Crude Oil Weakens As Traders Worry About Tax Changes in the US

Crude Oil Weakens As Traders Worry About Tax Changes in the US
Crude Oil Weakens As Traders Worry About Tax Changes in the US

Crude oil prices were up as bargain prices during the week attracted investors but the upside was limited as uncertainty over the fiscal cliff still continues. Fiscal cliff negotiations continue to drag on after Speaker of the House of Representatives John Boehner was unable to muster enough votes within his own party over an alternative plan of spending cuts and tax hikes known as “Plan B.” At a press conference Friday morning, Boehner reiterated the need for political leaders to come together. Congressional leaders leave Friday for the Christmas holiday, but they can come back Dec. 27 and continue to discuss alternatives.

The Obama administration may reach out to congressional leaders after the failed vote, Republican members “will probably have to take some time to reconsider their priorities and strategy. Bottom line, it seems unlikely that any legislation to address the main fiscal cliff policies will be passed before the end of the year. We expect negotiations to continue into the New Year. It may take the imminent threat of a breach of the debt limit in February, or March at the latest, to force an agreement. The direct effects of higher taxes and spending cuts, which take effect in January, will probably not be felt immediately. But the longer those policies are in effect, the greater the impact on the economy,” they said.

Crude oil continues to tumble in early trading in the Asian session now priced at 88.55 down by 11 cents and remaining weak. Traders can expect crude oil prices are down as demand looks weak and lower volumes due to Christmas can also put pressure on prices. As the US dollar continues to climb as traders move to safety as risk aversion becomes the market mode.

Western sanctions on Iran’s shipping and energy sectors caused serious problems for its oil industry earlier this year but Iran has mostly overcome those challenges, Oil Minister Rostam Qasemi was quoted as saying on Sunday. Iraq is on a push to sell its swelling crude output and sit at oil’s top table with Saudi Arabia, sweetening terms for contract buyers next year, its customers say.

Money managers, including hedge funds and commodity trading advisers, cut their net long position in natural gas futures, options and swaps in the week ended Dec. 18, data from the U.S. Commodity Futures Trading Commission showed on Friday ahead of the holiday and the year end, as tax changes worry traders in the US.

There are a few U.S. economic reports on tap for next week, with housing data and manufacturing data, the Chicago Purchasing Managers Index.  Nomura analysts said considering the bickering over the fiscal cliff and no resolution, Thursday’s consumer confidence data will likely be the most important economic report.

U.S. natural gas futures were down on Friday pressured by profit taking but the downside was limited by colder extended weather forecasts that should boost demand for heating. Expect Natural Gas prices to go up as a colder weather outlook can boost the heating demand and support the prices. However lower volumes due to Christmas holidays can cap the upside as gas futures on the New York Mercantile Exchange ended down 1.1 cents at $3.451 after trading between $3.425 and $3.508. Natural gas continues to weaken this morning trading at 3.462 down by 0.021.

Gold Takes A Break For Christmas

Gold Takes A Break For Christmas
Gold Takes A Break For Christmas

Gold remained weak in early morning trading dipping by 2.25 to trade at 1657.85. Gold extended its losses after concluding its worse performance in 6 months last week.

The Fiscal Cliff issue is likely to remain the center of the markets next week too, as U.S. lawmakers won’t vote on the end-of-year budget until after Christmas, giving them less than a week to reach agreement, after House Speaker John Boehner, a Republican, yielded to anti-tax resistance within his own party and scrapped a plan to allow higher tax rates on annual income above USD1 mn. Wall Street traders are going to have to pack their tablets and work computers in their holiday luggage after all. If something happens next week, it will come in a short time frame. Markets will be open for a half-day on Christmas Eve, while Congress will not be in session, and will close on Tuesday for Christmas. Wall Street will resume regular trading on Wednesday, but volume is expected to be light throughout the rest of the week with scores of market participants away on a holiday break.

Gold holdings of SPDR gold trust, the largest ETF backed by the precious metal, increased to 1,350.82 tons, as on Dec 21 as traders took advantage of low prices and the weaker US dollar. Silver holdings of ishares silver trust, the largest ETF backed by the metal, increased to 10,045.85 tons, as on Dec. 21.

Private investors in Switzerland, Austria and Germany are lining up to buy gold bars the size of a credit card that can easily be broken into one gram pieces and used as payment in an emergency.

With traders on holiday many have sold off profitable assets ahead of possible tax changes and many have moved to the safety of the US dollar abandoning risk assets as the AUD, NZD, JPY and CAD tumbled.

Last week’s break in gold prices, sees gold hanging on to meager yearly gains as it is about to enter the last few trading days of 2012, and for the short term market watchers are keeping an eye on Thursday’s low. Prices were up on the day and down on the week. Gold on the Comex division of the Nymex settled at $1,660.10, down 2.17% on the week. March silver settled at $30.203 an ounce, down 6.5% on the week. 

This week will feature light trade. Some markets are closed on Monday in Europe for Christmas Eve; Japan has a holiday on Monday, too. Most markets are closed on Tuesday for Christmas and some markets, including those in Canada, the U.K. and Australia, are closed Wednesday for Boxing Day. 

