April 2010

Growth-Based Upswing in Crude Stalled by Surge in Oil Inventories

April 21, 2010 at 6:33 pm by John Kicklighter · Leave a Comment

North American Commodity Update

Commodities – Energy

Growth-Based Upswing in Crude Stalled by Surge in Oil Inventories

Crude Oil (LS NYMEX) – $83.62 // -$0.23 // -0.27%

Market conditions and traditional supply-and-demand factors were both working to direct crude oil Wednesday. And, given the relatively mixed outcome for price action on the day, it was clear that these two primary drivers were on opposite sides of the spectrum. On the first day that the June NYMEX WTI futures contract picked up the baton as the active nearby, the market produced a modest upside gap but would ultimately close the day in the red. Another interesting highlight to market activity is the marked drop in daily volume on the American exchange from last week’s surge – though this is more likely a product of fundamental shifts rather than a natural product of market activity. Having pulled back from an 18-month high of $87 per barrel set earlier in the month, we have seen trading pick up with the pullback rather than the initial breakout. This can be interpreted as a speculative buy in on a pull back after a breakout or conviction behind the belief that the original breakout was unstable. It is important to keep an eye on market readings like these as they can provide another view on activity that goes beyond mere price action.

As for fundamental activity today, speculative interests were working against the commodity today. International investors were keeping a close eye on the meeting of Greek, EU and IMF officials in Athens today. The topic of discussion: the activation of the proposed 45 billion euro lifeline to the struggling economy. While there have been few concrete highlights to come out of this meeting so far, the suggestion that Greece could tap loans before all the details have been ironed out certainly adds to optimism. On the other hand, given the doubt that the promised funds could be fully accessed and fears that it will even be enough to help revive the economy; there is stubborn sense of doubt that will surround any progress made on this front. Such uncertainty has not only weighed growth-related assets, it has also bolstered the US dollar’s safe haven value. As the primary pricing instrument of the commodity, this added additional weight to oil prices.

It is arguable, however, that risk appetite was a relatively benign driver for price action on the day. On the other hand, tangible fundamentals were clearly influential. Top scheduled event risk for energy traders today was the US Department of Energy’s inventory figures for the week ending April 16th. According to the government, crude holdings rose 1.89 million barrels through the period to 356 million barrels. However, the details were more interesting. Imports of the fuel rose to its highest level since September, leveraging the necessity of a rebound in demand. Far more interesting for futures traders, crude holdings in Cushing, Oklahoma (where the West Texas Intermediate grade is stored) surged 5.8 percent to a January 8th high. Demand will ultimately define the long-term balance of supply and consumption; but the IMF’s forecast for global growth to run 4.2 percent in 2010 may be too abstract and distant for traders to grasp on to.

Commodities – Metals

Gold, Silver Advance as Sovereign Debt Risk Overrides Dollar’s Gains

Spot Gold – $1,146.10 // $5.35 // 0.47%

The active gold futures contract on the COMEX advanced the most in two weeks through the close of Wednesday’s US session. However, this gain was nonetheless notably constrained in tempo. In fact, despite the recovery that has developed since the sharp intraday reversal on Monday, bulls have yet to fully offset the losses suffered with Friday’s plunge (the biggest tumble since February 4th). Working to garner influence over the metal today, fundamentals interests were aligned to the US dollar and underlying bearing on risk appetite. For the greenback, the fifth consecutive daily climb marks the best trend for the currency in months; but there is nonetheless a tempered pace to this advance. The same general consensus can be made with risk appetite developments. The meeting between EU, IMF and Greek officials that continued through today could theoretically be construed as a source of confidence considering the topic du jour is whether or not to activate the avowed 45 billion euro financial life line. However, investors have grown weary of the EU’s generosity and the probability that even the full amount promised could stabilize the financial threat. The uncertainty this doubt yields naturally bolsters the greenback’s safe haven qualities; but it has also leveraged gold’s value as an alternative store of wealth (a substitute further to currencies). What’s more, the IMF’s assessment with its Global Financial Stability report released yesterday that the biggest threat to the markets is now the level of government debt and sovereign credit risk has added a new angle to the currency/commodity comparison.

