forex

Oil Supported by a Sharp Rebound in Risk Appetite on Speculation of a Greek Bailout

North American Commodity Update
Commodities – Energy

Oil Supported by a Sharp Rebound in Risk Appetite on Speculation of a Greek Bailout

Crude Oil (LS NYMEX) -  $73.87  //  $1.98 //  2.75%

A clear sign that risk appetite is still the dominant fundamental driver for crude traders, oil futures trading on the NYMEX exchange rallied mid-day in the New York trading session along with many other risk-sensitive securities on heightened speculation that Greece would be bailout by either the EU or Germany. Mimicking volatility in stocks and currencies, the active crude futures contract rallied as much as 3.5 percent and handily overtook the closely watched $72.50 level. Now, the market is hovering between the aforementioned pivot and the $75 figure that has similarly offered trouble for trend progression in the past. Where the market goes from here is almost certainly a question that will be decided by the resiliency of investor sentiment. The advance for the commodity today would come amid extraordinarily high levels of correlation between the different asset classes. This is an important distinction to make; because assigning responsibility for today’s oil advance to rumors surrounding a bailout for Greece would otherwise be too oblique to make sense. In the past month, the shift away from assets that depend on capital gains and volatility to financial safe havens has found a symbol of uncertainty in this single nation’s fiscal struggle. Naturally, evidence that suggests conditions will improve for Greece, will temper risk premium associated specifically with this isolated situation. However, that does not fundamentally alter the true source of market risk or even the broader perception of stability. Only time will tell whether optimism will truly recover or falter in its recent, temporary rebound.

From risk appetite to true supply/demand fundamentals, the pressure for a temporary rebound in crude is building up. Much of the Northeastern US is under a severe winter storm warning with significant snow accumulations expected for New York, Washington DC, Philadelphia and other major cities. Considering this region accounts for fourth-fifths of total natural gas demand in the United States; this storm will have no small impact on speculative interests. Speaking of speculative concerns, China Investment Corporation (the country’s sovereign wealth fund) reportedly invested in the US Oil Fund by buying 2 million shares of the ETF that represented 3.48 percent of the outstanding interest. Another story to monitor is the international focus on Iran. State-run media reported efforts to enrich uranium for research purposes had begun despite the threat of greater sanctions. As OPEC’s second largest oil producer, international relations with Iran are important. For the immediate future, traders will look to the US Energy Department’s numbers. The weekly inventories are scheduled for release tomorrow; but it is not clear whether the figures will be reported due to inclement weather conditions shutting the government down in Washington DC. The same goes for the Short-Term Energy Outlook whose release was deferred today.

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

Commodities – Metals

A Recovery in Sentiment and Drop in the Dollar Support Gold and Silver Prices

Spot Gold  -  $1,075.71   //  $13.86 //  1.30%

Rumor and speculation that officials would soon announce a bailout plan for Greece would spread quickly across the market. For gold, the commodity’s own status as a speculative asset would as well as its role as a dollar hedge would help the market eke out a meaningful advance on the day. However, it is notable that this specific metal’s reaction would be relatively limited compared to other benchmarks like the Dow Jones Industrial Average and the US dollar. At the height of risk appetite for the day, gold would advance only 1.9 percent – a far more limited move than the plunge last week. What does this mean? Perhaps it is a sign that fiscal stability for Greece is not the ultimate concern for global investors. Beyond this single economy, other EU members like Portugal, Spain, Ireland and Italy could be in next in line to face the critical eye of the skeptical market participant. On the other hand, this tempered response could be a factor of gold’s own value to the market. Aside from its use as a speculative asset, the precious metal is also considered an inflation hedge and relative safe haven. As for its dollar connections, today’s advance in sentiment weighed the benchmark currency down from eight-month highs. However, the greenback is finding fundamental strength on its own; and the concept of buying on the ‘cheap’ in anticipation of a broader market recovery is more difficult to justify for the still expensive commodity. Measuring the specific influence of risk appetite, the dollar and inflation will be important to defining trend going forward.