Obama Tries To “Patch” The Fiscal Cliff

Obama Tries To "Patch" The Fiscal Cliff
Obama Tries To “Patch” The Fiscal Cliff

With House Speak Boehner acting childish as he was rebuffed by his own party on Thursday, after Republicans chose not to support his “Plan B” approach, Boehner dismissed Congress for the holiday break, sending Congressman back to their home districts and leaving negotiations hanging. President Obama responded on Friday by offering a simple easier short term solution, which was and is not the intention of the legislation that was designed to force legislatures to deal with the short and long term problems of taxation and debt. The impending fiscal cliff, as intended, has spurred some compromises; it also has demonstrated the steep challenges for the U.S. political system to undertake the multi-faceted, multi-year reforms necessary to place American governments on a more sustainable fiscal path.

Public debate over taxes for high-income residents has largely precluded substantive discussion of the other measures required to narrow the federal revenue-expenditure gap in order to regain some fiscal flexibility.    

Entering 2013, at least “a patch” is still possible to deal with the most urgent issues, such as extending the Bush personal income tax rates with a compromise on the top bracket. A credible commitment to develop a comprehensive tax reform package in 2013 would be encouraging, yet it will prolong some of the uncertainty. Spending and investment decisions by households and businesses will remain constrained until outstanding issues are decided, such as allowed depreciation and capital gains and dividend taxation. 

The U.S. Treasury’s use of a range of extraordinary measures after the statutory debt ceiling is broached could allow a decision on raising the debt ceiling to be deferred until late February or early March given factors such as some leeway in the timing of personal income tax refunds. By then, a rise in the debt ceiling of at least US$1 trillion is required to take Washington through another year, though staged hikes could be adopted to reflect progress on spending restraint plans. 

Positive eco indicators for U.S. economic growth, particularly in the housing sector, are reflected in federal revenues, which are up about 9½% y/y for the first two months of fiscal 2013, before potential tax hikes such as ending the 2011-12 payroll tax reduction. Economists continue to assume that the U.S. economy can sustain healthy forward momentum with a partial implementation of the fiscal cliff restraint in calendar 2013, amounting to a negative contribution of roughly 1% point to output growth. The remaining ‘cliff ‘restraint would be adopted in 2014 and 2015.

President Obama sharply curtailed his ambitions for legislation to avert the year-end “fiscal cliff” on Friday, urging Congress to adopt a stopgap measure to keep benefits flowing to unemployed workers and prevent taxes from rising on income under $250,000 a year.

The plan should also “lay the groundwork” for action next year to spur economic growth and rein in the national debt, Obama said at a White House news conference. 

US Dollar Index Forecast December 24, 2012, Technical Analysis

The US Dollar Index rose during the session on Friday as the “risk off” trade comes back into play. There a lot of fears coming out of the talks going on in Washington DC right now and as a result people were taking risk out of the market. Also, the two hammers that formed above the 79 handle on Wednesday and Thursday suggested that we were going to go higher. Obviously, we have and it now looks like we may make a move back towards the 80 level.

The US Dollar Index might be a little bit ill liquid over the next several sessions, as Monday is an abbreviated session while Tuesday as Christmas Day. The volumes will not be there, and as a result we could see erratic movements. It will be a very difficult market to trade during this time period, and it is suggested that perhaps you look into the spot Forex markets.

You have to remember that the index is heavily weighted in favor of the EUR/USD pair, and the Euro makes up 40% of the market. With this in mind, you can use this pair in the spot markets in order to trade the US Dollar Index as it generally will move in the same direction. The biggest problem that you will have to contend with is the fact that you may get gapping and very wide spreads in this market, as opposed to trading in the spot Forex market which of course features banks and large funds from around the world don’t necessarily celebrate Christmas.

With all this being said, the week of Christmas is one of the worst trading weeks of the year. It isn’t that you can’t make money this week; it’s just that you will have several markets close on and off over the first couple of days, and volume will be thinner in almost every market available. Because of this, many traders will simply be taking the week off and won’t return until after New Year’s Day. We will however monitor the markets and wait to see if some type of announcement out of Washington DC during the so-called “fiscal cliff” talks moves the markets.

US Dollar Index Forecast December 24, 2012, Technical Analysis
US Dollar Index Forecast December 24, 2012, Technical Analysis

US Dollar Index forecast for the week of December 24, 2012, Technical Analysis

The US Dollar Index fell during a majority of the week of the last five sessions, but found support at the 79 handle. The 79 level looks to be the beginning of a major support zone all the way down to the 78 handle, and as a result we think that we are at a very important juncture on the weekly chart right now.

It should be noted however, we did manage to stick any of the losses, and in fact formed a hammer. This is a very bullish sign, and it looks like the market is trying to bounce higher here, and of course this would make sense as the “risk off trade” could come back into focus.

You do have to remember that the upcoming week will be very illiquid as Monday will have an abbreviated session, while Tuesday is Christmas Day. Because of this, we think that the next several sessions could be very volatile as the volume simply will not be there. With this being said however, it does look like the Dollar will get a bit of a bid going forward.

One of the best ways to play the US dollar over the next 10 days or so likely be in the spot Forex markets. This is because you have the advantage of a worldwide market, as opposed to one that is typically US centric like the US Dollar Index futures. Certainly, there will be plenty of banks out there that will pay very little attention to the idea of Christmas, as you have players from Japan, the Muslim world, and the Hindu world. Because of this, if you feel the need to trade the US dollar, you will more than likely be better served in that spot market.

Obviously, you cannot trade the basket of currencies like you can in this contract, but you can trade against specific currencies such as the Euro. The Euro looks a bit overextended, and it is 40% of the US Dollar Index, so if you believe that there will be Dollar strength coming forward as this chart suggests, perhaps you can short the EUR/USD pair as a proxy.

