March 2010

Australian Dollar Continues to Firm

Euro / US Dollar

A larger EURUSD rally, probably a 4^th wave, may be underway towards 13870-14030.  4^th waves are often choppy, usually flats or triangles.  An impulsive rally from 13433 and corrective decline from 13738 may be complete.  I cautiously favor the upside against 13530.

British Pound / US Dollar

After meeting resistance from former support / the 38.2% of the decline from 15825 / channel resistance, the GBPUSD has rolled over.  I favor a drop below 14780 in a 5^th wave.  Risk can be moved to 15200.  15030 is resistance.

Australian Dollar / US Dollar

The AUDUSD is firm and while I am bigger picture bearish against 9334, the AUDUSD could continue to strengthen near term.  9170 and 9300 are potential resistance levels.  A drop below 9050 is needed in order to suggest that the larger trend has turned back down.

New Zealand Dollar / US Dollar

As mentioned yesterday, it seems likely that the NZDUSD will exceed 7088 before the corrective advance from 6804 is complete.  Price above 6959 keeps the NZDUSD on a path higher towards 7156.  Action since 7088 could also be a triangle.  7015/30 is short term support.

US Dollar / Japanese Yen

Given the extent and structure of the USDJPY advance from 8813, it is possible that an A-B-C decline is complete from 9380.  A move above 9217 would strongly suggest that the USDJPY is headed above 9380, which would indicate a breakout above trendline and channel resistance.

US Dollar / Canadian Dollar

No change: “The USDCAD has dropped below 10368 and to its lowest level since mid January.  The potential for a bottom and reversal remain, especially since the decline from 10577 is now 161.8% of the decline from 10684-10491 and the decline from 10684 is 100% of the decline from 10784.  Even if the decline from 10577 is a 3^rd wave (rather than a c wave), a 4^th wave correction would probably reach at least 10368.”

US Dollar / Swiss Franc

No change: “The decline from the 10900 high February can be counted as a 3 wave setback and the rally from the low (10646) may be an impulse.  The other count is a double zigzag (a-b-c-x-a-b-c).  Confusion reigns at this point and the key levels are 10646 and 10900.  Until one of those levels gives way, the market remains in a range.”

Gold

No change: “Gold has traded sideways since December and appears to be building a bullish base.  Specifically, the base could be a complex head and shoulders (the head itself is a head and shoulders).  In order to complete the pattern, gold would sell off once more towards 1075 before finding a right shoulder low.”

Light Crude

Crude remains strong and the larger trend is considered up as long as price is above 6859 (under there completes a longer term head and shoulders top).  Still, at least a setback looks likely near term as there are 5 waves up from the February low (and wave v is a diagonal).  8286-8350 is potential resistance from a gap.  Expect weakness to at least below 7705.  7613 is potential support.  It is possible that the rally from the February low completes wave C of an A-B-C flat.  An impulsive decline from near current price would confirm as much.

Jamie Saettele publishes Daily Technicals every weekday morning, COT analysis (published Friday evenings), technical analysis of currency crosses on Monday, Wednesday, and Friday (Euro and Yen crosses), and intraday trading strategy as market action dictates at the DailyFX Forum.  He is the author of Sentiment in the Forex Market.  Follow his intraday market commentary and trades at DailyFX Forex Stream.   Send requests to receive his reports via email tojsaettele@dailyfx.com.

Stocks in Asia/Pacific Falter on Growth Concerns, Hang Seng Bucks Trend

Asia Session Key Developments

• Australian Consumer Confidence Improves in March
• Japan Machinery Orders Slump After Biggest Jump Since 2000

Stocks in Asia/Pacific weakened on Wednesday as policy makers held a cautious outlook for the region, while the Hang Seng bucked the trend as firms within the region posted better-than-expected earnings results for 2009. Bank of Japan’s board member Suda publicized that upside and downside risks for growth are almost balanced, sticking with the central bank’s view that the economy will continue to gradually expand. Meanwhile, the economic docket in Japan showed machinery orders pushed 3.7% lower in January after posting its biggest jump since 2000 the month prior, while the regions domestic goods price index advanced for the fourth consecutive month in February, with the gauge increasing 0.1% following the 0.3% rise in the previous month. Moreover, Australia’s Westpac consumer confidence index gained 0.2% in March, signaling that households are weathering RBA’s decision to raise borrowing costs for the fourth time in five meetings last week, while home loans unexpectedly slumped 7.9% in January after contracting a revised 5.1% in the month prior. At the same time, exports from China jumped at an annualized pace of 45.7% February to top expectations for a 38.3% rise, which outpaced the 44.7% expansion in imports.