Spot Silver  -  $15.45 //  $0.45 //  3.00%

Just as surely as it would amplify silver’s losses, the commodity’s leveraged exposure to risk appetite and the US dollar would lead the metal to a more aggressive rally than its more expensive counterpart. The currency would suffer its biggest daily loss against its primary counterpart (the euro) Tuesday; and silver would respond in kind with its biggest rally since January 4th. From a traders’ perspective, the metal has a considerable way to go before reaching $16 once again. On the other hand, there are clear levels for other asset classes that could like a jumping point for underlying sentiment.

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

forex

Buy Dollar Pullbacks

Euro / US Dollar

Putting to test trendline support, the EURUSD is consolidating following yesterday’s sell-off.  I’ve been bearish for some time (admittedly too long probably) but the next multi-month move should be down hard (as per the wave count above).  Resistance extends to 1.4280 – sell any rally above 1.4250.

British Pound / US Dollar

If a 4th wave triangle ended at the end of July, then the subsequent rally to 1.7050 was a terminal thrust and a significant top is in place.  A drop below 1.5800 is required in order to confirm that a top is in place however.  Near term structure is not especially clear but a rally above 1.6390 could complete a flat correction from 1.6150.  In such an event, fade the move against 1.6629.

Australian Dollar / US Dollar

As the AUDUSD nears its 2009 high, the bearish short term pattern has been called into question yet remained valid.  A drop below .8151 would negate any bullish potential and open up a move to .7700.  Short term resistance extends to .8380.

New Zealand Dollar / US Dollar

Coming under .6640 would negate the blow-off top scenario that I have discussed in recent days and also mean that channel support (since March) has been broken.  In fact, that multi-month channel support is being put to test right now.  Near term resistance is .6790-.6810.

US Dollar / Japanese Yen

I showed a weekly chart yesterday and the longer term analysis bears repeating – “A 4th triangle ended in 2007 above 124.00 therefore the decline from that level is viewed as a 5th wave that will not be considered complete until price drops to an all-time low (below the 1995 low near 80).  The rally earlier this year met former support and rolled over – which increases confidence in the bearish bias.  At this point, the short term picture is quite bearish below 95.10.”  Without a clear short term count, there is little to add.  Divergence with momentum on shorter time frames warn of a corrective move higher.  Resistance is 93.50.

US Dollar / Canadian Dollar

The USDCAD is similar to the EURUSD in that until the pair breaks its range, there is no directional bias.  However, a 5 wave decline is visible from 1.3068.  The decline could be wave A of an A-B-C corrective decline or wave C of a larger flat from the December 2008 high.  Either way, bulls are favored until at least 1.1730.

US Dollar / Swiss Franc

The USDCHF is in the exact same position as the EURUSD.  A C wave is either complete or will complete upon slipping beneath the December 2008 low at 1.0367.  A rally above channel resistance would strongly suggest a low.

British Pound / Japanese Yen

Turning to a longer term view of the GBPJPY – the entire rally from 118.79 is viewed as corrective.  A double top near the 50% retracement of the decline from 215.98 may mark the end of a 4th wave advance.  Expectations are for the GBPJPY to eventually drop below 118.79 in a 5th wave.  Divergence with RSI at recent lows warn of a rally – which could be sharp.

Jamie Saettele publishes Daily Technicals every weekday morning (930 am EST), COT analysis (published Monday mornings), technical analysis of currency crosses throughout the week (EUR on Tuesday, JPY on Wednesday) and the DFX Trend Index every day after the NY close.  He is also the author of Sentiment in the Forex Market.  Follow his intraday market commentary at DailyFX Forex Stream.  Contact Jamie at jsaettele@dailyfx.com

forex

Daily Commodities Fundamentals: Commodities Close Lower Entering the Weekend

North American Commodity Update, Last Updated 8/14/2009 3:51 PM EST (GMT = EDT +5:00)

