by Macmahon Holdings and Downer EDI.

Notable Asian Session Event Risk / Economic Releases

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