crude

U.S. Equities, Commodities Rally Despite Weakness in Europe

U.S. Session Key Developments

•    NFIB Optimism Beats Expectations, IBD/TIPP Reading Disappoints
•    Crude Oil Rallies Above $72, Gold Reaches Record $1250 Intraday
•    Euro Rallies Against Greenback Following Three-Day Decline

On a day in which stocks swung between gains and losses like a pendulum, the Dow Jones managed to close 123 points higher despite continued weakness in Europe.  U.S. investors managed to shake off a third consecutive down day for European stocks, including a 125 point plunge for Spain’s IBEX 35 Index, which closed at its lowest level in fourteen months.  U.S. stocks received an initial boost following comments from Ben Bernanke, as the Fed Chairman said the economic recovery remains intact and a double-dip recession is highly unlikely.  Furthering bullish sentiment was a report from the National Federation of Independent Business that said confidence among U.S. small businesses beat expectations for May and rose to the highest level since September 2008.  Not all news was positive, however, as the U.S. IBD/TIPP economic optimism reading unexpectedly declined in June and technology stocks greatly underperformed the broader market.

On the commodities front, crude oil rose above $72 a barrel and gold surged above the $1250 level before settling at $1235 an ounce.  The gain in crude oil was the first since Thursday and was aided by a falling greenback as well as rejuvenated risk appetite.  The U.S. Dollar Index declined for the first time since May 27, closing the day at 88.111.

DJIA 30                        9,939.98                          +123.49                       +1.26%
The bluechip index rallied over 100 points today as 25 of the 30 Dow stocks closed higher on the day.  Science and technology firm DuPont led all shares on the index, gaining over 4 percent after the company reiterated its earnings per share outlook for the fiscal year 2010.  Energy firm Exxon Mobil gained over 3 percent on rising oil prices, while financial shares Bank of America and JPMorgan Chase rose at least 2 percent each.

S&P 500                       1,062.04                            +11.57                        +1.10%
One day after falling to a seven-month low, the broad-based S&P 500 rallied over 1 percent on strength in basic materials and telecommunications, which gained 2 percent each.  Leading the way for basic materials was Consol Energy, which gained over 5 percent, followed by Freeport McMoRan and Cliffs Resources which added over 4 percent each.  Telecom shares were led by AT&T and Verizon, which each gained over 2 percent on the day.

NASDAQ                      2,170.57                             -3.33                          -0.15%
Shares on the tech-heavy Nasdaq posted the only decline among major U.S. indices as technology shares declined 0.7 percent.  Marvell Technology fell over 5 percent as the chipmaker’s stock price declined below its 200-day moving average.  Dell, Broadcom, and Yahoo! were also weak, dropping over 1 percent each.

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

crude

Growth and Risk Appetite Trends Improve on EU Rescue, Crude Enjoys the Support

North American Commodity Update

Commodities – Energy

Growth and Risk Appetite Trends Improve on EU Rescue, Crude Enjoys the Support

Crude Oil (LS NYMEX) -  $77.20   //  $2.09   //  2.78%

All it would take was one of the largest collective bailouts in modern financial history; but the fire was finally put out Monday for crude oil. The first advance in five sessions – following the worst weekly decline for the commodity since the exhaustion selloff back in mid December 2008 – the benchmark energy product was climbing on the combined effort of growth and investor sentiment relief. This fundamental and speculative boost would come from the same source, the announcement that the European Union and IMF had drawn up a loan program to prevent the spread of sovereign credit troubles estimated to top 750 billion euros. Naturally, this is a significant step to stabilize the EU itself; but it further helps to balance one of the biggest threats to the normal functioning of the world’s capital and credit markets. As one of the favored physical speculative assets amongst the global investor crowd, oil was a natural benefactor to the news. In fact, measuring the influence of this news: the S&P 500 marked its biggest rally in 13 months; some European equity indexes rallied more than 10 percent; and the US dollar (the main pricing instrument for oil) marked its biggest tumble since March 18th of last year. However, there is still obvious skepticism over the health of the speculative markets. A clear sign of this doubt can be seen in the dollar’s aggressive, bullish reversal into the US session. The costs and availability of funds for this plan are far more invasive than many may be accounting for. Not only are the ‘healthy’ EU members going to have trouble raises the funds when they are already on pace for fiscal consolidation; but those countries drawing on the aid will have to suffer deep recessions and a form of foreign control over domestic finances to gain access. These are realities that don’t easily fit into the quick recovery scenario.

