Provided by CPM Group, Vol. 2, No. 4, 24 Jan 2010 |
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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 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Petroleum and precious metals were pushed sharply lower late last week by a round of profit taking. A stronger dollar helped trigger commodities selling. The selling was common across most commodities, and was not limited to the oil and gold markets. The selling may prove to be relatively short-term in nature. Prices may continue to test the lows seen late last week early this week. These lows may hold however, as demand was seen already on Friday from investors and traders seeking to take advantage of the lower prices. Many investors continue to hold long-term bullish views toward commodities, and will be expected to establish fresh long positions as soon as the price declines appear to have run their course. The CFTC proposed regulations limiting positions on energy markets, and said similar restrictions on precious metals markets may follow soon. The proposed rules most likely would drive liquidity away from regulated markets. They would shift business from U.S. markets to other national markets. They would skew futures and options prices on U.S. markets relative to the underlying physical commodities markets by making the derivatives markets asymmetrical. They would do nothing to limit inappropriate behaviour in the commodities markets. |
The dollar could experience some profit-taking and selling pressure early this week. It may recover as the week progresses, however. The dollar performed strongly last week, as investors bought dollars in line with reallocation of assets into the U.S. markets and economy. News of the U.S. government plan to impose trading limits and size restrictions on U.S. commercial banks, coupled with political uncertainties and poor quarterly earnings reports from several major U.S. corporations hit U.S. assets later last week. Even so, the dollar held up very well into Friday. Some dollar liquidation may be seen early this week. The dollar may find a floor not too much lower than levels seen last week, as investors re-evaluate the relative strength and economic prospects of the U.S. economy compared to the European and Japanese economies. The view is that the U.S. economy, equity markets, and real estate are likely to be seen as more attractive relative to those of Europe and Japan over the next several months, which should be reflected in demand for dollars. It is too early to tell whether the proposed changes will pass Congress, let alone whether they would negatively affect financial markets. |
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DGCX Prices & Daily Volumes |
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ADV (7,838)
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Economic Indicators
Source: Bloomberg Data |
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| COMMODITIES | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Crude Oil | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Light sweet crude oil prices succumbed to heavy selling pressure last week as economic optimism retreated. Prices fell toward $74 on Friday 22 January. This downward momentum could be nearing its lower limit, however. Oil could trade toward $72 early next week but signs of demand growth may reverse the recent price decline. Last week’s EIA data indicated a bullish outlook for distillate demand alongside uneventful gasoline figures. U.S. crude oil and distillate stocks declined as motor gasoline inventories rose for a third consecutive week. Cold temperatures in addition to improvements in the manufacturing sector are helping the distillate market. While short-term focused investors may have sold some of their long positions, signs of a recovery in industrial activity continue to be positive for the crude oil market over the medium term. As value investors buy following last week’s price dips and refocus on the prospects of economic recovery, oil prices could trade closer to $77 this week. |
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| Gold | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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After having fallen to multi-week lows last week, gold prices may move back toward $1,130 this week. Prices were weighed down by an appreciating U.S. dollar and technical selling as gold fell below support at $1,120 and then $1,100. Bargain hunting picked up as prices neared $1,080. Last week’s price pattern was similar to that which occurred twice in the second half of December 2009. Prices fell toward $1,080 and rose sharply thereafter. Many investors see prices at levels below $1,100 as bargains. Recent reports from India suggest that consumers there have increased their gold jewelry purchases, taking advantage of lower prices, but a weakening rupee has limited some of the demand for gold. With the February delivery period in the New York market beginning at the end of this week, prices may head higher as short traders and fund managers will have to close out or roll their position forward. Combined ETF gold holdings meanwhile were little changed last week from the prior week at 56.0 million ounces. |
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| Silver | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Silver prices could continue to test $17.00 early this week, before heading higher later. On the upside there is near-term resistance for silver around $18.50 — $18.80. Last week silver prices plunged 8.0%. Profit-taking and technically oriented trading coupled with an uptick in the U.S. dollar dragged silver prices lower. Demand for silver from industrial users continues to surge. A dip below $18.00 has been taken as a buying opportunity by investors and users. Jewelry demand and physical demand for small-size bullion coins and bars also remains firm globally. The premia for one-ounce coins have subsided, however. Investors continue to be interested in silver, but the pace of buying has somewhat reduced over the past two weeks. At the end of last week combined ETF silver holdings were 460.0 million ounces, down 1.5 million ounces or 0.3% from 461.5 million ounces on 15 January. Most of the redemptions appeared confined to short-term investors. Longer term investors remain steadfast with their holdings. |
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CURRENCIES |
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| Euro / Dollar DEUR (US $ quoted in cents per Euro) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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The euro may rise toward $1.43 early this week, after having traded below $1.41 last week. Concerns continue over the eurozone’s economic prospects, mostly notably over countries such as Greece and Spain. There seems to have been a slight shift from euro denominated assets into U.S. dollar denominated fixed investments. Demand for U.S. Treasuries has helped push yields lower over the past several days. The euro may test $1.43, but risk aversion could push the euro toward $1.40 later this week. Continued weak economic data for the eurozone may keep downward pressure on the euro. Rising tensions over Federal Reserve Chairman Bernanke’s confirmation and proposed risk reduction regulation for banks may increase dollar and euro volatility. |
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| Indian Rupee / Dollar DINR (US $ quoted in cents per 100 Indian Rupees) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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The Indian rupee could toss and turn between 212 cents and 216 cents per 100 rupee this week. There has been no fresh fundamental news affecting the rupee. The domestic stock markets were choppy last week, trending lower overall. The benchmark stock index of India, Sensex, fell 4.0% last week. This led many foreign investors to repatriate their funds and invest in alternative investments. Last week foreign investors were net sellers of $316.6 million worth of Indian equities. The Reserve Bank of India permitted currency futures in euro, yen, and pound sterling last week. This could help improve liquidity in the currency markets and also enable exporters to hedge against currency fluctuations. The daily trading volume of the rupee/dollar exchange rate in the futures markets is estimated to be between $6.0 billion and $7.0 billion. |
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| Sterling Pound / Dollar DGBP (US $ quoted in cents per Pound) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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The pound may move toward $1.60 later this week. Economic conditions in the United Kingdom remain tepid. Despite the government’s deficit declining to 15.7 billion pounds in December from 18.7 billion pounds in November, December’s deficit level was a record for that month. Money supply figures declined in December, which may increase expectations that the Bank of England (BOE) will extend its asset purchasing program. As of 21 January the BOE was 1.43 billion pounds shy of completing its planned 200 billion pound asset purchases. The pound may move between $1.60 and $1.63 this week. |
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| Japanese Yen / Dollar DJPY (US $ quoted in cents per 100 Yen) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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The yen is expected to trade sideways, moving toward 106 cents — 108 cents per 100 yen later this week. Profit-taking could set in this week, which could push the yen lower. The yen settled at 111.2 cents at the end of last week. A large part of the increase in the yen over the past two weeks may have reflected Japanese investors repatriating assets as a move toward safer domestic assets amid concerns over global economic trends. Fundamentally, the Japanese economy remains weak, however, which could limit any upside on the yen from current levels. The Japanese government continues to provide monetary easing and several allowances to boost consumer spending and bring the domestic economy back on track. The Bank of Japan is likely to take measures against the appreciating yen. |
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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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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:
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Dubai Gold & Commodities Exchange Weekly Market Views - January 24, 2010
Date 24/01/2010