Commodities – Energy

Crude Sold Following a Disappointing Consumer Confidence Report

Crude Oil (WTI)   $67.530                         -$2.990                             -4.24%
Crude Oil future prices plummeted today, ending the week with a 3.5% decline back below the psychological $70-per-barrel level. After a week’s worth of important fundamental data releases including the FOMC rate decision and Bank of England Quarterly Inflation Report, the University of Michigan’s Consumer Confidence report turned out to be the main market mover. While this may seem strange, it is not that surprising when put into context; recent data releases have encouraged investors to re-enter higher yielding assets in hopes of a global economic recovery. Equity markets have rallied, which has translated to a bid up of Crude future prices as speculators predict a short-to-medium term hike in demand. Many believed that the United States would be one of the first countries to successfully escape the prolonged global recession; however, today’s consumer confidence figure revealed that Americans are not willing to take the lead. Consumer confidence was expected to increase from 66.0 to 69.0, but upon release, the report showed that the figure had actually dropped to 63.2. As a result, Crude future prices faced a severe sell-off as investors return towards safer assets and wait for an economic turnaround. Looking towards next week, crude could potentially retest the $70-per-barrel level before giving in to the true, market-moving fundamentals.

Department of Energy Inventories

Commodities – Metals

Stronger Dollar and Bearish Outlook Drive Precious Metals Lower

Gold                   $949.000                      -$7.500                           -0.78%
Gold future prices finished lower to close out the week, again losing as the US dollar strengthened. After a worse-than-expected US Confidence Report, the greenback gained across the board as investors flocked towards the relatively safe dollar and fled from higher-yielding assets (equity markets fell significantly). Recall that Gold and the greenback tend to trade inversely as investors use the metal to hedge against dollar weakness/inflation. Simultaneous to the dollar’s advance, today’s Euro-Zone and US CPI reports revealed that inflation is not likely to be of concern in the near-term. This fact was already suggested in numerous global bank statements during the last two weeks. Though Gold’s correlation with the dollar index is not remarkably high, dollar strength should continue to be an indication for Gold price action. Therefore, any encouraging fundamental releases that heighten risk appetite will likely translate into future price increases as well.

Silver                 $14.675                    -$0.312                           -2.08%
Silver futures could not hold on to yesterday’s gains during a volatile day of trading; the metal lost nearly 2% as investors turned bearish following the University of Michigan’s Consumer Confidence report. Though Silver is considered a precious metal like Gold, it has seen far more drastic price action due to its other application. Because Silver doubles as an industrial input, it is particulary sensitive to any changes in global economic outlook. Despite a better-than-expected US Industrial Production figure (0.5% actual vs. 0.4% expected), investors’ recent bullish forecast was not carried into the weekend. As for next week, expect Silver to follow investor sentiment; only time will tell which direction that will be.

-Written by Jay Steinberg, CFDTrading Research
Questions/Comments about this article? Send them to JSteinberg@fxcm.com

forex

Daily Commodities Fundamentals: Commodities Advance Following Euro-Zone GDP, Dollar Weakness

North American Commodity Update, Last Updated 8/13/2009 4:03 PM EST (GMT = EDT +5:00)

Commodities – Energy

Crude Finishes Higher but Falls From Intraday Peaks

Crude Oil (WTI)   $71.010                         +$0.850                             +1.21%
Crude Oil future prices remained higher at day’s close despite falling significantly from intraday highs. The market for Crude had already been rather bullish following yesterday’s FOMC report; in its statement, the committee hinted that we are seeing a much slower rate of economic contraction and perhaps a turnaround in the near-term future. Future prices managed to surpass the $72-per-barrel level following the Euro-Zone GDP report – the EZ reported a 0.1% contraction for the 2nd quarter, a figure that exceeded the expected 0.5% contraction and last quarter’s 2.5% pullback. Speculators interpreted the report as a leading indicator for heightened Crude demand as the region escapes the prolonged economic recession (note that the IMF has forecasted the Euro-Zone’s recovery to be at a far slower pace than the United States). The commodity could not hold onto its gains through the US session, as prices fell back significantly following the US Advanced Retail Sales figure. Analysts had predicted a growth in retail sales by 0.8% only to find that, in reality, sales actually shrunk by 0.1%. the disappointing result is likely due to the expiration of government stimulus programs, removing a main source of disposable income for American consumers. Crude future prices should remain relatively stable tomorrow due to a shortage of market-moving fundamental data releases.