Though the speculative implications of European rescue effort is obvious, energy traders are just as interested in the growth consequences. Not long ago, a number of officials (the ECB’s Weber) and policy bodies (the Chinese central bank) warned that the spread of a crisis in the European area could undermine the still-fragile recovery that the global economy is trying to foster. We have seen what kind of effect a financial crisis can have on actual growth with the Great Recession. The connections for this new threat should be clear. Yet, while this guarantee reduces the probability of an imminent credit seizure, it does not resolve the situation where those EU members with unacceptably high deficits will have to suffer second bout recessions while those doling out the aid will have to take a hit in their own progress towards expansion. Outside of the EU, oil traders would also take note of the trade figures from China. The second largest consumer of energy products in the world increased net imports of the precious commodity to a record 5.13 million barrels per day last month. Considering this economy’s remarkable growth is built largely on stimulus spending, there is reason to be skeptical from both speculative and fundamental angles on the future.

Commodities – Metals

Gold Suffers its Worst Decline in Three Weeks after EU Rescue Eases Sovereign Debt Risk

Spot Gold -  $1,203.10  //  -$5.30  //  -0.44%

News that European officials were able to pass the most comprehensive rescue plan since the inception of the regional Union helped cool fears of a spreading crisis and sovereign credit downgrades. Like any safe haven asset, gold would suffer with the improved sentiment, marking its worst intraday decline in five months. However, the precious metal is not your standard alternative-to-risk assets. While it maintains a history as a harbor for funds during periods of uncertainty or inflation; recently, investor interest has centered on the commodity’s value as an alternative currency when so many of the standard monetary units have seen their sovereign credit ratings come under review. When emerging market currencies are considered to prone to volatility while the industrialized benchmarks are at risk of being devalued by ratings agencies, there are few options left to investors looking to protect their capital. Using gold’s unique status in the global array of assets, we can infer from the metal’s sharp intraday reversal that the EU rescue program doesn’t fully offset the likelihood of downgrades for Greece, Portugal and Spain – much less the UK and US later down the line. Looking at investor demand for the precious metal, the SPDR Gold Trust (the world’s largest ETF backed by metals) reported a 2.71-ton increase in net holdings to a record 1,188.5 tons. This makes this collection of investors a larger holder than the Swiss National Bank.

Spot Silver  -  $18.49   //  $0.13  //  0.72%

Though silver has an undeniable correlation to its more expensive counterpart (gold) – and thereby a connection to risk trends – this particular metal is far more reactive to speculative interests and global growth projections. This being the case, it is surprising that silver’s advance Monday was so modest when the S&P 500 enjoyed its biggest daily climb in over a year. Though the third consecutive positive close, the day’s performance was far weaker than Friday’s impressive rally. Does this reflect a unique characteristic of the metal or an interesting angle on risk appetite? Time will tell; but the answer is likely ‘both.’

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

crude

Persistent Financial Crisis Concerns and Another Jump in Inventory Keeps Crude Grounded

North American Commodity Update

Commodities – Energy

Persistent Financial Crisis Concerns and Another Jump in Inventory Keeps Crude Grounded

Crude Oil (LS NYMEX) -  $82.50   //  $0.06   //  0.7%

Through the early morning (Asian and European sessions) of trading Wednesday, risk appetite was recovering from yesterday’s big hit. The capital markets and all assets with a connection to economic activity were racked Tuesday after rating agency Standard & Poor’s downgraded Greece’s sovereign credit rating to ‘junk’ status and stoked fears that troubles were spreading by further lowering Portugal’s own rating. Conditions in the European area are deteriorating; and officials’ sluggish response to providing only worsens the situation as the potential costs seem to outgrow the promises for aid. However, there is a sense of normalcy in this situation that has helped to prevent panic from spreading. While the problems in the European Union have certainly worsened, market participants have nonetheless grown used to the pain from Greece and officials’ efforts to put out the fire. This is a dangerous act of discounting a problem that could balloon into a global crisis; and crude as a speculative asset is not immune to this potential hazard. And, reminding traders that this situation is certainly progressing, the S&P announced in the early morning hours of the US session that Spain’s rating was downgraded. This had a prominent impact on the assets in Spain, Greece, Portugal, Ireland and all those EU members that are considered at risk; but the more traditional speculative assets (like crude) would either hold steady or recover lost ground. For the active NYMEX crude futures contract, congestion developed around the floor of a very prominent technical formation. With the US dollar (the pricing standard for the energy product) working to new yearly highs, there was an additional hurdle for a reversal.

