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Weekly Market Commentary
13th May 2012
Provided by TA Knowledge
Welcome to the Weekly Market Commentary from DGCX, providing you with a snapshot of what's happening in the energy, precious metal and currency futures markets.
The commentary and analysis included in the DGCX Weekly newsletter is provided by TA Knowledge, a leading UK-based provider of news and intelligence.
Please note that the observations and views expressed in this newsletter do not reflect the views of DGCX and are solely the view of the writer (TA Knowledge).
Economic Data Overview
The risk-on, risk-off plays were lost for a while during April as euro/dollar traded sideways in what looked like an endless consolidation pattern, but the market is now obsessed by risk as the outlook for Greece's membership of the euro currency trading bloc continues to deteriorate. Even the German finance minister has attempted to reassure the market that the Eurozone will have no problem surviving Greece's departure from the euru, but this point ignores the pressure on the other dominos in the chain, Spain and Italy. Gold has always been seen as a defensive play. In the past, when the euro looked to be under unbearable pressure, gold was a beneficiary. However, the market has re-categorised the commodity and now sees gold more as a risk play. It is significant that last week's losses were posted as US and German benchmark bonds touched record low yields. Australia, which had been one of the brightest spots in the global economy has lowered interest rates and is ready to make further rate reductions. The global rate environment is dovish as the world's economy continues to struggle to grow. The prospect of increased liquidity would have boosted gold in the past, but if the dollar is to benefit as the investment of last resort, gold is set to fall further. Next week we expect a test on crucial support at $1550.
Oil has fallen over ten dollars in the last two weeks, its largest decline over this time frame since the middle of 2011. The market has been caught in a supply trap, as production was all that investors were concerned about when geopolitical risk in Iran was the main focus earlier this year, and OPEC responded accordingly. This supply boost was done at a time when US growth prospects were much healthier and the European situation much more benign. The market has prepared for the wrong set of circumstances and oil prices are now suffering as a result. The news that Chinese industrial output was lower than anticipated also hurt the market last week. This week we expect oil to be sold once again and test pivotal support at $94.30.
Intervention in the dollar/rupee last week saw the RBI attempt to keep the decline of the currency at bay. So far, authorities have defended the 54.00 level effectively, but a combination of growth concerns prompting additional interest rate cuts and the twin deficits are weighing on the rupee. In addition, global dollar safe haven buying against all major currencies has made the environment a difficult one in which to short dollars. This week continued rupee selling is anticipated, with a break above 54.00 expected to see the all-time low at 54.30 exceeded. The market will then look to 55.00 and longer term towards 56.60/65.