Nikkei 225                          10,563.92

Stocks in Japan extended yesterday’s decline, leading the Nikkei 225 to shed 3.73 points (0.04%) on Wednesday and close at 10,563.92. Six out of the ten components retreated on the day, with telecommunications leading the way, falling 1.52%, while technology advanced 0.63%. Shares of Tokyo Gas tumbled 0.25% on the back of lower energy prices, while Casio Computer rallied 3.44% amid Nikkei English News stating that the company could see an operating profit of 20 billion yen for the year ending March 2011. In addition, CSK Holdings added 2.01% as the firm looks to sell its Cosmo Securities Co. brokerage unit to Iwai Securities for approximately 16 billion yen, while Nippon Light Metal soared 10.09% as UBS AG raised its outlook for the aluminum producer from “neutral” to “buy.”

Hang Seng                        21,208.29

The Hong Kong equity market advanced on Wednesday for the fourth consecutive session, leading the benchmark equity index to rise 0.74 points (0.00%) and close at 21,208.29. Seven out of the nine components rallied on the day, with technology climbing 2.13%, while consumer goods slipped 1.88%.  Shares of Cathay Pacific Airways soared 4.68% as the airline returned to profit in 2009, while Citic Pacific surged 7.47%as net income for the previous year topped market expectations. Moreover, China Petroleum & Chemical lost 1.45% on the back of lower energy prices, while HSBC Holdings slipped1.09% as the U.K. intends to force banks to increase disclosure on compensation.

S&P/ASX 200 Index           4,820.00

Shares in Australia pared yesterday’s advance, leading the S&P/ASX 200 to retreat 0.10 points (0.00%) and close at 4,820.00. Six out of the ten components tumbled on the day, with consumer goods leading the way, falling 0.43%, while telecommunications surged 2.55% to taper the decline. Shares of Alesco took a free fall of 31.58% as the company lowered its earnings forecast and UBS downgrading its stock rating from “neutral” to “sell,” while CuDeco leapt 12.98 % as Xiangguang Copper looks to take a 15% stake in the firm. At the same time, Telstra Corp advanced 2.75% after the Australian Financial Review said Communications Minister Stephen Conroy lacks political support to split up the firm, while Atlas Iron soared 4.52% as the Australian iron ore producer will purchase Aurox Resources for A$149 million in shares.

Notable Asian Session Event Risk / Economic Releases

Oil, Gold May Decline as Monthly US Deficit Hits Record

Commodities – Energy

Oil May Break Support as Monthly US Deficit Hits Record

Crude Oil (WTI)       $81.25       -$0.24 -0.29%
Prices have pulled back from resistance at $82.23 to find support at a rising trend line established from the bottom in early February, with a break lower exposing $77.53. The percent-change correlation between the WTI contract and the MSCI World Stock Index has strengthened to 0.78, reflecting the increasing influence of risk trends. European shares and US index futures are going nowhere fast, leaving crude without a clear catalyst heading into the Wall St open. The US Treasury’s monthly budget statement may prove to be the most significant item on the calendar, with expectations calling for a monthly shortfall of -$222 billion in February – the largest since records began nearly 33 years ago. This send crude lower as investors bet that the unprecedented borrowing that will be required to finance the US’ public deficit will send borrowing costs sharply higher, snuffing crude demand along with overall economic growth. The US Department of Energy’s Weekly crude inventory and MBA Mortgage Applications figures are also on the docket.

Commodities – Metals

Gold, Silver to See Sellers Return on US Debt Outcome

Gold       $1122.73       +$0.88       +0.08%
Gold prices found support at a rising trend line established from February’s swing low and rebounded to re-test support-turned-resistance at $1125.13. As with oil, the US monthly budget figures may weigh heavily on prices if they prove to fuel expectations of a sharp increase in borrowing costs that bears down on inflation. A break below the trend line will initially target the $1100 figure.