 

US Dollar Index forecast for the week of December 24, 2012, Technical Analysis
US Dollar Index forecast for the week of December 24, 2012, Technical Analysis

Crude Oil Sell Off on Profit Taking

Crude Oil Sell Off on Profit Taking
Crude Oil Sell Off on Profit Taking

Crude oil prices were up on Thursday as lower inventories supported the prices but the US budget talks kept investors cautious. Investors feared that US lawmakers may fail to avert the automatic tax hikes and spending cuts which would send the US economy into recession. Crude oil prices to be down as a stronger dollar will keep investors away thus pushing prices further down.

Oil markets have enjoyed support from the news of progress on the fiscal cliff, dollar weakness and intention from traders to return to riskier assets. As a result, WTI oil price rose a by 1.8% to $89.51 per barrel and Brent oil rallied by 1.4% to $110.36 per barrel. Thus, the difference between Brent and WTI moderately narrowed to $20.85/bbl. On a monthly basis, WTI rose by 0.7% but Brent slipped by 0.8%.

As the day progressed negotiations between the White House and Congressional leaders broke down changing market sentiment universally. By late in the day in the US, traders were moving amass to safety or leaving markets. With pressure ahead of the yearend tax changes investors are selling off profitable trades to book profit before the new tax year.

U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) decreased by 1.0 million barrels from the previous week and against expectations for a fall of 800,000 barrels. At 371.6 million barrels, U.S. crude oil inventories are well above the upper limit of the average range for this time of year. Total motor gasoline inventories increased by 2.2 million barrels last week and are above the upper limit of the average range.

Fundamental data in the US helped support prices after eco data showed that manufacturing in the Philadelphia region unexpectedly expanded in December to an eight-month high, reflecting pickups in sales and orders that signal the industry is starting to stabilize. The U.S. economy grew at a 3.1 percent annual rate in the third quarter, more than previously reported, reflecting the first gain in state and local government spending in three years, more consumer purchases and a smaller trade gap. Existing house sales soared to their highest rate since 2007 well above forecast.

Crude broke above 90.00 after the late day eco releases, and then late day sentiment changes pushing the US dollar off its lows, gold tumbled and currencies fell as traders sought safety and turned from risk. Crude oil dipped in the morning trading by about 1.00usd as traders took profits and exited the markets ahead of the holiday. Crude climbed for several days this week lifting off lows of 85.00.

U.S. natural gas futures were up on Thursday as inventories came lower than expected. Traders can expect Natural Gas prices to go up as a colder weather outlook can boost the heating demand and support the prices further. Accuweather is now forecasting a cold spell for the holidays increasing residential demand. Front-month gas futures NGc1 on the NYMEX ended up 14.2 cents, or 4.3 percent, at $3.462 per million British thermal units after climbing to an intraday high of $3.467 late in the floor trading session. Following traders mood, they dumped NG in the early Asian session and took profits and left the market. Natural Gas is trading at 3.438 off by 0.017.

Gold Continues To Tumble Ahead of Holiday Selloff

Gold Continues To Tumble Ahead of Holiday Selloff
Gold Continues To Tumble Ahead of Holiday Selloff

 Gold fell 0.47%to the lowest since August after a report showed the U.S. economy grew more than forecast last quarter, damping expectations that the Federal Reserve will expand monetary stimulus. Gold fell close to 30.00USD yesterday and continue to tumble in Asian trading this morning, exchanging at 1642.35. Traders flocked back to the US dollar yesterday moving it from its recent low the prior day.

Gold was down as Republican leaders cancelled the vote on speaker John Boehner’s budget plan till Christmas. He failed to gather enough support from his party, thus increasing the possibility of US falling off the cliff. As we are approaching closer to the deadline and the crisis seems unavoidable, the dollar strengthened against all major currencies as a refuge for uncertainties. Gold is expected to go down as uncertainty over fiscal cliff continues and a stronger dollar will further put pressure on prices.

The bears became aggressively active against bullion, as a low volume day changed into a dramatic sell-off after LBMA pm fix. The price of gold declined by 0.22% below $1,650 and silver price fell by 1.98% to under $30.00. Physical buying along with a weaker US dollar was not enough to turn the tide from negative to breakeven. According to the CME, total market volume in gold and silver was still relatively low and if this will continue in the same manner, it could be a one side market.

Volatility has slightly subsided yesterday in gold and silver as there is a moderate decrease in the standard deviations of their daily percent change. But on a monthly basis, the daily percent change standard deviation of silver is still at higher level. The standard deviations of gold and silver on a daily percent changes basis is at 0.76% and 1.89%, respectively.

Positive eco data in the US helped support a climb in the US dollar which increased the pressure on gold. Sales of previously owned homes climbed to a three year high in Nov, reinforcing forecasts that the industry is set to contribute to U.S. annual economic growth for the first time since 2005. Purchases of existing houses increased 5.9% to a 5.04 mn annual rate, the most since Nov 2009.

The U.S. economy grew at a 3.1% annual rate in the third quarter, more than previously reported, reflecting the first gain in state and local government spending in three years, more consumer purchases and a smaller trade gap. The revised GDP reading exceeded the highest projection in a Bloomberg survey and compared with a previously estimated 2.7% gain. The Bloomberg estimate called for a 2.8% advance.

Silver countered the market fall of most commodities on Friday morning recovering as the demand for industrial metals helped its momentum on positive eco data in the US. Silver is trading at 29.773 this morning.

US Dollar Index Forecast December 21, 2012, Technical Analysis

The US Dollar Index fell during the session on Thursday, but found support at the 79 level. This area caused a bounce that formed a nice hammer, and this will have served as notice that the buyers are stepping in and supporting this market currently. This is exactly the type of candle that you want to see if you expect this market to continue higher overall.