Looking beyond the confusing sentiment scenario for the day, fundamentals would also provide a relatively mixed picture of supply-and-demand for the crude. At the top of energy traders’ calendar was the US Department of Energy’s inventory figures for the week ending April 23rd. Following the unexpected 5.34 million barrel surge in stockpiles reported by the American Petroleum Institute yesterday; the DoE’s bigger than expected 1.96 million barrel jump seemed relatively tame. Nonetheless, this was the 12th increase in 13 weeks and it would bring net holdings to a June high of 357.8 million barrels. Supply, at these levels, does not look like it will contribute to a push to $90 any time soon – even if refineries are operating at 89 percent capacity (its highest level since July 2008). What’s more, for the NYMEX’s benchmark West Texas Intermediate grade, the additional 1.3 percent increase in stockpiles in Cushing, Oklahoma (where it is generally stored) will further keep the American market’s depressed – leading to the now $3.00 premium for UK-based Brent over is US counterpart. On the other side of the equation, the spread of financial uncertainty threatens a still-nascent economic recovery. With the advanced reading of the United States’ first quarter GDP reading expected to cool from a 5.6 percent to 3.3 percent annualized pace on Friday and China actively working to cool its booming growth, there is a clear threat to the potential for expansion that can limit speculation’s influence.

Commodities – Metals

Safe Haven Capital Flows into Gold Taper as the Speculative Spirit Refuses to Yield

Spot Gold -  $1,172.65  //  $4.80  //  0.41%

The active gold futures contract on the COMEX was putting in for its fourth consecutive daily advance Wednesday – the most consistent advance from this particular asset since the period through December 3rd. The commodity’s strength was notable constrained by the correction in risk-based instruments following yesterday’s aggressive selloff; but the favored safe-haven would nonetheless keep its head above water. This buoyancy can be attributed to the metal’s role as a hedge not to specific region’s but rather government debt and currencies as a whole. Switching between Greek and German debt is a necessary evil when seeking safety and return; but even in an effort to isolate risk during another tremor in the Euro-area markets, there is still a clear impact on bund’s volatility. Looking to avoid inevitable troubles with government debt loads and currency volatility in the future, the precious metal is one of the few alternative stores of wealth that has a history of providing a haven. Today, another quake with an epicenter in the European region was felt when Standard & Poor’s kept the pressure on with a downgrade to Spain. While this particular member’s rating may be far from that of Greece’s, it is far larger and its weakness can have a far greater impact on the region. Going forward, the EU and IMF are likely to pass its 45 billion euro rescue package (perhaps even with an increase); and gold will likely lose some ground. However, it will only be a temporary reprieve for a much larger issues.

Spot Silver  -  $18.11   //  -$0.07  //  -0.36%

With the back in forth in underlying risk appetite trends and the US dollar, silver would find itself jostled by its fundamental moors. Through the early morning session, when risk appetite was trying to find its footing and the dollar was pulling back, the metal was holding stationary. However, by the time the dollar found its footing again and the risk-sensitive assets pulled back once again, silver would tumble. The Spain news would draw a sympathy bounce from Gold; but ultimately, this cheaper metal would end the day with its third bearish day.