Silver       $17.31       +$0.06       +0.32%
The outlook for silver is largely in line with its more expensive counterpart, with traders’ eyes trained on the US monthly budget statement. Prices have rebounded from support just below the $17.00 to re-test resistance near the previous swing high at $17.51, with a turn lower form here initially looking to challenge $16.86.

U.S. Stocks Rise on One-Year Anniversary of Bear-Market Low

U.S. Session Key Developments

• Dollar Traders Provide Direction For General Market

• Fitch Issues Warnings on UK and Portugal Budget Deficits

• Commodities Moderately Lower on Higher Dollar

Exactly a year after US equity markets had their lowest close in over twelve years, stocks resumed last week’s gains after closing slightly lower yesterday.  The broad-based Standard & Poor’s 500 Index gained 0.2 percent today and is now less than 10 points (0.9 percent) off of its January 19 high of 1150.23.  With no big economic releases this morning, investors looked towards the dollar for direction.  The dollar had been as much as 0.5 percent higher against its major trading partners around the time of the open causing stocks to open lower.  As the dollar pared gains, stocks recovered and were 0.6 percent up at the market’s peak.  Equities dipped below yesterday’s close one more time in the last hour of trading before settling just above that close.  Much of the dollar’s strength came from weakness in Sterling and the Euro.  The two currencies dropped 0.5 and 0.2 percent against the greenback respectively as Fitch issued warnings about both the U.K. and Portuguese budget deficits.  Meanwhile commodity currencies were mostly higher against the dollar despite the CRB Commodity Index dropping 0.7 percent.  Crude was down 0.6 percent to $81.81 per barrel while gold gave up 0.3 percent to $1122 per troy ounce.

DJIA 30 10,564.38 +11.86 +0.11%

A little over half of components gained today, led by advances in the telecom and Industrial spaces, which each gained over 0.9 percent.  Basic Materials stocks weighed on the market as no components in that sector gained and the sector lost 0.5 percent overall.

S&P 500                     1,140.45 +1.95 +0.17%

The broader S&P 500 saw gains from a wider group of sectors.  Telecom and Industrial stocks paced the S&P 500 as well, however Tech, Financial, and Energy stocks also gained.  Basic Materials stocks were the worst performers here as well as Commodities were generally lower.

NASDAQ 2,340.68 +8.47 +0.36%

The tech heavy Nasdaq Composite was the best performer among the three main U.S. equity indices.  Basic Materials and Energy stocks were the only groups in the red and Tech stocks, which hold by far the most weight, were up 0.5 percent as a group.

Written by Gary Chalik, CFDTrading Research

Please send any comments about this report to GChalik@fxcm.com

Stocks Slip On One-Year Anniversary of 12-Year Low For European Equities

Europe Session Key Developments

•    German Chancellor Merkel Urges Derivatives Regulation
•    Greece Continues Efforts to Cut Deficit, May Have Overstated Tax Revenues
•    Commodity Prices Drop on Greenback Strength, European Currencies Weak

European stocks were generally lower today, the one-year anniversary of the “bottom” for European stocks- March 9, 2009 when equities traded to a 12-year low.  The Dow Jones Stoxx 600, a broad collection of European equities, fell for a second consecutive session to 256.80.  Greece continued to stay in the spotlight, as investors today were concerned that Greek tax increases may not generate as much revenue for the government as initially thought.  This would clearly hinder the efforts of Prime Minister George Papandreou in his efforts to reduce the Greek budget deficit to less than the current 12 percent of GDP.  Investors sold off Greek bonds on the news, driving yields 2 basis points higher on 10-year bonds to 6.24 percent.  As for bailout speculation, it appears that EU leaders will try to avoid any provision of aid to Greece as long as the stability of the euro region does not come into question.  The EU’s Olli Rehn maintained in an interview today that Greece remains on the path to debt below 3 percent of GDP by 2012.  German Chancellor Angela Merkel and Luxembourg Prime Minister Jean-Claude Juncker have redirected their efforts towards the derivatives market, calling for the immediate regulation of the “very speculative elements” of such trades in order to maintain regional stability.

Overall, investor uncertainty remained the leading factor for market moves today and drove investors away from riskier assets.  Crude oil traded down nearly 1 percent to the $81 a barrel level, while gold and silver futures dropped to $1118 and $17.21 respectively.  As for currencies, the U.S. dollar strengthened against its European counterparts, gaining against the euro for the first time since Thursday and pushing cable lower for a second day.

