Provided by CPM Group, Vol. 2, No.41 - October 10, 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 |
The upward trajectory in precious metals and base metals prices may extend through this week, after some initial consolidation. While prices are lofty, there seems to be momentum enough to sustain the upward movement a while longer. Gold futures rose to new records last week as the U.S. dollar’s slump boosted the appeal of precious metals as safe haven assets. Gold has climbed nearly 25% this year, reaching a record $1,366 on 7 October. Prices of silver and copper have meanwhile climbed roughly 40% and 13% this year, respectively. Expectations for a weaker U.S. dollar combined with steady investor interest continue to fuel fresh demand in metals. Crude oil may see some residual buying this week, but if temporary disruptions in demand are resolved, the production quotas made during the OPEC meeting later this week could weigh on prices. The high price of crude oil is likely to dissuade production cuts, which will keep the oil market well supplied amid a period of seasonally weak demand from refineries due to scheduled maintenance. Minutes from the last United States Federal Reserve meeting will be released on 12 October. Bearish undertones toward the U.S. economic recovery may weigh further on the dollar, while lending support to precious metals prices.
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The U.S. dollar continues under severe pressure, as investors react to economic weakness and the expectations of further monetary stimulus programs on the immediate horizon. Investors moving out of dollar holdings into emerging market investments is accentuating the dollar’s weakness, while other governments feel confounded by a lack of ability to combat the overheating of their own currencies. Discussions at the weekend IMF and World Bank annual meetings are likely to focus on currency market disarray, but no major immediate resolutions or solutions are expected. This lack of official action itself will add to the pressures on the dollar. There has been a rising expectation that the Federal Reserve may soon increase funds available for its asset purchasing program or come up with a derivation of such facility. There also has been increased frustration among industrialized nations about how to address weak economic conditions. Ties between developed economies and developing regions are growing increasingly stressed. Pressure is mounting for China to allow the renminbi to appreciate more rapidly. On the other hand there has been talk of India intervening in the currency market to stem the rapid pace of appreciation of the rupee.
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DGCX Prices & Daily Volumes |
Market
(as at Oct 8, 2010) |
Current Week close |
% Change |
Change |
Weekly High |
Weekly Low |
Gold ($/ounce) |
$1,346.70 |
2.16% |
▲ |
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Silver ($/ounce) |
$23.210 |
5.21% |
▲ |
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Euro ($/Euro) |
$1.391 |
1.00% |
▲ |
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GBP ($/GBP) |
$1.595 |
0.78% |
▲ |
1.601 |
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INR ($/100 INR) |
$2.255 |
0.74% |
▲ |
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JPY ($/100 Yen) |
$1.220 |
1.52% |
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WTI ($/b) |
$82.66 |
1.32% |
▲ |
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ADV (9,500)
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Economic Indicators
Indicator |
Change |
Value |
Change |
% Change |
CRB Index |
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3.3% |
U.S. Dollar Index |
▼ |
77.27 |
-0.82 |
-1.1% |
T-Bills
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▼ |
0.12% |
-0.03% |
-20.0% |
DJIA |
▲ |
11,006 |
176.80 |
1.6% |
FTSE All World
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▲ |
206.57 |
4.12 |
2.0% |
Source: Bloomberg Data |
COMMODITIES |
Crude Oil |
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WTI oil could move largely between $80 and $85 this week. Crude oil touched a six-month high above $84 last week on a labor strike at a French oil port and a weaker U.S. dollar. If the three-week long labor strike at the Fos-Lavera oil port continues this week, it could weigh further on European crude oil demand. Early last week several refiners that source their oil from the port announced that they may need to shutter operations as early as Friday 8 October, as they lack sufficient oil inventories to continue operating. Refinery utilization in the United States also has fallen over the past four weeks due to maintenance, which dampens refinery demand for crude oil. The maintenance typically concludes by the end of October, however. The recent run-up in oil prices suggests Organization of Petroleum Exporting Countries is unlikely to cut production at its 14 October meeting, keeping the oil market well supplied. Prices could decline, toward $80, late this week.
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Gold |
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Gold prices are expected to head higher this week. The weaker than expected U.S. employment report released on Friday 8 October should provide support to gold prices. This is the last employment report that will be released before the next U.S. Federal Reserve meeting in November, which has led to increased speculation that the Fed will favor monetary stimulus in response to the greater than anticipated weakness in US employment. This could continue to weigh on the US dollar, which would be positive for gold prices. This week gold prices could once again test the intraday high of $1,366 touched last week. If prices settle above this level, a move toward $1,380 should not be ruled out. However, prices could slip toward $1,320 on profit-taking at these elevated price levels. If prices settle below this level they could decline toward $1,300. Such a decline would most likely occur on an intraday basis, with market participants using any decline in prices as a buying opportunity.