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

crude

The Blossoming of Another Possible Financial Crisis Unnerves Crude Oil Speculators

North American Commodity Update

Commodities – Energy

The Blossoming of Another Possible Financial Crisis Unnerves Crude Oil Speculators

Crude Oil (LS NYMEX) -  $82.15   //  -$2.05   //  -2.43%

There should be no doubt that the oil markets are not simply populated by those looking to hedge their exposure to physical supply and demand. This market – like most others – is heavily influenced by speculative interests. Today, those speculative ties would lead the benchmark NYMEX crude oil contract to its biggest drop since April 16th. And, for an objective view for those pointing to the unique influence that the Cushing Oklahoma inventory build may have, the active Brent futures contract would suffer its biggest slide in six active sessions (though there was a notable difference in the severity of losses between the two that does speak to the building premium between the two). Looking for the catalyst for Tuesday’s rebound in volatility, it was hard to miss the influence the Standard & Poor’s downgrades to both Greece and Portugal had on the international markets. For the Euro-area, the ‘junk’ status for the former is another step in the nation’s ever-deteriorating financial position. At this stage in the game, it is highly unlikely that even if the EU/IMF finally do agree on the conditions of the 45 billion euro rescue package that such a figure would stem the bleeding. However, it may be Portugal’s two-step downgrade that is most disconcerting. While Greece is the more troubled European Union member, Portugal’s descent suggests credit troubles and investor fear is spreading across the continent. It will be difficult enough for policy makers to craft a rescue for one economy, bailing out two or more would be nearly impossible.

However, mere panic selling isn’t the extent of the oil market’s exposure to this financial disruption. The true fundamental impact from this event could lead to a medium-term slump in demand. The global economy’s economic recovery is still young. Another period of distress in a system that is already fragile and highly leveraged with government assistance could stress nations and markets far more than they were in the original decline. Following the line reasoning to crude demand, the spread of financial troubles across Europe could easily sap liquidity and credit availability across the globe. In turn, investment would dry up and consumer loans disappear with a very real impact on economic activity. Long-term concerns like these that temper growth forecasts have been around for some time; but it takes an immediate jolt to bring such concerns to the forefront. In the meantime, other economic news was relatively supportive of growth and demand. A consumer confidence survey for the US reported the highest level of optimism since September of 2008. Whether this actually translates into pull through demand for raw crude (which is refined into gasoline and heating oil as well as in the production of other goods) remains to be seen. Perhaps the supply side of the balance can readjust the equilibrium. Tomorrow, the US Department of Energy will release its inventory report for the week ending April 23rd. Far from a bullish bearing heading into the release, stockpiles of oil are expected to have grown another 1.05 million barrels for the 12th increase in 13 weeks.

Commodities – Metals

It’s a Battle between Gold and the Dollar for the Role of Top Safe Haven

Spot Gold -  $1,167.30  //  $13.80  //  1.20%

Whether gold is playing the role of a safe or speculative asset at any one time depends on both the primary fundamental concern behind the market and the intensity this particular driver may retain. News today that both Greece and Portugal were downgraded by Standard & Poor’s has triggered a demand for safety and encouraged investors to diversify away from high-risk speculative positions. So, while the precious metal maintains its appeal as a speculative commodity that trades not far from a record high; it is the asset’s value as an alternative to government debt and currencies that truly drives the market. Acting as a catalyst for the spread of uncertainty, Greece’s national credit rating was cut to junk status – preventing the nation from using its debt as collateral for vital ECB loans and leveraging investors’ demand for return for giving the nation capital. This pushes an already troubled economy deeper into a hole. However, it is Portugal’s own downgrade that is the real concern. A deterioration in the credit of one economy already on the way down is to be expected; but a reduction from another EU member points to broader troubles that could infect a region or the entire world. That being the case, investors will try to limit sovereign debt risk in masse and will look for an alternative to both government debt and currencies in general. This explains gold’s advance to record highs in terms of euros, pounds and even the Australian dollar. Yet, the dollar, and the treasuries that support it, is a more recognized safe haven for capital. Therefore, the two week high in gold priced in dollar’s points to particular strength beyond mere speculative interests. That being said, the SPDR Gold Trust (the largest ETF backed by gold) reported a net 6.1 ton increase in assets to a record 1,146.2 tons yesterday.

Spot Silver  -  $18.20   //  -$0.10  //  -0.53%

What would gold’s day look like if it was not considered a benchmark, ‘risk-free’ alternative to the more traditional government debt crowd? For that answer, we look to silver. A metal that does not have the historical appeal as its more expensive alternative as a store of wealth, silver actually fell on the day and would not even come close to the four-month highs set just two weeks ago. Making this commodity’s progress even more troublesome, the US dollar would enjoy its own advance on safe haven flows and further pull silver down.