FTSE 100                       5602.30                      -4.42                       -0.08%
British shares fell for the first time since Thursday as financial shares dropped over 0.7 percent on the session.  Ratings-agency Fitch said today that the U.K. government must reduce its budget deficit at a faster rate than currently planned because the nation’s credit profile has deteriorated “pretty sharply.”  Standard Chartered fell 2.8 percent on the credit concerns and Royal Bank of Scotland fell 1.2 percent.  U.K. banks may need to shrink their balance sheets by over 500 billion pounds to meet liquidity and capital requirements, according to an analyst at Credit Suisse.  Furthering index losses today were shares of Liberty International, which fell the most this year after the British mall owner reported net asset values that missed estimates.

CAC 40                            3910.01                     +6.47                      +0.17%
French stocks rallied for the second time in three days, led by strength in utilities and health care shares.  Pernod-Ricard posted the largest gain on the index, adding over 1.5 percent, while GDF Suez also posted a strong gain.  GDF, a natural gas and energy services firm, rose on rumors that U.K. utility International Power would consider a “tie-up” with the French utility.  Pharmaceutical firm Sanofi-Aventis added 0.7 percent after an announcement that the firm would combine its veterinary medine units with those at Merck & Co. to create the world’s largest animal health entity.

DAX                                 5885.89                       +9.98                    +0.17%
Trading in Germany led to the biggest gains among major European indices, as the DAX added nearly a quarter-percent on strength in utilities and basic materials shares.  Basic materials traded higher despite weakness in commodity prices, as shares of Bayer rose over 1 percent.  Furthering gains in the sector were Linde, which added 0.6 percent, as well as Salzgitter and Basf, which were also higher on the day.  Mail carrier Deutsche Post had the biggest gain on the DAX, rallying over 2 percent after the company announced its full-year profits for 2009 as “considerably higher” than in the year prior.

IBEX 35                          11002.80                     -75.50                   -0.68%
Trading in Spain led to the biggest loss among major European indices, as Ebro Puleva plunged nearly 5 percent.  The Spanish food company announced yesterday that it would be selling its dairy business to Lactalis, Europe’s largest dairy group.  Other weak performers were Mapfre, which fell nearly 3 percent after announcing its purchase of a 50 percent stake in the insurance units of Caixa Catalunya.  As for financials, Banco Popular fell for the first time in six sessions, dropping over 1 percent after UBS trimmed its price estimate on the shares.

FTSE MIB                      22355.80                     -42.41                    -0.19%
Italy’s FTSE MIB closed lower for the first time in eight sessions on weakness among financial shares.  In addition to a price revision for Banco Popular, analysts at UBS also revised their price estimates lower for Banca Monte dei Paschi di Siena, Intesa Sanpaolo, UniCredit, and Unione di Banch Italiane.  Further dragging down the Italian index today was cable maker Prysmian, which fell over 1 percent on bearish commentary from UniCredit.

There is a growing divergence in the state of the financial market’s fundamentals and its general level of activity. In the past week, there have been developments that have degraded the fidelity of the Euro Zone, leveraged the threat of a financial crisis in China and added risk to the very assets that are used to establish risk-free returns.

Fibo Resistance May Limit Dow’s Gains

Testing support from a steep channel, a drop below would suggest that an important top is in place at 10730.  The next level of support is 9679, then 8878.  The level that produced the January top has been significant in recent years (2004-2006), which increases the likelihood that a more important is in place.

The Dow broke from its short-term triangle but found resistance at 10,586- 61.8% Fibo extension of 13,136-6,460. The technical level could prove formidable considering it is the golden ratio of a major decline. Downside risk are to 10,400 where we find trendline support, a break above exposes 10,750 followed by 11,000.

The S&P has already broken below its channel, which reinforces the topping theme.  Just as the Dow’s January top occurred at a previously important level, so did the S&P top (see circled area).  The next level of support is 1029, then 956.  Favor the downside.

The S&P 500 like the Dow has broke from its short-term wedge but is facing resistance at 1,144-61.8% Fibo of 1,440-665. A break above exposes 1,175, with downside risks to 1,100.