Because of this, we feel that this is a bit of a “binary trade”, and as a result it’s a very easy set up for us. We think that buying a break of the top of the hammer is a reasonable place to take a long position, as there are a couple of different things that line up well for it. For example, if we managed to break the top of the scandal it shows that the buyers have in fact repelled selling at the 79 handle. However, if this trade goes against his and we break the bottom of the hammer from Thursday, this shows significant bearishness that not only breaks through a reasonably strong support level, but also breaks the bottom of a hammer at the same time. Because of this, if we get a daily close below the 80 handle, I expect this to be a brutal selloff.

Today will be a very interesting session, as the liquidity in the marketplace is deftly dwindling. With this being said, the moves could be rather a rally, and possibly very swift. This could be a symptom of the “risk off” trade coming back as the “fiscal cliff” talks continue to stall and Washington DC, which of course will bring have a get to the marketplace if there is no solution agreed to.

If this happens, in a twist of irony the US dollar will be purchased as people buy treasury bonds trying to shove those cells from the upcoming recession in the United States. If there is a deal struck though, we could see the US dollar fall in value against most currencies, and by extension fall in this contract. However, we still have a few days of the Congress can get together and do something, and as such we need to see some type of deal soon, or the Dollar will certainly gain.

 

US Dollar Index Forecast December 21, 2012, Technical Analysis
US Dollar Index Forecast December 21, 2012, Technical Analysis

One Yen, Two Yen, Three Yen.. Ten Trillion Yen

One Yen, Two Yen, Three Yen.. Ten Trillion Yen
One Yen, Two Yen, Three Yen.. Ten Trillion Yen
One yen, two yen, three yen and more. The Bank of Japan decided to go back into the printing business this morning and to print more yen to the tune of 10trillion yen. That makes a very big pile of yen. Can you figure out how much space you would need to hold 10trillion yen? Well that is the number that the Bank of Japan told markets today that they would add to their asset buying program.

The funny thing this morning was the JPY was trading against a weak US dollar at 84.40 a multi month high before the release, normal expectations would be to see the yen to weaken farther after the announcement but the reverse happened today, the pair drifted to 84.18 after the release. The EUR/JPY cross is trading near record high at 111.32.

Just a few days ago, Shinzo Abe and the Liberal Democratic Party, won a landslide victory, took over the lower house of Parliament winning over 2/3 of the seats, giving the newly elected Prime Minister a lot of power to push through his policies. A major campaign issue for the Abe was the Bank of Japan and additional stimulus to help the economy recover. It is rare that a central bank becomes an election issue.

Part of Abe’s promise to voters was additional stimulus tied to a higher inflation rate just over 2% compared to the banks current rate of 0-1%. This again is something rare for a politician to push their platform and politics on an independent central bank.

Prior to the banks two day meeting which ended today, Prime Minister elect Abe, visited with the Governor of the Bank of Japan, to offer direction and suggestions and most likely to pressure the bank to yield to his demands.

Markets were already expected the BoJ to add stimulus and the bank met those expectations today, but would not yield to a change in their inflation rate.

The bank said it would review the target at its next meeting in January, after Mr. Abe takes office.  “The Bank recognizes that Japan’s economy faces the critical challenge of overcoming deflation as early a possible,” it said in a statement after wrapping up a two-day policy meeting. It kept a benchmark interest rate steady at a range of zero to 0.1 percent.

But Mr. Shirakawa has repeatedly warned that Japan, which is saddled with the highest level of public debt in the industrialized world, can hardly afford such monetary largesse. The central bank should not bankroll government spending, he has said, and too reckless a pursuit of inflation will wreck the economy.

The bank is worried that if its debt burden gets to high that it might lose its safe haven status or the other side would be a necessary interest rate increase, which could also hurt the M&A business that is conducted through Japan. 

Crude Oil Breaks 90 While Natural Gas Breaks Down

Crude Oil Breaks 90 While Natural Gas Breaks Down
Crude Oil Breaks 90 While Natural Gas Breaks Down

WTI crude oil ended at a two-week high, with traders watching the ebb and flow of optimism in talks over avoiding the “fiscal cliff”.  The American Petroleum Institute reported earlier in its weekly data that crude oil stocks fell 4.099 million barrels last week, as refiners boosted operations by 1.1 percentage point. The trade group said distillate stocks fell 1.877 million barrels, while gasoline stocks rose 4.176 million barrels. . According to a survey of analysts and traders by Dow Jones Newswires, the EIA inventory data was expected to show a decline of 900,000 barrels in distillate stocks (diesel/heating oil) and a rise of 1.5 million barrels in gasoline inventories.  The actual inventory released by the EIA showed a decrease in stock by 1million. Traders immediately pushed oil upward to break above 90.00 but were unable to sustain the price and fell to trade in the low 89.64 price this morning. The US dollar traded weakly yesterday helping to support oil prices increase.

A little-noticed provision in U.S. sanctions against Iran beginning in February is likely to trap payments abroad for its oil exports running into billions of dollars, sapping Tehran of revenue needed to fund the government. With embargos and sanctions tightening, Iran is more willing to come to the table for talks as rhetoric has turned down over past week.

The sudden growth in U.S. oil and natural gas production could eventually lead to a shift in relations with the Middle East as the United States becomes a net exporter of energy, President Barack Obama said in an interview published yesterday, this will also reduce the need for the US strategic reserves.