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Silver |
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Silver prices may continue to trend higher this week. Healthy fabrication and strong investment demand, strength in gold prices, and weakness in the U.S. dollar are all factors that are expected to keep investors interested in silver in the near future. Investor buying could drive silver prices as high as $25 this week. However, prices could decline briefly albeit sharply during the week. Profit-taking could drive silver prices toward $20, or even as low as $18.75. While market participants are very optimistic about the future price of silver, a sharp decline cannot be ruled out, given the volatile nature of silver prices. Any such weakness in silver prices would be expected to be very short-lived. Investors are likely to view any such declines as a buying opportunity, plus the silver market is likely to remain tight through the end of the year.
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CURRENCIES |
Euro / Dollar DEUR (US $ quoted in cents per Euro) |
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The euro may rise in a choppy fashion toward $1.42 this week. Participants in U.S. futures sharply increased their net long positions in the euro to 27,451 contracts as of 28 September, up from 2,777 contracts on 21 September. These investors may seek to book profits in the near-term. Ongoing investor concerns over Europe’s troubled nations may weigh on the euro. A rating agency downgraded Ireland’s credit rating to A+ from AA-. The European economy, however, has been improving. The International Monetary Fund (IMF) revised higher its GDP estimate for Europe, to 1.7% for 2010 and 1.5% for next year. The IMF’s previous forecast was for 1% growth in 2010 and 1.3% growth in 2011. Last week, the European Central Bank kept interest rates at 1.0% and provided no indication of altering its plan to phase out its unlimited lending program. This would be positive for the euro’s appreciation.
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Indian Rupee / Dollar DINR (US $ quoted in cents per 100 Indian Rupees) |
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The rupee is forecast to rise this week. The rupee traded mostly between 222 cents and 226 cents per 100 rupees last week, reaching 225.98 cents during intraday trading on 7 October. This was the highest intraday price since 29 August 2008. Concerns regarding the Reserve Bank of India possibly intervening in the currency market subsided on Friday. This could provide the impetus for a rise toward 228 cents. Foreign investment in India’s capital markets remains strong. Foreign institutions and funds invested a net of $12.2 billion in India’s equity and debt markets this month through 8 October. August industrial production and September wholesale price data to be released this week could push and pull at the currency.
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Sterling Pound / Dollar DGBP (US $ quoted in cents per Pound) |
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The pound may test $1.60 this week. The pound rose to an intraday high above $1.60 on 7 October as the Bank of England (BOE) announced it would refrain from extending its asset purchase program. Further asset purchases by the BOE would result in an increase in money supply, exerting downward pressure on the pound. The pound backed away from its highs late last week as a report from the National Institute of Economic and Social Research showed the pace of the United Kingdom’s economic recovery may have slowed in the third quarter. Although upward momentum in the pound may be dampened by mixed economic data, the extension of the United States Federal Reserve’s asset purchase program is likely to support a higher pound in the near term.
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Japanese Yen / Dollar DJPY (US $ quoted in cents per 100 Yen) |
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The yen may test 125 cents this week. The Bank of Japan (BOJ) lowered benchmark overnight interest rates from 0.25% to nearly zero on 5 October. Although this is negative for the yen, the currency shrugged off the BOJ announcement by rising to a 15-year high of 123 cents last week. The yen’s rise was spurred by the United States Federal Reserve announcement that it would extend its asset purchase plan. Last week market participants built long positions in the yen for the first week since 15 September, when the Japanese government intervened in the currency market. While a stronger yen remains exposed to further government intervention in the currency market, the buildup of fresh longs could continue to push the yen higher this week.
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Further Information
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Tel: +971 (0)4 361 1616 Email: info@dgcx.ae |
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. |
Copyright CPM Group 2009. The views expressed within are solely those of CPM Group. Such information has not been verified by the DGCX, nor does DGCX make any representations as to its accuracy or completeness. Any statements non-factual in nature constitute only current opinions, which are subject to change. While every effort has been made to ensure that the accuracy of the material contained in the reports is correct, CPM Group or DGCX cannot be held liable for errors or omissions. CPM Group or DGCX are not soliciting any action based on it. Information contained here should not be relied on as specific investment or market timing advice. At times the principals and associates of CPM Group may have long or short positions in some of the markets mentioned here. This report is distributed weekly by DGCX to provide market participants with information and statistics related to specific commodities and currencies. CPM Group, a commodities consulting company, produces this report for DGCX. Visit www.cpmgroup.com for additional information.
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