The NASDAQ has broken below a support line drawn off of lows in July and November.  RSI divergence on the weekly plot at the January high is also bearish.  The next level of support is 2024.

The NASDAQ has set a fresh yearly high of 2,335 which now leaves little in the way of solid resistance before the August 15, 2008 high of 2,473. The break of the trend lines drawn from the all-time high has seen gains accelerate which could be carried through into this week’s trading.

Stocks in Asia/Pacific Mixed, Australia’s Business Confidence Rises for Second Month

Asia Session Key Developments

• Australian Shares Rally for Eight Straight Day
• Japan’s Machine Tool Orders Post largest Increase on Record

Stocks in Asia/Pacific were mixed on Tuesday following a lackluster performance on Wall Street. Meanwhile, the economic docket showed business confidence in Australia advanced for the second straight month in February, with the NAB index increasing to 19 from 15 from the previous month, while job ads in the region leapt the most in a decade during the same period after rising 19.1% from January. Moreover, Japan’s leading index rose to 97.1 during the first month of 2010, extending the reading’s 10-month advance, while machine tool orders in the region jumped at an annualized pace of 217.3% in February, posting its largest increase since records began in 1987.

Nikkei 225                          10,567.65

Stocks in Japan pared yesterday’s advance, leading the Nikkei 225 to retreat 18.27 points (0.17%) on Tuesday and close at 10,567.65. Eight out of the ten components tumbled on the day, with telecommunications leading the way, shedding 1.37%, while industrials added 0.09%. Shares of NTT Data rallied 2.15% as the network-services company plans to scale back its domestic group in order to cut costs, while Nippon Light Metal tipped 0.93% higher as the company publicized that it will sell an aluminum subsidiary to housing-material manufacture JS Group Corp. In addition, Mazda Motor rose 0.43% following the company’s announcement that it will install brake override systems in all new models, while JTKET sank 3.01%  subsequent to Credit Suisse slashing the company’s credit rating from “outer perform” to “neutral.”

Hang Seng                        21,207.55

The Hong Kong equity market pushed higher on Tuesday for the third successive day, leading the benchmark equity index to rise 10.68 points (0.05%) and close at 21,207.55. Two out of the nine components rose on the day, with utilities rising 0.34%, while consumer goods retreated 2.69%. Shares of China Life Insurance added 2.98% as the company expects net profit to climb more than 200% in 2009, while China Mobile inched 0.14% higher amid the mobile company stating that it was in preliminary talks with Shanghai Pudong Development Bank on a potential subscription of the bank’s new shares. Moreover, Aluminum Corporation of China lost 0.85% on the back of lower metal prices, while Cathay Pacific Airways slipped 0.14% as February air cargo tonnage throughput from the Hong Kong air cargo terminals sank 15.3% in February from the month prior.

S&P/ASX 200 Index           4,820.10

Shares in Australia rallied for an eighth consecutive session on Tuesday, leading the S&P/ASX 200 to increase 12.20 points (0.25%) and close at 4,820.10. Seven out of the ten components pushed higher on the day, with health care adding 0.68%, while technology fell 1.67% to taper the advance. Shares of Seek gained 1.07% following a marked rise in advertisements for job vacancies, while Fortescue Metals Group slumped 0.62% on the back of lower metal prices. At the same time, UGL shed 1.61% after UBS lowered its rating on the stock to “neutral” from “buy,” while Harvey Norman edged 0.51% higher on the back of Australian business confidence increasing in February for the second straight month.

Notable Asian Session Event Risk / Economic Releases

Crude to Follow Risky Assets Lower, Gold Trading on US Yield Outlook

Commodities – Energy

Crude Oil May Extend Losses on Fading Risk Appetite

Crude Oil (WTI)       $81.03 -$0.84 -1.03%
Prices have pulled back from resistance at $82.23 to find support above the previously broken upper boundary of a Rising Wedge formation (now at $81.26). The US economic calendar is fairly light once again, with only the Department of Energy set to release their short-term crude outlook figures while the American Petroleum Institute publishes weekly inventory data. On balance, risk sentiment may prove to be the guiding catalyst once again. Indeed, the percent-change correlation between the price of the WTI contract and the MSCI World Stock Index remains elevated at 0.76. European shares are trading lower and US index futures are firmly in negative territory, making such an outcome supportive of a bearish scenario. A break below current support will expose the $80 figure.