Crude oil is looking at major increases in production as OPEC will have less say in the global production and an energy independent nation, will have more control over pricing and exports. This shift will have particular consequences on our allies and our political positions in the gulf region.

Tensions in the Middle East also continue to raise supply concerns and pushed the prices higher. We expected Crude oil prices to be up as positive numbers for US manufacturing index today can also boost the prices.

U.S. natural gas ended lower on Wednesday weather forecasts was moderated thus affecting the heating demand for residential use, though traders and speculators have been playing with the prices to buy and sell rapidly. Expect Natural Gas prices to go up as lower inventories expected today can support the prices. Natural gas is trading this morning at 3.339 flat in the early session.

Gold Flat Silver Up

Gold Flat Silver Up
Gold Flat Silver Up

Gold was fairly flat yesterday, after dropping in the previous session to a 3-1/2 month low, as U.S. legislators appeared far from reaching deal to avert tax hikes and spending cuts which could threaten to send the economy back to a recession. Mid-day yesterday, President Obama said that a deal was “close” after saying he would veto the Republican “Plan B”. Markets are hearing a lot of posturing and rhetoric including overnight statements that talks had broken down between the White House and Republican leader Boehner. While other rumors would lead us to believe that a deal could be put to a vote by Friday, ahead of Christmas. Today, we should see some real headway as time is running out.

Rallies in crude oil and a weaker dollar also helped the metal find a firmer footing after Tuesday’s technical sell-off triggered by growing hopes that U.S. legislators are closer to reaching a deal that would avert a fiscal crisis next month. Selling pressure, however, dried up on Wednesday as progress in talks in avoid a fiscal crisis appeared to stall. President Barack Obama accused Republicans of digging in their heels due to a personal grudge against him, while a Republican leader called the president “irrational.” The uncertainty about the U.S. budget talks has dampened investors’ interest in gold. After Tuesday’s sell-off, bullion is on track to end the fourth quarter down almost 6% to match its worst quarterly performance since the third quarter of 2008 at the height of the global economic crisis. That being said one has to realize that gold is trading extremely high and the quarterly loss would be based on exceptionally high prices as gold was driven upwards on the beginning of the quarter after the huge injection of stimulus by the Fed and huge uncertainties over Greece and Spain. Gold had move up to trade just under 1800 with bulls sure that gold would break the 1800 price level, but this never occurred.

Holdings in the SPDR Gold Trust, the world’s largest gold-backed exchange traded fund, stood at 1350.52 tons by Dec 19, remains unchanged from the previous business day. Holdings in the world’s largest silver backed exchange-traded fund iShares Silver Trust stood at 9871.29 tons by Dec 19, remains unchanged from the previous business day.

Gold importers in India, the world’s biggest buyer of the metal, continued picking up bargains for weddings gifts as prices of gold dipped.

Industrial metals prices slipped Wednesday due to uncertainty over the outlook for demand, increased by a fall in the number of U.S. house building projects being started in November, while investors also kept a close watch on budget talks in the United States. Silver fell to trade on 31.125 as precious metal and industrial metal demand waned.

US Dollar Index Forecast December 20, 2012, Technical Analysis

The US Dollar Index fell again during the Wednesday session as the markets continue to try and price in a deal coming out of Washington DC involving the “fiscal cliff” talks. However, we are heading towards the 79 handle, and see this as a significant bottom to the market. We have seen the market essentially grind sideways over the course of the last three months, and as such think that there is high potential for this market to turn back around and bounce.

With that being said, we think that any supportive candle right around the 79 handle looks like an excellent buying opportunity. However, if we managed to get a daily close below the 78.80 handle, we would consider that level broken and start shorting the US Dollar aggressively.

 

US Dollar Index Forecast December 20, 2012, Technical Analysis
US Dollar Index Forecast December 20, 2012, Technical Analysis

JPY Tumbles as Newly Elected Prime Minister Jumps into Action

JPY Tumbles as Newly Elected Prime Minister Jumps into Action
JPY Tumbles as Newly Elected Prime Minister Jumps into Action
Newly elected Prime Minister Shinzo Abe, will not be installed officially until December 26th, but he is wasting no time pushing forward his economic policies and promises made during this campaign.

After winning a landslide victory giving him over 2/3rds control of the lower house of Parliament, Abe has enough votes to overrule the upper house, giving him the ability to push his platform through without resistance.

Abe and New Komeito leader Natsuo Yamaguchi agreed yesterday to compile a large-scale supplementary budget for fiscal 2012 as they kicked off talks to form a coalition government. He also met with Bank of Japan Gov. Shirakawa earlier in the day and urged the central bank to set an annual inflation target of 2% for the consumer price index. During a conversation a day ahead of a two-day BOJ Policy Board meeting, Abe also told Shirakawa that his incoming government wants to reach a policy accord with the BOJ under which the bank will set the inflation target and keep pursuing monetary easing until achieving it. Although, many central banks follow this type of guidance and policy, similar to those being adopted by the US Fed, they remain independent and set the inflation targets, in the case of the Bank of Japan, the political body wants to push through their inflation goal, which is double the rate set by the bank.

The newly elected Prime Minister’s remarks could affect decisions during the Policy Board meeting about the future course of monetary policy. Some market participants said their attention was turning to Shirakawa’s next news conference, scheduled for Thursday. This should be a major event, as the BoJ is expected to add huge stimulus policies.

“I told him that during my election campaign, I called for setting a policy accord with the BOJ and a 2 percent inflation target,” Abe told reporters. “The governor just listened,” he said when asked how Shirakawa responded.