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

crude

Australian Dollar Tests Resistance Line

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Euro / US Dollar

The rally from 13266 was in 3 waves and has now been completely retraced.  As small as the advance was relative to the preceding 5 wave decline from the 2009 high, it does fit as a 2^nd wave correction (ending in the prior 4^th wave area).  Initial resistance is 13415 and additional resistance is 13505/20.

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; 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.  I am cautiously bearish against 15530.  A drop below the short term channel is needed in to restore a high degree of confidence in the bearish position.  Rallying above 15530 would shift focus to 15700.

Australian Dollar / US Dollar

I remain focused on the reversal from tow Monday’s ago (AUDUSD), which brings forth the potential for a double top with the November 2009 high at 9400.  However, bears have been unable to register a close below the short term support line (not to mention the longer term channel line).  Of note is the dark cloud cover candle pattern on the weekly (bearish reversal).  Today’s high (thus far) is at multi-week trendline resistance.

New Zealand Dollar / US Dollar

Since the October top at 7640, the NZDUSD has stair stepped lower.  The structure of the decline at this point is 3-3-5, which is the substructure of a flat.  However, there are several variations that would allow for the beginning of a larger decline.  As long as price is below 7446, I lean towards a long term bearish position.  7240 is resistance.  Watch the top of the short term channel as well. Notice that 21 day ATR is at its lowest point since July 2007 and July 2008 – in both instances the NZDUSD plunged immediately.  I am not saying that will happen now but I don’t think this is an indicator to ignore.

US Dollar / Japanese Yen

If the USDJPY is on the verge of breaking higher, then price should remain above 9270.  This is the level I am moving risk to on these longer term positions.  9712 is where the rally from 8813 would equal the rally from 8481 (arithmetic) and is the initial objective.

US Dollar / Canadian Dollar

The USDCAD has bounced from its lowest level since June 2008.  A bullish engulfing pattern is visible on the weekly (last week’s candle), so the new low may prove temporary.  What’s more, Wednesday’s candle was a hammer (bullish reversal), which was confirmed on a rally above its high.  A small 5 wave move higher on the hourly would present us with an opportunity to buy a pullback (probably next week).  We don’t have that yet however so the USDCAD does remain vulnerable.  But consider that 12 month momentum (below) has turned up from its lowest level since 2003).  9710/90 would be the next level of potential support on a break lower.

US Dollar / Swiss Franc

The overlapping nature of the USDCHF advance from 9916 is a warning that the rally may be a completed 3 wave correction.  However, from a simplistic point of view (which is often the best view), price action since February top has been nothing more than a sideways correction.  As such, I am cautiously bullish against 10430 (longer term).

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.

crude

Opportunity to Fade British Pound Strength

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Euro / US Dollar

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

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

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

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

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.

crude

Dollar Yen Tests Middle of Former Range at 9250

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Euro / US Dollar

Failing to exceed 13700, the EURUSD has now retraced its entire advance from the ‘bailout’ rally gap open.  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.  13420 is short term support.

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.  Dropping below the short term support line would increase confidence in the downside.

Australian Dollar / US Dollar

The AUDUSD has held the topside of the former resistance line, which is bullish.  Still, Monday’s reversal brings forth the potential for a double top with the November 2009 high at 9400.  Dropping below channel support (and 9220) would indicate a reversal opportunity.  Until then, waters are murky.

New Zealand Dollar / US Dollar

The NZDUSD has exceeded 7200 and 7240 is now resistance.  The longer term topping scenario remains valid as long as price is below 7446.

US Dollar / Japanese Yen

The USDJPY has slid lower and former resistance at 9200 is now in focus.  Bigger picture, I remain bullish against 9100 in anticipation of a move above 9480.  (9700 is an objective from a longer term Fibonacci extension).

US Dollar / Canadian Dollar

A move through channel resistance is required in order to trigger a reversal.  A move above would warrant bullish action against 9950 for a move to 10300.  With 5 waves potentially complete at 9950, I lean towards the upside.

US Dollar / Swiss Franc

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.