Spot Silver - $18.08 // $0.23 // 1.29%

Silver does not enjoy the same level of appeal as a safe haven asset as gold. Nonetheless, the metal would end the day well in the green through Wednesday’s close. Silver’s strength is even more remarkable considering its gains further conflicts with the typical metal-dollar negative correlation. The source of this appreciation can be traced back to the general strength of the precious metal’s group. Both palladium and platinum hit their highest levels in two years with advances today.

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

Asia/Pacific Stocks Advance on Higher Earnings Expectations, Hang Seng Bucks Trend

April 21, 2010 at 9:54 am by David Song · Leave a Comment

Asia Session Key Developments

Gold Futures Rise for the First Time in Three Sessions
Australia’s Westpac Leading Index Extends Eight Month Rise
Japan’s Leading Index Advances to the Highest Level Since June 2007
China Mobile Misses Analysts Estimates

Asia/Pacific shares rallied during mid-week trading following the advance on Wall Street as market participants held an improved outlook for future profits. Meanwhile, the economic docket in Australia showed that the Westpac leading index extended its eight month advance, with the reading adding 0.5% in February, while the gauge for skilled vacancies rose for the tenth consecutive month. In Japan, the leading index climbed to the highest level since June 2007, while the final reading for the coincident index accelerated to the highest level since July 2008.

Nikkei 225 11,090.05

Stocks in Japan pared yesterday’s decline, leading the Nikkei 225 to gain 189.37 points (1.74%) and close at 11,090.05 as all ten components pushed higher on the day. Shares of Taiyo Yuden jumped 5.05% as Citigroup Global Markets Japan boosted the electronic component maker price estimate to 1,500 yen from 1,200 yen, while Sumitomo Metal Mining, Japan’s largest producer of nickel rallied 3.27% as the company announced plans to spend more than 10 billion yen to boost its capacity to refine nickel by 60%.In addition, All Nippon Airways pushed 3.78% higher as Merrill Lynch increased its rating on the stock to “buy” from “underperform,” while Nissan Motors rose 3.19% as Japan’s third-largest automaker doubled the size of its bond sale planned tomorrow to 100 billion yen.

Hang Seng 21,510.93

The Hong Kong equity market pared yesterday’s advance, leading the benchmark equity index to shed 112.45 points (0.52%) and close at 21,510.93. Three out of the nine components traded lower on the day, with telecommunications falling 1.33%, while consumer goods added 1.07% to taper the decline. Shares of HSBC edged 0.73% lower as Europe’s largest lender appointed Jane Wang as the head of its China corporate finance unit, while Bank of China fell 1.22% after the head of the China Banking Regulatory Commission said banks must conduct leaner lending policies to “strictly” limit speculation in the housing market. At the same time, China Petroleum added 0.47% on the back of higher commodity prices, while China Mobile sank 1.56% after the world’s largest phone carrier by market value posted first-quarter profit that missed analyst’s estimates.

S&P/ASX 200 Index 4,925.85

Shares in Australia extended yesterday’s advance, leading the S&P/ASX 200 to climb 28.50 points (0.58%) and close at 4,954.30. Nine out of the ten components rallied on the day, with technology leading the way, rising 1.25%, while consumer goods dropped 0.12% to taper the rally. Shares Harvey Norman rallied 2.07% after Citigroup raised its rating on the firm to “buy” from “hold,” while Fortescue Metals rose 1.94% on the back of higher metal prices. At the same time, CSR gained 1.19% as the firm remains in talks with China’s Bright Food Group to strike a deal for its sugar business, while Qantas Airways increased 1.03% as the airline company said the disruption to European flights will not affect its earnings forecast.

Notable Asian Session Event Risk / Economic Releases

Opportunity to Fade British Pound Strength

April 20, 2010 at 2:45 pm by Jamie Saettele · Leave a Comment

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Euro / US Dollar

DT420eurusd

Failing to exceed 13700, the EURUSD has now retraced its entire advance from the ‘bailout’ rally gap open last Monday. By definition, the pair is still in a correction until we see 5 waves down from 13695. If we get that decline, then I’ll look to get short for the next leg down towards 13000. A drop below 13415 would make the drop from 13695 an impulse and offer an opportunity to short on a bounce.