Yesterday’s data gave markets a good view at how bad the economy was hurting. The report printed showing the second largest trade deficit in Japan for last 13 years, although exports were not as bad as expected. The USD/JPY trades at 84.32 breaking its high for 2012. The Nikkei index keeps marching higher breaking above the 10k points mark for first time since early April, up +1.27% in the first minutes of trading helped on weaker yen, as the currency is weakest of all majors. 

Market focus has now shifted to the looming fiscal cliff crisis. The Republicans have softened their position, and it appears that any agreement will include tax hikes on the nation’s wealthiest earners. Privately, President Obama and House Leader Boehner seem to be making headway. Negotiations between the Democrats and the Republicans are in full gear, and lawmakers on Capitol Hill would love to hammer out a deal before the Christmas holidays next week.

Thursday will be an exciting day for the USD/JPY with the Bank of Japan decision and press statement and markets are expecting some sort of announcement from US lawmakers before the holiday break, with perhaps a vote scheduled for Friday. This will be the conclusion of an interesting week.

Gold and Silver Traders Prepare for the Holidays

Gold tumbled to their lowest level in three months yesterday as pessimism over the U.S. budget negotiations pushed prices below a key technical level, triggering a wave of selling. Gold futures fell sharply, to close at the lowest level since late August, with a rise in US homebuilder confidence, progress in negotiations to avert the fiscal cliff and a credit-rating upgrade for Greece dulled metal’s safe-haven appeal. Gold was initially trading unchanged, gold prices turned negative after House Speaker John Boehner said he was working on a back-up plan should talks with President Barack Obama to avoid the “fiscal cliff” fall through. The pair are negotiating a deal to replace a sweeping package of automatic tax increases and spending cuts scheduled to take effect early next year. A failure to reach an agreement would likely send the U.S. economy into a recession, according to several economists. The uncertainty surrounding the negotiations saw some investors sell their gold holdings. Gold soon broke through its exponential 200-day moving average—a closely followed indicator of long-term price trends.

Some investors are opting to avoid the thin trading conditions around the holiday season, which can lead to rapid changes in gold prices during the final weeks of the year, brokers said. Others are opting to take an early break from a market they feel is unlikely to make a substantial move in the coming days due to the uncertainty surrounding U.S. fiscal-cliff talks.

Although negotiations continued yesterday and remarks from the White House and Republicans showed that negotiations were moving forward, behind closed doors, politicians continued their public rhetoric.

Market concerns are no longer focused on the fiscal cliff but on the tax implications of the agreements and its effects on positions and profits at year end. With Christmas holidays just days away with many traders out of the office for several days and many taking holiday leave, trading days are dwindling quickly.

The US dollar continues to weaken as traders move to the euro as positive sentiment and holiday cheer seem to engulf the markets. Yesterday, S&P delivered a pre-holiday gift, upgrading Greece’s debt rating by 6 notches and praising the Eurozone leaders for their guidance through the economic crisis in Greece.

Gold is trading this morning at 1676.15 adding over 5.00 dollar as traders take advantage of a the weak dollar to grab up low priced gold. Gold holdings of SPDR gold trust, the largest ETF backed by the precious metal, declined to 1,350.52 tons, as on Dec 17. Silver holdings of ishares silver trust, the largest ETF backed by the metal, increased to 9,871.29 tons, as on Dec. 17th.

US Housing data and Germany data might affect markets today, but it is not expected to have any effect on gold, precious metals are reacting to news flows which could include Spain, Italy and the US budget negotiations. Gold is expected to remain rangebound today. Silver is following cues from gold this morning trading at 31.763 adding 0.094 cents.

US Dollar Index Forecast December 19, 2012, Technical Analysis

The US Dollar Index fell during the session on Tuesday again, as we continue to chew through the consolidation zone between 80 and 79. Looking at this chart, it does appear that we are favoring the downside, but we need to break down below the 79 handle in order to be comfortable shorting. Until that happens, we see far too much potential support in order to be comfortable taking a trade. However, once we get a daily close below that level, we are more than willing to start selling. Alternately, if we get a supportive candle down near the 79 handle we think it could be an opportunity to play the bounce.

 

US Dollar Index Forecast December 19, 2012, Technical Analysis
US Dollar Index Forecast December 19, 2012, Technical Analysis

Post Asian Markets Forex Round Up

Post Asian Markets Forex Round Up
Post Asian Markets Forex Round Up

As the Christmas holiday approaches, trade volume is beginning to lighten. Volumes are down and commodities and currencies are beginning to find comfortable ranges. The euro is trading at a recent high holding above the 1.31 price level. The EUR/USD is trading at this writing at 1.3170 while the cross of the EUR/GBP is trading at 0.8120 and cable is at 1.6219. The euro gained across the board in early trading on Tuesday morning. There has been no significant news or eco data to support currency movement today, except for some minor data from China. Market sentiment remains positive, as traders rejoice on rumors in the US that President Obama and Republican Leader Boehner have begun to hammer out a deal and that negotiations between the two are making positive headway.

Republican House Speaker John Boehner signaled willingness to move closer to President Barack Obama’s demands as they try to avoid the automatic tax hikes and spending cuts that would take place in the New Year if no deal were reached.