Commodities – Metals

Gold, Silver to Decline on Firming US Yields Outlook

Gold $1120.08 -$3.48 -0.31%
Gold turned lower from support-turned-resistance at a rising trend line established from the swing bottom in early February, finding support at $1118.60. The outlook for US interest rates appears to have taken over as the primary near-term catalyst. Indeed, the 20-day correlation of gold with the spread between the yields on 12-month and 1-month Treasury notes now stands at -0.60, suggesting continued selling is ahead of the market’s perception of the Fed continues to adjust toward a more hawkish posture than previously expected. A push below current support exposes the $1100.00 figure.

Silver $17.09 -$0.16 -0.90%
As with gold, US interest rate expectations appear to be the primary driver of price action in the near term. Indeed, the silver’s inverse correlation with the spread between 12-month and 1-month Treasury yields stands at -0.69, a reading even higher than the precious metal’s more expensive counterpart. Technically, a Bearish Engulfing candlestick formation below resistance at a rising trend line connecting major swing highs from early February has marked the beginning of a move lower, with a break of initial support at $16.80 exposing the $16.00 figure.

U.S. Equities Open Week With Mixed Results

U.S. Session Key Developments

•    Dow Jones Industrial Average Returns to Positive Territory For 2010
•    Jobless Claims Slightly Better Than Expected, Home Sales Plunge
•    Commodities Decline as Greenback Gains Against European Counterparts

U.S. stocks were generally higher today following mixed trading in Europe’s session as well as the Asian session overnight.  The Nasdaq rose slightly on strength in technology shares, but the Dow Jones Industrial Average and S&P 500 each closed lower on the day.  There was very little action on the trading day, however, as only 7.1 billion shares exchanged hands on U.S. indices- the second-lowest amount of the year.  On the other hand, the VIX volatility index rose for the first time in nine days as investors seem unsure of what lies ahead for the world’s stock markets.  As for commodities today, crude oil continued its rise, trading near $82 a barrel at session close.  Precious metals were on the decline, however, as gold fell to $1123 on the COMEX and silver fell towards the $17.20 level.  The U.S. Dollar Index held above the 80 level for a third consecutive day, gaining against the British Pound but falling against the euro.

DJIA 30                     10,552.52                      -13.68                       -0.13%
The Dow Jones Industrial Average posted the weakest performance among major U.S. indices as 18 of the 30 Dow stocks closed lower on the day.  3M Co posted the biggest loss on the index, dropping 1.3 percent, while American Express and Bank of America fell over 1 percent each to lead financial shares lower.  On the positive side, McDonald’s shares gained over 2 percent as strong overseas growth led to a 4.8 percent increase in sales for the world’s largest fast-food chain.  Verizon shares also gained today, after the company announced plans to expand its next-generation wireless broadband beyond its initial test sites of Boston and Seattle.

S&P 500                       1,138.50                           -0.20                       -0.02%
The broad-based S&P 500 ended its six-day rally today  on weakness in industrials and health care.  Health care stocks fell 0.4 percent as U.S. President Barack Obama leads a final push to overhaul the medical industry in the United States.  Davita shares were the worst performing among the health care sector, falling over 2.4 percent, while shares of UnitedHealth and Coventry Health dropped at least 1.7 percent each.  Other shares with unusual moves today included AIG, which rallied over 3 percent after agreeing to sell its American Life Insurance Co. unit to MetLife.

NASDAQ                     2,332.21                         +5.86                     +0.25%
The tech-heavy Nasdaq was the best performer among major U.S. indices as technology stocks rose nearly 0.5 percent on the day.  Cisco shares rallied over 3 percent after JPMorgan initiated coverage of the stock and word that the technology firm would be making a major announcement tomorrow.  BlackBerry maker Research in Motion rose 4 percent after a BMO analyst upgraded his estimates and price target on the shares.  As for non-technology shares on the index, IMAX Corp. rallied over 8 percent following a successful weekend opening of Disney’s 3D film “Alice in Wonderland.”