Gold

Gold has broken above its neckline from the 4+ month inverse head and shoulders pattern.  Head and shoulders measurement techniques place the objective at 1250.  1135-1140 is potential support.

Light Crude

Sights are now set on 90 and perhaps 100.  The rally from the January low may be wave 5 within an impulse from the 2008 low.  Dropping below channel support would warn that a top is in place.

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.

crude

Breakout Momentum and a Delayed NFP Reaction Carries Crude to New Highs

North American Commodity Update

Commodities – Energy

Breakout Momentum and a Delayed NFP Reaction Carries Crude to New Highs

Crude Oil (LS NYMEX) -  $86.68 //  $1.81 //  2.13%

A strong open to the new week for capital markets after an extended holiday weekend would encourage a strong performance from crude oil. The third consecutive advance for this benchmark commodity has established remarkable momentum at fresh 17-month highs. Having surpassed the $84-level swing high last Thursday, there has been a notable interest among the speculative crowd to participate in this next leg of a larger bull trend. Looking at the delayed open interest on the benchmark NYMEX active futures contract, net positions rose 1.35 million contracts through Thursday – the highest level since March 18th (back when the gauge rose to a recent historical high). Today’s strength is no doubt sourced from the overall rebound in risk appetite. With most US market’s closed this past Friday for the US non-farm payrolls report, investors in the different asset classes had to play catch up. With only currency and bond traders online to trade the actual release, the initial response was one that encouraged interest rate forecasts, which subsequently boosted the dollar. However, the detrimental effect a higher currency would have on oil was overshadowed by the tentative gains in growth-related assets that would naturally develop alongside improved confidence in economic health. That being said, there was a notable limit to optimism in the Dow Jones Industrial Average. This is perhaps partly a side effect of a significant portion of the market still out for the holiday. If European shares help cycle the market even higher tomorrow, crude traders may soon see the $89.50 level that represents the mid-point of the 2008 to 2009 tumble that brought the commodity from record high to five-year low with the fallout from the worst financial crisis in generations.

So far, we have primarily assessed this past Friday’s employment data for its influence on risk appetite trends. However, the data has a substantial influence on expectations for overall economic activity. While the 162,000 jobs added to US payrolls may not provided much of a dent to the more than 8 million lost jobs over the previous two years, it is nonetheless seen as another milestone towards recovery for the world’s largest economy and energy consumer. Furthermore, an improvement in the health of the US economy is often interpreted as a leading sign of strength for the rest of the world. Adding to crude traders’ expectations of a recovery in consumer and factory-based demand for fuel, both the ISM service sector activity report and pending home sales data reported stronger than expected readings for their respective readings. Accounting for more than three-quarters of the business sector, service sector activity marked its best clip of expansion since May 2006. For the American consumer, the unexpected 8.2 percent jump in signed housing contracts for February offered a bearing towards recovery. However, this data could be skewed by the potential expiration of a government tax incentive this month. Looking out over the rest of this week, scheduled macro data will pick up; but central bank activity and interest rates activity will fight for control over price action.

Commodities – Metals

Gold’s Climb Steady but Lacking the Force that Oil has Established

Spot Gold -  $1,1126.55   //  $6.75 //  0.60%

Gold would advance for the third time in four days Monday thanks to a combined advance in risky positions and simultaneous easing of the US dollar. This precious metal has more often than not found its fundamental ties a point of contention in recent weeks. However, the development of a few of the more influential drivers has proved beneficial. The key to the day’s advance was the restraint of the US dollar. This past Friday, the benchmark currency would benefit from the lack of liquidity during the holiday period by responding to Friday’s non-farm payrolls as a sign that rate hikes were moving up the calendar (and the dollar would in turn find greater valuable against its liquid counterparts). As one of the favored hedges to the greenback, this news did not sit well with the gold bugs. However, with the start of the new weeks, investor sentiment would take over and a rise in risk appetite would temper the currency. Not only would the commodity gain as a hedge; but its own appeal as a speculative asset would also improve given the relatively ‘discounted’ levels it stands at compared to recent record highs. Moving forward, the push and pull between dollar hedge and speculative asset will continue. However, with the Fed holding a meeting, at which the discount rate is expected to come under debate, there is a chance that interest rate expectations could once again overwhelm the fundamental picture. As an interesting aside, delayed volume data on the active gold futures contract contracted through the market’s recent upswing. Furthermore, the CBOE’s Gold Volatility Index is just off an 8-month low at 18.1 percent.

