Welcome to the Weekly Market Views report from DGCX, providing you with a snapshot of what׳s happening in the energy, precious metal and currency futures markets.
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 (CPM Group).
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Commodities Overview | Currencies Overview | ||||||||||||||||||||||||||||||||||||||||||||||||
Commodities prices may move sideways to lower next week. Oil prices may trade around $70. Gold and silver are vulnerable to a round of profit-taking, having recorded strong advances over the past several weeks. Other commodities are in a similar position: vulnerable to profit-taking and short-term selling. In this environment, prices could come off some. A series of holidays will reduce Chinese demand for most commodities over the coming week, which could serve as an occasion for opportunistic short-term selling. A stronger dollar, should one emerge, would be expected to contribute to such a sell-off in commodities. If the dollar does not break above its recent range, however, commodities may mark time. While the markets may show signs of being exposed to down-side moves, demand for gold and silver as safe-haven investments remains strong. Bargain hunting by fabricators and investors would be expected to limit any sell-off in commodities prices this week. Signs of economic recovery are continuing to mount, even as some economic data point to continued economic pain. The recovery is likely to be V-shaped, but with some aspects of demand subdued by on-going structural economic imbalances. |
Currency markets may see continued volatility, as traders and others seek direction in a directionless market. While there remains concern that the dollar could fall further, a growing body of evidence suggests the dollar may find strength against the euro and yen, if not other currencies, in the short term. There is a risk for dollar bears that a wave of short-covering could trigger stop-loss liquidation of massive short positions taken on in the past several weeks. Such a development would push the dollar quickly higher, at least for a time. Barring such an event, currency markets seem more likely to trade sideways in a volatile fashion. The markets will be watching to see if the dollar mounts a convincing defence above recent lows. It may, but it may not rise sharply. This week the World Bank and International Monetary Fund are meeting in Istanbul. It is expected that very little agreement about major, substantive economic and financial issues will emanate from the meeting. Recent G20 and other meetings have shown growing disagreement among the major industrialized economies’ governments, which may shine through in the meetings communiqués. This could lead to further currency market turmoil, with the dollar moving sharply in both directions. |
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DGCX Prices & Daily Volumes |
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ADV (4,521) |
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Economic Indicators
Source: Bloomberg Data |
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COMMODITIES | |||||||||||||||||||||||||||||||||||||||||||||||||
Crude Oil | |||||||||||||||||||||||||||||||||||||||||||||||||
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The outlook for oil demand may not be doom and gloom but the signs of any looming rebound are faint. According to the U.S. Department of Energy’s 25 September report, implied crude oil demand fell 1.2% week-on-week and stocks rose by another 2.8 million barrels. The fundamentals are still weak, yet current price levels may be an accurate reflection of supply and demand. The eventual recovery in demand is being counter-balanced by rising OPEC production and capacity, which is limiting the upside for prices at the moment. Further upward price movements could stall until real demand growth materializes and advances from current levels. Meanwhile, market participants have refocused on the international political impasse with Iran. Although there have been no significant developments, the oil market may be factoring in a risk premium, effectively limiting the downside risk to oil prices. In this environment, WTI oil prices may continue to orbit around $70 this week. |
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Gold | |||||||||||||||||||||||||||||||||||||||||||||||||
Support levels for gold could be tested this week. A move toward $970 - $980 is possible, but a price dip toward these levels could be seen as a buying opportunity. Prices may pick up shortly thereafter. Gold seems to be consolidating between $980 and $1,020. Over the past several weeks market participants have been selling as prices head toward the high end of this range and buying as prices head toward the lower end. This trading pattern may continue this week. A strengthening U.S. dollar has been capping gold prices gains, but should not be expected to weigh too heavily on prices in the near-term. Investment demand for gold remains strong. Combined ETF gold holdings were 55.8 million ounces as of 1 October, just shy of the record 55.83 million ounces held on 23 September. Investors remain concerned over weak economic conditions. Many investors are skeptical of current high stock market levels. Safe-haven buying seems to have increased in recent weeks as U.S. Treasury yields have declined, the U.S dollar has recovered from multi-month lows, and gold prices remain firm. |
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Silver | |||||||||||||||||||||||||||||||||||||||||||||||||
Silver prices could hold above $16.00 this week. That said, a break below $16.00 could trigger short-term investor selling, which could push prices toward $15.50 — $15.75. Bargain buying at these levels is expected to pick up, limiting any further declines. Most of the upward pressure in silver prices over the past several weeks was due to strong buying by large institutional investors. Participation by individual and retail investors has been minimal. Overall demand from industrial users of silver remains firm but has come off slightly in the last week, given the relatively high price of silver. Demand for silver from dealers in Asian and Middle Eastern countries has begun to pick up due to festival and marriage season. Typically during this time of the year many consumers in India increase their purchase of jewelry and silverware for gift giving. There has been some redemption, especially in the iShares silver ETF, as many investors have taken advantage of high silver prices and booked profits. At the end of last week, combined ETF silver holdings stood at 422.0 million ounces. |