Department of Energy Inventories

Commodities – Metals

Gold Manages Slight Gain While Silver Wins Big

Gold                   $956.700                           +$4.200                           +0.44%
Gold future prices pushed higher during intraday trading, gaining an additional $4 to reach the $956-per-ounce level. A strong Euro-Zone GDP report coupled with a weak US Retail Sales figure did not bode well for the greenback, which lost against all of its major competitors (most noticeably to the high-yielding Australian and New Zealand dollars). Because Gold is a dollar-denominated commodity, it has historically traded inversely with the greenback as investors use the metal to hedge against dollar weakness/inflation. Yesterday’s BOE Quarterly Inflation Report and the FOMC’s statement both pointed towards low levels of inflation, which had temporarily applied downward pressure on Gold future prices. As we predicted yesterday, risk appetite/aversion guided the Gold market and will likely continue to do so barring any exceptional fundamental release or technical breakout.

Silver                 $14.970                          +$0.385                          +2.64%
Silver was the big winner during today’s trading session, testing the psychological $15-per-ounce level by adding another 2.5%. Price action happened early following the Euro-Zone’s GDP report and was sustained throughout the US session despite the disappointing Retail Sales figure. In addition to serving as a precious metal, Silver has its own industrial application that makes its price particularly sensitive to any changes in the global economic outlook. Within the EZ, both Germany and France had specifically encouraging GDP reports that showed QoQ growth by 0.3%. We could see moderate Silver price action tomorrow following the Euro-Zone and United State’s CPI reports. The US is also set to release July’s Industrial Production figure, but it will likely not be ultimately market-moving.

-Written by Jay Steinberg, CFDTrading Research
Questions/Comments about this article? Send them to JSteinberg@fxcm.com

forex

Daily Commodities Fundamentals: The Week Opened Quietly, But Don’t Expect It to Last

North American Commodity Update, Last Updated 8/10/2009 4:06 PM EST (GMT = EDT +5:00)

Commodities – Energy

Crude Pares Losses to Close Near Even

Crude Oil (WTI)   $70.960                         +$0.030                             +0.04%
Crude Oil future prices traded sideways today during a quiet US trading session. A lack of market-moving fundamental data release forced Crude to track equity markets and retreat amid US dollar strength for the majority of the day. All three major US equity indices closed lower today as investors engaged in some profit-taking following last week’s impressive performance. Crude tends to follow equity markets because of its function as an input price; global economic expansion would likely increase demand for Crude, which has been extremely weak this summer. Week after week, the US Department of Energy’s inventory figures have showed an oversaturated market with not enough demand for the commodity. This week, Crude stockpiles are expected to increase by another one million barrels. Crude prices have also reflected a stronger US dollar, which continued its gains from Friday following a better-than-expected NFP report. Tomorrow, the FOMC will begin its two day Monetary Policy Meeting; speculators believe that the key lending rate will remain at 0.25%, but the committee may hint towards a hike in rates as early as next year. Such a decision would lead to growing confidence in the global economy, potentially contributing to future Crude price increases.

Department of Energy Inventories

Commodities – Metals

Gold Trades Sideways, Silver Loses

Gold                   $948.100                           -$11.400                           -1.19%
Gold future prices fell the most in two weeks during intraday trading as prices tested and broke through the psychological $950-per-ounce level to close down 1.3% at $946. The move was a significant setback to any hopes of a near-term test of $1000, as the break below $950 could spark technical selling until $920-per-ounce. Gold’s decline was largely due to the stronger US dollar as it continues to gain against its major competitors following Friday’s NFP report. Job losses for July were approximately 80K less than expected and the unemployment rate dropped by 0.1% for the first time since April 2008. The U.S. dollar index was up 0.3% as of 3:00 PM EST but investors traded cautiously preceding tomorrow’s FOMC Monetary Policy meeting. The commentary surrounding tomorrow’s meeting will likely be the main market mover, as no tangible changes are expected just yet. Gold could see significant upside if the committee is concerned about future inflation as a result of the economic stimulus plan; Gold is often used as a hedge against dollar weakness and/or inflation.