The biggest moves of the day came in the currency market following a landslide election victory for Japan’s LDP on Sunday, which opened the way for a shift in economic strategy to lift the world’s third-largest economy out of recession. The euro rose against the yen as well, but saw its gains on the U.S. dollar undermined by European Central Bank President Mario Draghi, after he reiterated concerns over slow growth of Europe’s economy. The EUR/JPY is trading above the 110.00 price level as traders this morning are making adjustments to yesterday over action and reaction in the currency. The USD/JPY is trading at 84.00 coming off of 84.48

Today, the major market focus will remain the US Fiscal Cliff negotiations. Yesterday Obama offered to back away from his position that tax hikes should begin at $250,000 in annual income, delivering a fresh concession to congressional Republicans as talks to avert the fiscal cliff intensified in Washington.

The White House proposal would leave lower tax rates in place for everyone except those earning $400,000 or more a year. Republican leaders had asked for a higher limit but the offer suggests there is a narrowing in the gap between the two sides.

Mr. Obama is no longer seeking a permanent mechanism to increase the US debt limit, but would settle for a two-year increase in America’s borrowing authority. In a further concession to Republicans, Obama agreed to apply a less generous measure of inflation to government calculation, which would result in lower benefits in the Social Security pension scheme over time a source noted late yesterday.

The economics calendar today is extremely light with UK CPI and PPI being the major data releases. News flow will control market activity and there is a possibility that we might see some headlines from Spain as the economy continues to worsen and Prime Minister Rajoy might be forced to seek relief from the eurozone.

Crude Oil Gains in Asian Trading

Crude Oil Gains in Asian Trading
Crude Oil Gains in Asian Trading

WTI Crude oil prices rose as news of a key U.S. pipeline expansion will be completed next month and optimism about a deal to avoid the “fiscal cliff” prompted spread trading between the two contracts. Brent crude prices declined while US oil futures rose. Crude futures closed higher, buoyed by ongoing tensions in the Middle East as well as on optimism about talks to avoid US tax hikes and spending cuts that threaten to send the nation’s economy into recession. Reports showed that neither side in Syria has an upper hand and that the civil conflict could continue for a long time.

Oil rose for a third day in New York on speculation that an agreement will be reached to avert automatic spending cuts and tax increases known as the fiscal cliff in the U.S., the world’s biggest crude consumer. News hitting the wires last evening showed the President Obama and the Republican House Speaker were making headway and that negotiations were moving forward in a positive manner. Commodities and equities traded on the positive side the catalyst seems to be enthusiasm about the ongoing U.S. fiscal policy negotiations after Republican House Speaker Boehner announced a willingness to consider income tax hikes for those earning more than USD 1 million per year and an increase in the budget ceiling in exchange for Democrats agreeing to cuts to both discretionary spending and entitlement spending.

Last week oil closed at 86.88, range bound between 85.35 to 87.68 oil was trading at 88.12 this morning. OPEC ministers met last week and decided to hold quotas, which is still at the higher end but they agreed to review if production exceeds demand. Chinese data and its expansion plan also helped crude to move higher but EIA inventories were higher than expected. Global growth outlooks remained negative. With a weaker US dollar, oil should have seen more upward action as it was also supported with tensions growing in Egypt and Syria as the US and NATO agreed to send troops and missiles to defend Turkey’s borders.

The only concern is a downward growth forecast ranging from the US to Germany including the UK and the entire euro zone for 2013 continues to be the leading factor which is affecting the crude prices. Beside that the US fiscal cliff and possible recession also hold down the oil prices.

Traders will closely watch negotiations in the US along with the EIA inventory later this week. This should be the last solid week of trading ahead of holiday schedules. Oil is expected to hold below the 90.00 price.

Natural gas closed higher on NYMEX, for the first time in 8-sessions, as revised forecasts showed below-normal temperatures that would spur heating demand. Also traders took advantage of the weak US dollar and the low price of the commodity to pick up a good buy. Natural gas is trading at 3.361 adding 11pts in early morning trading today.

Gold and Silver Drift Between Small Gains and Losses Ahead of the Christmas Holidays

Gold and Silver Drift Between Small Gains and Losses Ahead of the Christmas Holidays
Gold and Silver Drift Between Small Gains and Losses Ahead of the Christmas Holidays

President Barack Obama made a new budget offer that would raise taxes by USD1.2 tn and increase tax rates for households earning more than USD400, 000 a year, up from USD250, 000.Obama’s plan would cut USD1.22 tn in federal spending, including interest savings. House Speaker Boehner and the President meet and phoned several times yesterday, showing signs of serious negotiations and rumors were that the two were making headway easing investor fears. Positive news from Washington helped the US Dollar gain this morning.

Gold climbed from a one-week low, gaining with other commodities including oil on optimism that U.S. lawmakers will reach agreement on the budget. Silver rose from the lowest in more than a month. Silver too rose 0.54%. Gold saw very little volume and continues to trade in a very tight range, almost flat. Gold closed higher, recovering from early losses, supported by a downbeat report about manufacturing activity in the New York region, but the precious metal still remained below the key $1,700 per ounce mark.

Holdings in the SPDR Gold Trust, the world’s largest gold-backed exchange traded fund, stood at 1350.52 tons by Dec 17, down by 0.90 tons from the previous business day. While holdings in the world’s largest silver backed exchange-traded fund iShares Silver Trust stood at 9871.29 tons by Dec 17, remains unchanged from the previous business day.

Hedge funds cut bullish commodity bets by the most in a month as the Federal Reserve warned the US budget impasse may damage the economy and on worries about tax changes and their implications to capital gains and profits. Many investors are dumping trades ahead of year end as tax changes remain an unknown.

