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The Commodity Reverse Higher amid Euro Crisis

Currency Market Observations – 7 Nov 2011

Fundamental Outlook

The US treasuries return to favor for investors after Greek default stirs woes for debt crisis. European Central Bank (ECB) cut rate to contain slowdown in economy while Japan intervenes in selling down yen to salvage national exports. MF Global Holdings Ltd files for bankruptcy protection and shocks investors.

The US Institute for Supply Management-Chicago Inc. reported its business index decreased to 58.4 in October from prior month 60.4, due to higher overseas demands. Another data from the same institution on factory index dropped to 50.8 from 51.6 in September, but still maintaining above 50 benchmarks.

Building construction increased 0.2 percent in September after jumping 1.6 percent in August. The US services industries fell to 52.9 in October from prior month 53. Housing markets stays beneath recovery levels from low consumer demands.

While the US initial jobless claims declined 9,000 at week ended 29 October, unemployment for October also relieved down 6-month low of 9 percent from previous 9.1 percent. On Friday, payrolls were reported to gain at 80,000 and less than expected. The US Treasuries traded higher last week following the Greek intended referendum and euro rate cut.

Japan’s government intervened in foreign exchange markets with estimated JPY40 trillion (USD512 billion) to halt yen rise. The move compelled declines in euro which behaved simultaneously with loss of confidence in euro. Flight returned to US assets and greenback that spiked USD/JPY about 400 pips from 75.50 regions.

In Eurozone, Greek Prime Minister Papandreou aroused global attention by initially proposed a national referendum to opt for exit from Eurozone. Euro currency snapped amid investors’ fears though this was aborted towards weekend. Last week, ECB unexpectedly lowered interest rates by 25 basis points to 1.25 percent and triggered jumps in commodity Gold prices.

UK Gross Domestic Product (GDP) rose 0.5 percent in Q3 vs. 0.1 percent in Q2. The Chartered Institute of Purchasing and Supply (CIPS) fell to 47.4 in October from 50.8 in September. Investors are still concerned on slow recovery and setback on austerity measures by British government.

Due to the viral contagion of euro debt crisis, Bank of England (BOE) may pause the stimulus plan of GBP275 billion in next week. Analysts said policymakers observe and await further developments in the euro area on debt resolution.

Technical Forecast

USD/JPY jumped about 400 pips from 75.57 after Japan’s intervention last week. The market is stagnant again while it moved back down to 78.00 regions. We foresee the market will slow down into little activities around 77.50 levels if there is no more fresh fundamentals since traders are still wary on this market.

EUR/USD is moving into consolidation from 1.3600 – 1.3950 regions. Due to the uncertain debt crisis in Eurozone and technical patterns, we suspect there might be another new sell down after the market completes these sideways patterns in 1-2 weeks’ time.

GBP/USD is now poising around 1.6000 benchmarks which is prone bias to decline soon. We forecast the market will trade downwards to 1.5850 regions while topside resistance will remain strong at 1.6100 levels. Abandon your short-view if the trend penetrates above 1.6160.


Dar Wong

This post is contributed by OPF Guest Blogger, DAR Wong.

Wong is founder and principal consultant of and holds a professional qualification in NASD series 3 and 5 approved by National Futures Association (USA). He was previously attached with Bankers Trust Futures Inc, Barclays ZW Futures and Smith Barney Shearson (Citigroup) Inc.

He is also an active trader and author of 8 Ways to Invest In China’s Emerging Markets. Wong is also columnist for The Star, The Borneo Post in East Malaysia, The Busy Weekly, The Trader’s Journal, The Forex Journal, The Pulses, The Analysts and Capital Asia magazine.

He is a regular speaker on trading topics as well as Master Speaker for the annual Asia Traders and Investors Convention (ATIC).

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DISCLAIMER: This post is written for general information only. The author, publisher and/or any third party involved in the distribution of this work assume no legal responsibilities and shall have no liability whatsoever for any direct or consequential losses, costs or expenses arising from the use of the information contained herein.

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1 Comment to The Commodity Reverse Higher amid Euro Crisis

  • Rudy Goldis's Gravatar Rudy Goldis
    November 9, 2011 at 6:19 AM | Permalink

    Gold coins are are only starting to show what will be a huge upswing in the commodities market over the next year and ill tell you why. Gold is now trading at about $1,780 which is much lower than its inflation adjusted all time highs. We all know that both the domestic and international markets have been having a lot of trouble lately. To top it off the use of gold and gold derivatives in manufacturing has increased, What this means is that the amount of gold that is unrecoverable has increased and supplies are depleted (because of the prohibitively high price of extracting gold after its been used in manufacturing applications). This means only one thing that gold prices will sky rocket and there will be no down side on the horizon. Initially the question of silver or Gold came up, where should you allocate funds when deciding between the two commodities? We think that you cannot go wrong either way but at this moment in time gold seems to have the upper hand