Silver                 $14.365                           -$0.303                          -2.07%
Silver future prices lost nearly 2% as the US dollar continued to strengthen and investors pull back from their bullish sentiment that closed last week’s trading. Due to a shortage of market-moving fundamental data, mere speculation may be responsible for Silver’s noteworthy decline. An extension from Friday’s dollar strength contributed to the metal’s decline today, especially in anticipation of this week’s upcoming reports. In addition to the FOMC meeting, an array of potentially impactful releases is expected, including Euro-Zone CPI, the UK Unemployment Rate, and the UK’s Quarterly Inflation Report. After this week, we should have a clearer idea of the future direction of commodity prices and the global economy as a whole.

-Written by Jay Steinberg, CFDTrading Research
Questions/Comments about this article? Send them to JSteinberg@fxcm.com

forex

Daily Commodities Fundamentals: Crude and Gold Trade Sideways, Silver Falls

North American Commodity Update, Last Updated 8/6/2009 3:50 PM EST (GMT = EDT +5:00)

Commodities – Energy

Crude Pares Early Losses, Ends Near Even

Crude Oil (WTI)   $71.920                         -$0.050                             -0.07%
Crude Oil future prices closed nearly even today after paring more significant losses that had tested the psychological $70-per-barrel level. Prices began their initial descent right before the US trading session began, when both the Bank of England and European Central Bank released their Interest Rate decisions. Though neither bank decided to adjust its key lending rate, the meetings did have very differing results. Jean-Claude Trichet of the ECB expressed a sentiment of guarded optimism, hinting that a recovery is on the horizon. The Bank of England, however, decided to extend its Asset Purchase Program by an additional £50B, which indicated that the UK remains in a period of financial turmoil. The fear of a prolonged economic recession drove down Crude future prices by nearly $2. Also putting pressure on Crude was a weaker equity market in anticipation of tomorrow’s US Non-Farm Payrolls report. Risk aversion took control as investors await a clearer signal regarding the health of the global economy. Expect tomorrow to be a volatile day in the Crude market leading into the weekend.

Department of Energy Inventories

Commodities – Metals

Gold Trades Sideways, Silver Loses

Gold                   $965.600                      -$0.700                         -0.07%
Gold future prices also traded flat by the day’s close despite a volatile US session. Gold prices had peaked above $974-per-ounce before completely retracing and falling all the way down to near $958. The US dollar was stronger across the board, making it difficult for Gold to sustain any gains. Recall that Gold and the greenback tend to trade inversely as investors use the metal to hedge against dollar inflation and/or weakness. During tomorrow’s trading, Switzerland, Canada, and the United States all release their respective unemployment rates. These figures will likely guide the market, determining whether or not investors will return to risk aversion remain generally bullish on the global economy forecast.

Silver                 $14.575                        -$0.185                            -1.25%
As has been the case for weeks, Silver futures have proved to be much more volatile than Gold futures. Whereas Gold remained even on the day, Silver lost over a full percentage point as risk aversion dominated the marketplace. Silver’s industrial application, in addition to its function as a precious metal, makes the commodity particularly sensitive to any news regarding the global economic outlook. The commentary surrounding the two interest rate decisions likely contributed to Silver’s decline, as investors remain wary about the prospect of a near-term economic turnaround. Traders flocked en masse to the relatively safe US dollar in anticipation of tomorrow’s fundamental data releases.

-Written by Jay Steinberg, CFDTrading Research
Questions/Comments about this article? Send them to JSteinberg@fxcm.com

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Daily Commodities Fundamentals: Crude Retraces, Metals Push Forward

North American Commodity Update, Last Updated 8/4/2009 4:05 PM EST (GMT = EDT +5:00)