There was little in the way of fundamental data to support gold, eurozone exports jumped in October while wages grew moderately in the third quarter, the latest signs that the indebted bloc is regaining its competitive edge. Greece, Spain and Portugal, which have been at the center of the bloc’s 3-year crisis, all have cut their trade deficits by wide margins in the Jan-Sept. period and Italy have swung to a slight surplus compared to a year ago.

Last week the prices of gold and silver continued to downtrend. The concerns regarding the fiscal cliff is one of the main reasons that FOMC decided to expand QE3 by purchasing long term treasuries securities at a pace of $45 billion per month starting January. Even with the US fiscal cliff just days away and a last minute deal is a sure thing which will be temporary solution, still the tax implications are making traders uneasy to build their positions in the market. Many of them are selling even their profitable trades ahead of year end to avoid unknown tax changes, thus volatility and short term selling pressure is incising in the market. Besides that, several reports which were published during last week also affect adversely on the precious metals. These reports include, U.S PPI fell by 0.8% mainly due to the decline in energy rates; the U.S jobless claims declined again by 29k to reach 343k; finally, the CPI also fell by 0.3%.

There is little data due this week, as market volume should continue to decline ahead of the Christmas holidays as traders will be off for several days, with many leaving on Friday and not returning until the following Thursday with Boxing after Christmas. Many other traders will be combing the midweek holiday into a seasonal vacation. Markets are looking at just 2-3 more serious trading days while booking year end profits.

US Dollar Index Forecast December 18, 2012, Technical Analysis

The US Dollar Index fell during the session on Monday, continuing the weakness that we have seen since we broke down below the 80 handle. With this being said, we are presently in the center of a big consolidation area, and as such we don’t really have a trade lined up until we get below the 79 handle. Below there, we feel that this market will really start to fall apart as 79 has been such significant support in the past. However, if we see some type of supportive action between here and 79, we are more than willing to take a chance and go long of this market.

The value of the US dollar will continue to be driven by what’s going on with the congressional talks in Washington DC. As long as the so-called “fiscal cliff” can be avoided, it looks like the markets want to reenter the “risk on” mode, and of course selloff the US dollar. It also appears that the markets are trying to price in some type of deal between Congress and the President, and as such risk assets are starting to be bought in the markets.

As the markets are to feel better about the situation in DC, there is a real chance that the Dollar will be sold off quickly if there is some type of deal announced. Whether or not this could happen between now and the end of the year is a completely different story, however it does look more and more likely that there will be some type of compromise.

If this compromise does in fact happen, we expect the 79 level to be broken in short order, sending this market looking for the 76 handle over the course of the next month or two. Dollar weakness will probably be shown against most currencies around the world, and this particular market may be the way to take advantage of it. As for buying, we will not hesitate to buy supportive action between here and 79, as we think that a failure to break down in this market signals that we are going to bounce fairly significantly.

 

US Dollar Index Forecast December 18, 2012, Technical Analysis
US Dollar Index Forecast December 18, 2012, Technical Analysis

Politics and Holidays Confuse Traders

Politics and Holidays Confuse Traders
Politics and Holidays Confuse Traders

President Barack Obama and Republican congressional leaders remained deadlocked in talks aimed at reaching a deal before Jan. 1 to prevent steep tax hikes and budget cuts that could push America into a new recession. This week’s change in Republican’s stance saying they would consider tax increases on Americans who earn over 1 million dollar per year, showed that these is room for negotiation. Lawmakers are expected to break for the Christmas holiday on December 21stand normally do not return until the first week of the New Year. President Obama has warned policy makers not to make plans for the holidays and he would keep congress seated until there is a deal. This is standard operations for the US, nothing to be surprise traders

The dollar index, which measures the greenback against a basket of six major rivals, edged lower to 79.552,and continues to remain weak over the weekend. The dollar fell from a near 9-month high against the yen and dropped for the fifth straight day against the euro, after a report on US inflation showed prices fell in November for the first time in 6-months, which should allow Federal Reserve to stay on its ultra-easy monetary policy path.

This morning markets are reacting to the weekend win of Liberal Democrats in Japan and Shinzo Abe the new Prime Minister. Abe’s party has won on an overwhelming victory, giving the lower house enough votes to push any policy that Abe’s party endorses through Parliament. The JPY is tumbling against all of its crosses as Abe’s economic policy would be huge stimulus and infrastructure projects.

German Chancellor Angela Merkel warned her European colleagues against premature optimism that the euro-zone debt crisis has been tamed, and urged leaders to stay the course on economic and fiscal policy reforms. European leaders agreed on last week, to press on with further steps to tackle their debt crisis but German Chancellor Angela Merkel threw out a proposal to boost risk-sharing with a fund to help euro zone states in trouble.

Chinese data was strong this week helping markets to trade on a more positive note. China scrapped a ceiling on investments by overseas sovereign wealth funds and central banks in its capital markets, part of government efforts to encourage long-term foreign ownership and shore up slumping equities. SWFs, central banks and monetary authorities can now exceed the $1 bn limit that still applies to other qualified FII.

IMF chief Christine Lagarde upwardly revised the Fund’s estimate of economic growth among developed nations, which she said would increase by 1.6% next year, up from an earlier estimated 1.5%. She told that developing countries should grow by 5.6%, while the global economy is expected to expand by 3.6%.

This week’s focus will remain the US Fiscal Cliff with this the last week before the Christmas holiday season. Next week will see a partial trading day on Monday, Christmas eve and markets closed on Tuesday for Christmas day. In the US most traders will combine the weekend into a 4 day holiday leaving markets quiet next week. Many traders will be closing out yearend positions and also looking for safety ahead of the holidays and unknown tax changes.