Written by James Russell, CFDTrading Research
Please send any comments about this report to JRussell@fxcm.com

Crude Edges Ever Higher as Momentum Substitutes Fundamental Drive

North American Commodity Update

Crude Oil (LS NYMEX) -  $81.82   //  $0.32  //  0.39%

There was relatively little for fundamental traders to work with Monday; but that wouldn’t prevent oil from pushing a new eight-week high and closing the gap to the $84 swing high set on January 11th. At this point, the bullish bias can sustain itself on sheer momentum as long as there isn’t an active force to fight the market’s climb. In fact, over the past month, the nearby crude futures contract has climbed 15 of the 20 active trading days and advanced over 18.5 percent. On the other hand, the high volume levels that supported the initial bearish reversal have notably cooled while the CBOE Crude Oil Volatility Index has held below the one and three-month average around 35 percent. Nonetheless, the CFTC’s Commitment of Traders report revealed a growing interest amongst the speculative crowd with net longs rising a third week to 91,400 contracts.

Yet, speculative interests will not go unchallenged going forward. This morning, wariness over the financial stability of Greece and the Euro-area was further tempered by French President Sarkozy’s vow that the EU was prepared to support the ailing member should it need assistance. Furthermore, officials are reportedly working to create a European Monetary Fund that could be used to extend loans to Union members without inviting moral hazard or require nations to go outside the group to appeal for assistance. The timing for such an ambitious plan is critical however as a crisis before the fund can be implemented would be far more difficult to fix than prevent. Another concern that has not yet hit critical mass is the development of an asset bubble in China. Officials recently announced that all loan guarantees that were made on the part of local governments would be nullified and future assurances would be banned. It is speculated that a considerable percentage of 2009’s momentous build in lending was established through just such means, meaning the probability of default was much greater. Considering this booming speculative market is thought to have already been on the cusp of an asset bubble, this development could finally lead to a dramatic unwinding of overwrought capital markets. From sentiment to supply concerns, forecasts for inventory figures are already calling for a sixth consecutive increase in US reserves. According to Bloomberg’s poll, economists expected a 2 million barrel increase through the week ending March 5th. This would extend the longest strength of gains since May and further extend stockpiles that are already at their highest level since August at 341.6 million barrels.

Watch our weekly, live coverage of the DoE Inventory figures every Wednesday beginning at 10:15 AM EST.

Spot Gold  -  $1,121.55  //  -$13.10 //  -1.15%

As testament to the relatively restrained volatility over the past few weeks (and the consistency of the controlled bullish bias); spot gold suffered its sharpest decline in a month Monday. Historically, this downdraft isn’t particularly sharp. Nonetheless, slipping below $1,130 has disrupted the market’s forward momentum. Furthermore, the 1.2 percent decline in the precious metal stood out amongst other asset benchmarks that were comparatively little changed for the day. Where did this wave of selling come from? The commodity has established a function that has traded back and forth between speculative asset and alternative investment to traditional fiat currencies. Over the past few weeks, the commodity has enjoyed an advance alongside equities but contradictory to the tepid sense of risk appetite that has developed in the background. For this asset to enjoy the trappings of a speculative asset, investors will have to be encouraged by fresh 12 to 16 month highs from the benchmarks from the various security classes. Looking at the COT data for last week’s positioning, net speculative interest on the COMEX rose for a fourth week to 207,400 contracts. Alternatively, a rebound in sentiment would naturally counteract gold’s appeal as a safe haven. This morning, news circulated that the EU was working to establish a lender-of-last-resorts program that would act like an IMF for the European region to avoid crises within the group. However, this does not immediately answer all the market’s troubles. The removal of stimulus, cracks in sovereign debt risk and overvalued markets make for rough financial terrain over the coming months and quarters.

Spot Silver  -  $17.21   //  -$0.15  //  -0.86%

Silver suffered its sharpest decline in 9 days Monday as the dollar stalled in its advance and gold guided the precious metals complex lower. Looking at market activity behind futures, delayed volume on the active silver contract traded on the COMEX reveals the advance of the past week was backed by relatively restrained turnover. On the other hand, open interest maintained its advance from late February lows. According to COT data, speculative positioning accounted for 23.3 percent of open interest this past week from 19.3 percent reported in the previous reading.

Discuss gold and oil trading with other traders in the DailyFX Forum

Written by John Kicklighter, Strategist
Questions or Comments about this article? Send them to jkicklighter@dailyfx.com

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