British Pound / US Dollar

A 4^th wave correction may be complete in the GBPUSD just above 15500. The rally from 14780 consists of two 3 leg advances, which is termed a double 3 complex correction. After dropping below a short term support line, the pair has rallied sharply in what may be a small 2^nd wave. Favor the downside against 15530.

Australian Dollar / US Dollar

I remain focused on last Monday’s reversal, which brings forth the potential for a double top with the November 2009 high at 9400. The pair has held channel support on a daily closing basis, which keeps bears in check for now. A daily close below would signal a high confidence shorting opportunity.

New Zealand Dollar / US Dollar

DT420nzdusd

The longer term topping scenario remains valid as long as price is below 7446. Since the February low at 6804, the NZDUSD rally can be described as corrective and best and pathetic at worst. Coming under 6960 should be enough to signal that the next leg down is underway.

US Dollar / Japanese Yen

DT420usdjpy

Bigger picture, I remain bullish against 9160 (moving risk from 9100) in anticipation of a move above 9480. (9700 is an objective from a longer term Fibonacci extension). Near term support is 9270 and 9235.

US Dollar / Canadian Dollar

DT420usdcad

After breaking through channel resistance, the USDCAD has plunged. I cautiously favor the upside against 9950 but weakness below would expose 9915.

US Dollar / Swiss Franc

DT420usdchf

The overlapping nature of the USDCHF advance from 9916 is a warning that the rally may be a completed 3 wave correction. Additionally, the USDCHF is breaking below a nearly 5 month support line for the second time this month. The decline from 10790 is impulsive, which is also bearish. Although there may be a short term correction back to 10620, the pair looks vulnerable over the next several weeks. Bottom line – the picture is mixed and there is little confidence in direction at the current juncture. A rally above 10790 would complete a short term inverse head and shoulders and favor bulls.

Gold

Gold formed a dark cloud cover (bearish candlestick reversal pattern) with the completion of last week’s candle. Still, until the metal can break below the year + channel, upside potential should be respected.

Light Crude

Crude has dropped below its short term channel, which warns of a more significant reversal. As is the case with gold, if the decline can extend into 5 waves, then we’ll have the necessary evidence to go short. A glance at the weekly warns of a completed 5 waves from the October 2008 low.

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 to jsaettele@dailyfx.com. Traders can meet me at the FXCM Expo in Las Vegas on May 3rd and 4th. You can register to attend at www.fxcmexpo.com.

Asia/Pacific Shares Mix Following Uncertainties Tied to China’s Policy

April 20, 2010 at 8:57 am by David Song · Leave a Comment

Asia Session Key Developments

New Zealand’s Inflation Rises for the Fourth Time in Five Months
Japan’s Machine Tool Orders Soar to the Highest Level on Record
Hong Kong Unemployment Falls to 15 Month Low

Asia/Pacific shares were mixed on Tuesday despite the rally on Wall Street as investors remained concerned about China’s efforts to control its boiling real estate market. Meanwhile, the economic docket overnight seemed fairly light as New Zealand’s inflation highlighted the calendar. Consumer prices in the region advanced for the fourth time in the past five months, while food prices added 0.2% in March after falling 1.3% the previous month. Moreover, Japan’s machine tool orders accelerated at the fastest pace since records began in 1987, while the region’s tertiary industry index slid 0.2% in February, falling shy of economists’ expectations for a 1.0% decline. Nevertheless, Hong Kong’s jobless rate fell to a 15-month low of 4.4% amid expectations for a flat reading at 4.5%, and the data reinforces an improved outlook for consumption and economic growth as the recovery gathers pace.

Nikkei 225 10,900.68

Stocks in Japan traded lower for a third consecutive day, leading the Nikkei 225 to shed 8.09 points (0.07%) and close at 10,900.68. Four out of the ten components traded lower on the day, with telecommunications leading the way, falling 2.04%, while utilities added 1.17% to taper the decline. Shares of Suzuki Motors added 0.88% as the mini-car maker plans to increase engine output capacity in India by about 30% to more than 1.25 million units a year, while Isuzu Motors jumped 4.58% as the company’s full-year net income unexpectedly increased 8 billion yen compared to its earlier forecasts for a 5 billion yen loss. In addition, Toyota Motor, the world’s largest automaker pared yesterday’s decline to advance 0.28% today as the company stated it will recall the Lexus GX 460 sport-utility vehicle that Consumer Reports magazine rated a “safety risk,” while Sumitomo Metal Mining climbed 0.21% on the back of higher metal prices.