Spot Silver  -  $18.01   //  $0.09  //  0.47%

Without a conflicting role as a safe haven asset, silver would turn dollar weakness and a rise in risk appetite into new two-and-a-half month highs. With spot now above the $18 mark, another milestone has been surpassed and it will be easier for bulls to carry on. However, the attachment to US currency and investor confidence often unequal parts exposes the metal to a significant level of volatility. Looking ahead to Tuesday, European markets will come back online and the Dow will once again look at 11,000 as a benchmark to surpass. On the other hand, with the Fed deliberating on whether or not to hike the discount rate, the greenback could in fact be ready to extend its rebound.

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

crude

Euro May Correct Further against US Dollar

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Euro / US Dollar

Failure to extend lower warns that a larger correction is underway in the EURUSD towards 13820-14030 as either a 2^nd or B wave.  Near term structure is unclear (which probably means in itself that a larger correction is indeed underway).  Sentiment readings such as COT also suggest near term Euro strength as speculators hold a record amount of Euro short positions.

British Pound / US Dollar

Either a triangle or flat is underway as a 4^th wave correction in the GBPUSD.   In the event of a flat, the pair would exceed 15386 slightly before reversing.

Australian Dollar / US Dollar

The rally from below 9000 is impulsive (5 waves), which suggests additional strength as long as the AUDUSD remains above 9127 (last week’s corrective low).  Measurements place objectives at 9363 and 9509 (100% and 161.8% extensions of the 8985-9221 advance).  However, beware that 21 day ATR is at its lowest since the July 2008 top.  This low level of volatility indicates complacency and the potential for a reversal.

New Zealand Dollar / US Dollar

No change: “The NZDUSD is marching to its own beat as a top may already be in place at 7185.  The decline from there is impulsive (5 waves), which reinforces the bearish bias.  I favor the downside against 7185.  A move through there would expose 7240.”

US Dollar / Japanese Yen

The USDJPY has traded to a fresh 2010 high and the larger trend is up but I do expect a pullback near term since a 5th wave rally from 8962 may be complete.  One reason to favor the 5^th wave interpretation rather than a 3^rd of a 3^rd wave interpretation is the divergence with momentum at the high on intraday charts.  3^rd waves tend to possess the strongest momentum, which is not the case right now.  9300 is initial support.

US Dollar / Canadian Dollar

The USDCAD has traded to fresh 2010 (and lowest since July 2008) lows and the next levels are potential support are near 9900.  9914 is the 61.8% extension of the 13068-10782 decline and 9892 is where the decline from 10307 (probably a 5^th wave) would equal the decline from 10784-10368 (1^st wave).

US Dollar / Swiss Franc

The USDCHF has broken below 10500 and parallel channel support, which negates the previously held bullish bias.  The next level of potential support is 10350 (100% extension of 10908-10504).

Gold

“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).”  A break above 1145 is needed in order to confirm the inverse head and shoulders pattern and propel the yellow metal to fresh highs.

Light Crude

Sights are now set on 90 and perhaps 100.  The rally from the January low may be wave 5 within an impulse from the 2008 low.  Bigger picture, the advance from the 2008 low is either a 1^st or A wave.  Following completion of this rally, larger wave 2 or B will unfold; bringing crude back to at least 70.

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.

crude

A Steady Rise in US Spending and Drop for the Dollar Generates Crude’s Biggest Rally in 6 Weeks

North American Commodity Update

Commodities – Energy

A Steady Rise in US Spending and Drop for the Dollar Generates Crude’s Biggest Rally in 6 Weeks