Commodities – Energy

Crude Prices Retrace Slightly Due to Profit-Taking

Crude Oil (WTI)   $71.220                         -$0.360                             -0.50%
Crude Oil future prices fell marginally today, losing roughly 0.5% after adding nearly 13% during the previous three sessions. It is suspected that profit-taking is likely responsible for today’s slight decline, as investors who are satisfied with recent gains escape the market. The strategy is understandable; tomorrow’s Department of Energy Stockpile report will cause significant volatility, just as it did last week. Recall that last Wednesday, Crude future prices fell 6.5% after a disappointing US inventory figure that indicated continued weak demand. The concept of supply and demand remains a threat in the Crude market; investors have bid up Crude prices recently despite questionable fundamental support for such greenshoots. Propping up Crude prices during early trading was an encouraging report out of China indicating heightened demand for the commodity. Many expect China to be the first country to successfully emerge from the recession, so its increased demand may contribute to bullish sentiment. Regardless, the market will get moving at 10:30 AM EST when the inventory figures are released.

Department of Energy Inventories

Commodities – Metals

Precious Metals Push Forward, Extend Yesterday’s Gains

Gold                   $966.300                           +$7.500                           +0.78%
Gold managed to build on yesterday’s gain, adding another 0.8% during intraday trading. Recently, dollar strength/weakness has been the main reason for any Gold price action. However, today’s $7.700-per-ounce increase comes despite a slightly stronger dollar. After falling to new lows against nearly all of its major competitors, the dollar managed to build a minor retracement, but nothing substantial. It remains on the brink of a continued breakout, one that would only add to future price increases. Gold and the greenback tend to trade inversely as investors use the metal to hedge against dollar weakness. Inflation has not been of much concern in the commodity market, as the global recession proves to be difficult to escape. Friday’s NFP report will provide a clearer picture regarding the health of the US economy, and in turn, the next direction for Gold prices.

Silver                 $14.560                    +$0.308                          +2.16%
As predicted, today marked another volatile day for Silver future prices. Silver gained an additional 2.3% during today’s trading session, marking a near 6% increase already this week. Silver’s notable gain was not due to dollar weakness or any inflationary concern; rather, specific fundamental data releases contributed to Silver’s ascent. In addition to serving as a precious metal, Silver also has an industrial application that makes it particularly sensitive to global economic growth indicators. For example, the US Pending Home Sales figure, which came in at 3.6% compared to an expected 0.7%, pushed Silver future prices higher. A rebound in the housing market is often a leading indicator of an economic recovery. Also having an impact was the US Personal Spending growth rate, which increased in the month of June by 0.4%, while US Personal Income fell by 1.3%. Overnight, UK Industrial Production figures are due, while at 10:00 AM EST, US Factory Orders for June will be reported. Both could be potentially market moving for Silver.

-Written by Jay Steinberg, CFDTrading Research
Questions/Comments about this article? Send them to JSteinberg@fxcm.com

forex

Daily Commodities Fundamentals: Commodities Open Week on a High Note

North American Commodity Update, Last Updated 8/3/2009 4:06 PM EST (GMT = EDT +5:00)

Commodities – Energy

Crude Prices Gain due to Chinese Consumption, European PMI Figures

Crude Oil (WTI)   $71.420                         +$1.970                             +2.84%
Crude Oil future prices shot up above $72-per-barrel during intraday trading, starting the new week by gaining an additional 3%. Crude prices begin climbing early on in Asian trading, as new reports emerged that Chinese consumption of Crude, which accounts for nearly 45% of all Asian consumption, had increased. Many analysts expect China to be the first country to successfully escape the global recession, so the country’s improved figure may be perceived as an indicator for near-term global growth. The European PMI figures exceeded expectations today, led by the UK number that reached 50.8. A reading above 50 actually indicates expansion as opposed to contraction; the reading had been below 50 since late last year. The PMI reports heightened risk appetite in the futures market, as any signal of near-term economic expansion will likely increase demand for Crude. However, recall that just last week, US Crude inventories were largely disappointing, leading to a substantial 6.5% decline in Crude future prices. If Wednesday’s new stockpile report reveals heightened demand for Crude, the market could see significant upside.