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CURRENCIES | |||||||||||||||||||||||||||||||||||||||||||||||||
Euro / Dollar DEUR (US $ quoted in cents per Euro) | |||||||||||||||||||||||||||||||||||||||||||||||||
The euro could continue to test $1.45 this week, possibly dropping toward $1.44. Recent analysis suggests that the U.S. economy will experience stronger growth than its euro-zone counterparts. Some market participants have begun moving into the U.S. dollar based on this expectation. Recent comments by the U.S. Fed, the Treasury, and the ECB in support of a strong U.S. dollar also have provided support. With the G7 meeting being held over the weekend, any comments by finance ministers toward currencies may provide some temporary direction. The ECB is expected to hold its monetary policy unchanged this week at its Governing Council meeting. A large number of market participants still hold a fair amount of short U.S. dollar positions. This could spark increased short-covering if the U.S. dollar begins to strengthen. |
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Indian Rupee / Dollar DINR (US $ quoted in cents per 100 Indian Rupees) | |||||||||||||||||||||||||||||||||||||||||||||||||
The Indian rupee is expected to trade around 208 cents per 100 rupee early this week, with a possibility of moving toward 209 cents as the week progresses. The Indian rupee traded in a thin range last week, given a short trading week. Currency markets in India were closed on Monday 28 September and on a festival holiday. The rupee rose slightly last week, taking cues from the rising domestic equity markets. The International Monetary Fund forecast India’s growth rate to slow to 5.4% in 2009. This is a sharp decline when compared to double-digit growth rates in the previous two years. However, it still is favourable when compared to expected growth in other similar developing Asian nations. This has been helping strengthen the rupee against the U.S. dollar by attracting capital inflows from investors in other countries. |
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Sterling Pound / Dollar DGBP (US $ quoted in cents per Pound) | |||||||||||||||||||||||||||||||||||||||||||||||||
The pound may move back above $1.60 this week. Last week the sterling fell to multi-month lows, but managed to hold up above $1.575. The move lower may have been technical in nature with some increased selling pressure as the pound broke below $1.60. A large part of the decline also was due to a stronger U.S. dollar, which drew increased support from comments by U.S. and ECB officials. Weak economic conditions still plague the United Kingdom as commentary has emerged once more about the Bank of England possibly taking further monetary action to stimulate the economy. This time around there has been increased talk of a possible rate cut at this week’s monetary policy meeting. |
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Japanese Yen / Dollar DJPY (US $ quoted in cents per 100 Yen) | |||||||||||||||||||||||||||||||||||||||||||||||||
The Japanese yen may drop this week toward 109 cents. Japan’s economy is largely dependent on exports and a stronger yen is likely to have an adverse effect on Japanese exports industry. The yen has risen sharply against the U.S. dollar over the past several weeks on speculative trading. Last week Japan’s finance minster restated that the government may interfere in controlling the dollar/yen exchange rate, if needed. The Japanese government initially thought that a stronger yen could help boost consumer purchasing power, which could eventually lead to an economic recovery in Japan. Tankan Manufacturing Index (TMI), which represents the health of manufacturing industries in Japan, was -33 for the current quarter. This was an improvement when compared to the previous quarter when the TMI stood at -48. |
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Further Information |
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CPM Group is a leading independent commodities market research and consulting firm. CPM focuses on various commodities markets from precious metals to soft commodities. In its twenty three years as an independent company, CPM has consistently delivered unique, market-leading research and services to clients ranging from individual investors to leading international organizations worldwide. For more information and additional research please contact Adam Crown at +1 (212) 785 - 8324 or acrown@cpmgroup.com or visit www.cpmgroup.com. |
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Disclaimers DGCX refers to “Dubai Gold and Commodities Exchange” and any company which is an owned subsidiary of DGCX. No part of this publication may be redistributed or reproduced without written permission from DGCX.DGCX shall not be liable for the use of the information contained in this publication, connected with actual trading or otherwise. DGCX shall not be responsible for any errors or omissions contained in this publication. DGCX, nor its affiliates, associates, representatives, directors or employees, shall be responsible for any loss or damage that may arise to any person due to any action taken on the basis of this publication. This publication is for information only and does not constitute an offer, solicitation or recommendation to acquire or dispose of any investment or to engage in any other transaction. All information, descriptions, examples and calculations contained in this publication are for guidance purposes only and should not be treated as definitive. Those wishing either to trade futures and options contracts on DGCX, or to offer and sell them to others should establish their regulatory position before doing so. DGCX is regulated by the Emirates Securities and Commodities Authority (ESCA). |
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FTSE Mondo Visione Exchanges Index:
Dubai Gold & Commodities Exchange Weekly Market Views - 4 October 2009
Date 04/10/2009