Hang Seng 21,623.38

The Hong Kong equity market pared yesterday’s decline, leading the benchmark equity index to advance 218.21 points (1.02%) and close at 21,623.38. Eight out of the nine components pushed higher on the day, with telecommunications leading the way, adding 3.29%, while consumer goods tumbled 2.35% to taper the advance. Hang Lung Properties jumped 2.01% as Hong Kong February domestic unit rental & price index leapt an annualized 17.8%, while Bank of East Asia rose 1.04% as U.S. regulators were split on suing Goldman Sachs Group. Moreover, PetroChina added 1.54% on the back of higher commodity prices, while China Construction Bank increased 1.86% as the unemployment rate in Hong Kong fell to a 15 month low.

S&P/ASX 200 Index 4,925.85

Shares in Australia pared yesterday’s decline, leading the S&P/ASX 200 to add 10.70 points (0.22%) and close at 4,925.80. Eight out of the ten components pushed higher on the day, with telecommunications leading the way, adding 1.11%, which was followed by a 0.64% advance in oil & gas. Shares of Fortescue Metals, Australia’s third largest producer of iron ore rallied 1.57% as the company said third quarter shipments jumped 53% amid increased demand from steel mills in China, while Flight Centre slumped 3.80% due to Credit Suisse slashing the company’s stock rating from “buy” to “neutral.” At the same time, OneSteel jumped 3.39% on the back of higher commodity prices, while AWE rose 2.32% amid the Royal Bank of Scotland raising the company’s stock rating from “hold” to “buy.”

Notable Asian Session Event Risk / Economic Releases

U.S. Stocks Higher on Better Earnings, SEC

April 19, 2010 at 5:30 pm by CFDTrading Analyst · Leave a Comment

U.S. Session Key Developments

•    Citigroup Returns to Profitability
•    Leading Indicators Rise 1.4 Percent in March
•    SEC Split on Case Against Goldman Sachs

U.S. equities opened the week in the black as traders reacted to better than expected earnings, better than expected leading indicators, and a split in the SEC about whether to pursue a case against Goldman Sachs. Several companies, including Citigroup and Hasbro, announced stellar results premarket. The former announced EPS of $0.14 on higher than expected revenues while the latter announced EPS of $0.26. Analysts had predicted the firms to report EPS of $0.00 and $0.16 respectively. The earnings, along with a better than expected leading indicators report from the Conference Board, pushed markets higher at the open. Markets were unable to maintain the upward momentum as questions remained about the SEC suit against Goldman Sachs and the potential fallout it could have to the financial industry and the economy as a whole. However, as news spread that the SEC voted 3-2 along party lines to approve a case against Goldman, markets regained momentum to close higher. The vote suggests both that the SEC case is not rock solid and that the outcome for the firm will not be quite as catastrophic as some have predicted.

DJIA 30 11,092.05 +73.39 +0.67%
The Dow Jones Industrial Average was the best performer of the major U.S. Equity Indices as four-out-of-five issues increased overall. Gains were paced by Travelers and Du Pont, each of which gained over 1.8 percent. IBM also added 1.2 percent for the biggest points gain on the index.

S&P 500 1,197.52 +5.39 +0.45%
The Standard & Poor’s 500 index rebounded from Friday, when it lost 1.6 percent after the SEC brought a suit against Goldman. Financials were one of the better performing sectors, adding 1.0 percent as a group. The only sector to do better was Telecom, which gained 1.2 percent.

NASDAQ 2,480.11 -1.15 -0.05%
The tech-heavy Nasdaq Composite was the only major U.S. Equity Index to close the day in the red, though just barely. The index was dragged lower by Energy stocks, which dropped 0.9 percent as a group. Energy commodities were down 1.7 percent, led by Natural Gas futures, which were down 2.4 percent.

0419wrapup

Written by Gary Chalik, CFDTrading Research
Please send any comments about this report to GChalik@fxcm.com