Department of Energy Inventories

Commodities – Metals

Precious Metals Push Forward Hit Recent Highs

Gold                   $959.300                          +$3.500                           +0.37%
Gold future prices reached a 2-month high today after closing up around $4 to $960. Prices increased marginally by 0.3%, significantly less than the gains realized by Crude and Silver. Widespread dollar weakness was most responsible for Gold’s increase today, as the greenback fell across the board (excluding the Japanese Yen). The Dollar Index appeared to experience a breakout during today’s trading, as numerous currencies (including the commodity-correlated Australian and Canadian dollars) hit new yearly highs. Recall that Gold and the greenback tend to trade inversely as investors use the metal to hedge against dollar weakness. Fundamental data does not seem to be supportive of Gold’s increase of late, as inflation remains subdued and physical demand remains low. Regardless, as long as risk appetite remains, investors could choose to ignore the facts and extend the rally. If they become satisfied with the price increase, supports could falter leading to a significant retracement.

Silver                 $14.250                           +$0.310                            +2.22%
Although prices retraced slightly since reaching 7-week highs during intraday trading, Silver futures traded upwards of $14-per-ounce after adding nearly $0.300. Like Gold, the dollar’s weakness contributed to Silver’s gain, but other factors played in that led to the metal’s significantly more notable price increase (about 2.5% compared to Gold’s 0.3%). In addition to serving as a precious metal, Silver also possesses an industrial application that makes it more sensitive to positive industrial reports. As mentioned, the European PMI figures exceeded expectations and heightened risk appetite. The US ISM Manufacturing report also came in better-than-expected, which further advanced Silver future prices. Tomorrow may be another volatile day for commodities; The RBA’s rate decision is due overnight, along with Swiss CPI. At 8:30 AM EST, the US Personal Income and Personal Expenditure reports could be market-moving.

-Written by Jay Steinberg, CFDTrading Research
Questions/Comments about this article? Send them to JSteinberg@fxcm.com

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Global Macro Weekly: Treasury Price Action More Reflective of Underlying Fundamentals

With the exception of the 10-Year, all other markets are pushing to fresh 2009 highs as investor risk appetite improves following the release of much better Q2 earning results and a more solid outlook for the global economy. However, we continue to remain suspicious of any rallies in risk appetite as reflected in the global macro markets. While we have seen some impressive buying back into risk, we still hang onto the idea that market participants will once again look to pare back risk, as the reality of uncertainty within the global economy persists. As such, we contend that price action in the 10-Year is more reflective of the underlying fundamentals.

EUR/USD
EUR/USD – Price action remains extremely choppy with the market whipsawing between 1.4000 and 1.4340 in recent trade. However, at this point it appears as though bulls are winning out, with any pullbacks easily met by intense buying. A closer look at the weekly suggests that we are on the verge of another major upside break following consolidation since May, which if broken, would project gains towards 1.5000. Look for a break above 1.4340 and close above the 100-Week SMA to confirm. Strategy: STAND ASIDE

S&P 500 INDEX

S&P 500 Index – The market is now trading back to some consolidation highs from October and November of 2008, and with daily studies trading into overbought territory, the greater risks from here are for a significant corrective pullback over the coming days/weeks. The broader trend is still bearish and a medium-term lower top is now sought out ahead of the next drop. At a minimum, more consolidation is to be expected which should result in a sell-off towards 850-900. Strategy: LOOK TO SELL

CRUDE OIL

Crude Oil – A minor sell-off in the previous week has now been fully negated with the market intent on retesting the 2009 highs above $73 from late June. At this point, daily studies still show room to run and we would expect to see a break back above $73 to fresh 2009 highs in the $75 area over the coming sessions. However, once $75 is reached, we would recommend looking for opportunities to fade and additional rallies. A break back below $63 is now required to take pressure off of the topside. Strategy: LOOK TO SELL

10-YEAR TREASURY

10-Year Treasury – While a compelling argument can be made for some bearish consolidation here ahead of the next major drop below the 2009 lows at 114-08, we continue to favor the bullish side, arguing for the formation of a major base. However, the market will need to break back above 119 to confirm our constructive outlook with the break to trigger a double bottom that will project fresh upside back towards the 124 area over the coming weeks. Below 114-08 negates. Strategy: LOOK TO BUY

Written by Joel Kruger, Technical Currency Strategist for DailyFX.com
If you wish to receive Joel’s reports in a more timely fashion, e-mail jskruger@fxcm.com and you will be added to the “distribution” list.