Crude Oil (LS NYMEX) -  $82.26  //  $2.26  //  2.82%

The combination of a steady advance in investor sentiment, a retreat for the US dollar and a terrorist attack in Russia would encourage an advance from crude prices. And, proving that this was the correct combination of risk appetite and uncertainty needed to get the speculative crowd’s interest, Monday’s rally was the largest since February 16th (when the market was in the middle of a strong bull trend). However, there is a notable contrast between this impressive rally and the one staged back in the middle of February. This time around, the surge developed within a congestion zone that holds notably below $83 and the psychologically important $84 level. There are still momentum and fundamental hurdles to overcome before this market revives its long-term bull trend. Nonetheless, underlying the correct mixture of fundamental factors this morning was the steady climb in risk appetite. While a critical assessment of the market backdrop may fall short of encouraging a significant buildup in speculative positioning, consistent inflows of capital into specific asset classes (as can be seen in the steady climb in the Dow Jones Industrial Average) have helped to maintain a general bias in an otherwise flat market. From the Dow, a new 18-month high close on the day has kept bulls in control for another. A more active contributor to oil volatility today though was the tumble from the US dollar. Quickly curbing last week’s remarkable breakout, the depreciation in this pricing instrument has leveraged the alternative store of wealth function that this physical commodity has recently exuded. On the other hand, if oil’s strength were simply a factor of the US dollar’s weakness and rising risk appetite, crude priced in Australian dollars would see little to no advance. Yet, in fact, this measure would also appreciate significantly. On this point, we factor in the morning’s terror attack on the Moscow subway system. The uncertainty such events generate may not last long; but they can nevertheless be quite dramatic.

Accounting for those sentiment-based drivers behind crude’s appreciation, it is evident that they are still temporary. In contrast, the supply-and-demand updates are feeding into a larger rebalancing of fundamental interests. Raising the outlook for growth (and thereby the demand for energy to fuel said expansion), the US Commerce Department reported a fifth consecutive monthly increase in personal spending trends. In the scheme of supply-and-demand, a reduction in output is effective but it is consumption that holds the greatest sway over longer-term price trends. In other news, Japan reported its largest increase in retail spending in nearly 13 years while confidence in the health of the Euro Zone economy rose to a 22-month high. These may be small adjustments to global activity, but they are also more permanent. On the other side of the oil consumption gap, the outlook for this week’s Department of Energy inventory report is already calling for a ninth consecutive increase in stockpiles. Already set in the longest build since May with refinery capacity running at 81.1 percent, there is little long-term weight for balancing the market from the supply side anytime soon.

Commodities – Metals

Gold Advances for a Third Day but Gains Notably Smaller than Silver, Crude

Spot Gold -  $1,110.00   //  $2.50 //  0.22%

The same drivers that led the energy bloc and silver to significant rallies Monday were playing in gold’s favor as well. However, there was a notable contrast between the momentum that gold would set versus its counterparts. This distinction likely resides in the metal’s multiple fundamental roles in an otherwise complicated market backdrop. For leverage, the US dollar’s tumble was perhaps the most influential dynamic for price action. The benchmark currency not only retraced gains from last week; but it has pulled back to the point where the subsistence of a renewed bull trend has been cast into doubt. As one of the market’s favored dollar-alternatives (outside of other currencies), gold would stand to benefit substantially if the greenback lost conviction in an advance that has developed since the beginning of December. Another unique driver for the commodity Monday was the bombing of the Moscow subway system. The uncertainty this event provoked leveraged the metal’s historical role as a safe haven. Offsetting some of the “fear” premium the metal would otherwise have attained however, there was an appreciable improvement in confidence surrounding the health of Greece and the Euro Zone this morning. Following last week’s bailout plan accord, Greece announced a sale of 7-year government debt to raise 5 billion euros and start raising the necessary funds to roll over maturing obligations. Conditions seem calm for now in the Euro-area; but should the mere promise of a bailout prove insufficient, the fiat-hedge value of this commodity will quickly recover.

Spot Silver  -  $16.33   //  $0.44  //  2.58%

Silver enjoyed its largest single-day rally in nearly six weeks Monday thanks to the combined influence of appreciation in surface sentiment trends and a drop in the US dollar. The climb in equities (benchmarked by the Dow Jones Industrial Average) was the less significant driver. While the benchmark has maintained a steady appreciation these past few months, there is little in the way of momentum to support it and the building of enduring investment positions is giving way to more sensitive speculative trades. In contrast, the dollar’s stark reversal of a freshly renewed bull trend has caught a greater segment of the market unawares.

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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