Joel Kruger publishes 6 daily pieces:

“Tech Talk” – A Daily Video Highlighting Technical Developments in the Overnight Session of Trade.
Monday-Friday (between 5:30am-6:30am EST)

“Morning Slices” – Morning Overview using Fundamental, Technical, Flow, and Quantitative Analysis (Includes “Trade of the Day”).
Monday-Friday (between 6:30am-7:30am EST)

“Indicator of the Day” – A Feature Report that Highlights our Most Significant Technical Indicator of the Day.
Monday-Friday (between 8:00am-9:00am EST)

“Midday Snapshot” – A Midday Fundamental Update, along with Technical Analysis of Selected Rates.
Monday-Friday (between 10:30am-11:30am EST)

“Scandi Daily” – A Specialized Daily Fundamental and Technical Overview of the Nordic Currencies. (This report is only distributed through email. Please contact Nordic@fxcm.com if you would like to be added to distribution.)
Monday-Friday (between 11:30am-12:30pm EST)

“Daily Classical” – A Daily Technical Overview of the Major Currencies.
Monday-Friday (published between 2:00pm-3:00pm EST)

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Daily Commodities Fundamentals: Commodities End the Week on a Bullish Note

North American Commodity Update, Last Updated 7/31/2009 4:30 PM EST (GMT = EDT +5:00)

Commodities – Energy

Crude Prices Finish Week Off Strong

Crude Oil (WTI)   $69.220                         +$2.280                             +3.41%
Crude Oil future prices advanced further today, marking a complete retracement of Wednesday’s near 6.5% decline. Mixed fundamental data, including the US 2Q GDP report, led to Crude’s near 3% increase up towards $69-per-barrel. At 8:30 AM EST, the Department of Commerce reported a 1.0% contraction in GDP, less than the 1.5% expectation. However, further analysis is required to fully understand the report. In the report, 1Q GDP was revised down to -6.4% from -5.5%, meaning that the recession had been even more extreme than we thought. Also, despite the bullish total GDP figure, US Personal Consumption (a component of GDP) fell by 1.2%, a steeper decline than the projected 0.5% fall. Personal consumption is a leading indicator for future economic growth, as it can indicate both consumer confidence and spending. Many believe that the 2Q GDP was inflated by another one of its components, Government Expenditures.  Regardless, commodity traders were bullish following the news, leading to Crude’s increase. It will be interesting to see if Crude can finally hold onto these gains even though demand remains extremely weak. Next week could prove to be volatile, as three major national banks (BoE, ECB, RBA) are all due for their respective key lending rate decisions.

Department of Energy Inventories

Commodities – Metals

Precious Metals End Higher After Volatile Week of Trading

Gold                   $954.100                           +$16.800                           +1.79%
As expected, Gold continued to gain during intraday trading, again breaking through the psychological $950-per-ounce level before closing around $956. Today’s 2% price increase was largely due to extreme US dollar weakness, as investors again sold the safe dollar in favor of higher yielding currencies. The Dollar Index actually broke through key support level today around 78.3 before re-establishing itself, preventing breakout losses for the greenback. All the major currencies had gained over 1% on the dollar (excluding the Canadian dollar) as of 4:00 PM EST. Recall that Gold and the greenback tend to trade inversely as speculators use the metal to hedge against dollar weakness and/or inflation.

Silver                 $13.905                             +$0.420                              +3.11%
Silver closed the week on a positive note, adding another 3% to what has become a volatile three days. Like Gold, Silver benefitted from today’s extreme dollar weakness against its major competitors. Foreign currencies rallied against the greenback as risk appetite drove dollar to the absolute edge of a breakout. The US 2Q GDP report, though not immediately influential, ended up being a significant market mover today. On Monday, the US ISM Manufacturing figure is due at 10:00 AM EST. The survey questions US industry executives about future production, inventories, employment, etc. It has potential to drive Silver prices upon its release.

-Written by Jay Steinberg, CFDTrading Research
Questions/Comments about this article? Send them to JSteinberg@fxcm.com

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