Crude Awaits EIA Inventory Reports Due Later Today

Crude Awaits EIA Inventory Reports Due Later Today
Crude Awaits EIA Inventory Reports Due Later Today

Crude oil futures were trading in a range with a slight positive bias tracking a similar movement in the international markets, where prices gained on weak dollar against the euro. However, oil futures witnessed cautious movement yesterday, as the market awaits release of weekly US oil inventory report on later today.  Nymex crude oil declined around 1 percent yesterday on the back of more than expected rise in US crude oil inventories along with rise in the Seaway pipeline capacity to 175,000 barrels from 150,000 barrels a day which runs from Cushing, Oklahoma to the Gulf Coast.

The American Petroleum Institute report last night, US crude oil inventories rose more than expected by 3.2 million barrels to 364.05 million barrels for the week ending on 18th January 2012. Gasoline inventories declined around 1.6 million barrels to 229.61 million barrels and whereas distillate inventories gained by 1.3 million barrels to 132.07 million barrels for the same week. The US Energy Department is scheduled to release its weekly inventories later today and US crude oil inventories is expected to rise by 1.8 million barrels for the week ending on 18th January 2012. Gasoline stocks are expected to gain by 1.5 million barrels whereas distillate inventories are expected to increase by 0.4 million barrels for the same period. 

The International Monetary Fund cut its global growth forecasts and now projects a second year of contraction in the euro region as progress in battling Europe’s debt crisis fails to produce an economic recovery. Global forecast less the eurozone was positive; the EU is the center of the crisis. Saudi oil minister Ali al-Naimi held meetings in Riyadh with the head of the International Energy Agency (IEA) and the Secretary-General of OPEC, Saudi state media reported on Wednesday.

Crude oil on NYMEX was floating near its four month high ahead of the US vote on the debt limit ceiling. US lawmakers voted and approved a bill to move the debt ceiling decisions and debate until May 18th, giving the Treasury the ability to fund the government until that point with no debt ceiling limitations. The vote in the Republican-controlled House was at 285-144, with no votes coming from 33 Republicans and 111 Democrats. Crude along with global risk assets climbed after the vote as the US dollar weakened as traders in more positive moods went off looking for more risk.

Investors are also keeping an eye on the World Economic Forum in Davos, Switzerland, where business and political leaders have gathered to discuss economic issues. In years past Davos was much more of a market focus, with Angela Merkel and Ben Bernanke keynote speakers. This year’s meeting does not have global attention.

A bipartisan group of more than half the 100-member U.S. Senate has urged President Barack Obama to approve the northern leg of the Keystone XL pipeline project, which would connect Canadian oil sands to refineries in Texas. This would provide cheaper transportation of crude oil and a better supply line. The project is likely to be approved as it would also create jobs and help the ailing economy.

Crude oil is trading at 95.56 climbing 33cents this morning after falling close to 95.00 yesterday. Natural gas remains in a fairly tight range trading right under the 3.60 level.

US Dollar Index Forecast January 24, 2013, Technical Analysis

The US Dollar Index went back and forth during the session on Wednesday, but essentially finished the day unchanged. The market is currently stock insignificant consolidation, so this of course makes sense. Also, there were no real major are shattering events over the last couple of days, and this of course led the market simply kind of churn in the general vicinity that it’s and.

Going forward, we see 79 is massive support, and a break below that area would be a great selling opportunity. However, we also understand that if this market gets above the 81.50 level, we should see much higher prices. Until then, this will be a short term scalper’s type of market.

 

US Dollar Index Forecast January 24, 2013, Technical Analysis
US Dollar Index Forecast January 24, 2013, Technical Analysis

US Dollar Index (DX) Futures Analysis – January 23, 2013

A strong rebound rally in the British Pound is one of the reasons why the March U.S. Dollar Index is trading lower overnight. Early in the trading session, the dollar index got a boost when the Sterling followed through to the downside following negative comments from Bank of England Governor King on Tuesday.

King essentially said that the central bank is considering giving up its 2% inflation target for a nominal GDP target. King also said that he expects the economy to show a decline in the fourth quarter. With this news traders pressed the GBP/USD lower in anticipation of the implementation of additional quantitative easing.

Later in the session, comments from U.K. Prime Minister Cameron triggered a reversal in the British Pound.  Cameron’s comments centered on a referendum on EU membership. The rapid rally in the Sterling helped drive the March U.S. Dollar Index lower along with a firm Euro and an improving Japanese Yen.

Daily March U.S. Dollar Index
Daily March U.S. Dollar Index

Technically, the March U.S. Dollar Index is under pressure for a second day after finding resistance inside of a major retracement zone at 80.27. This price essentially landed inside of a retracement zone bounded by 80.20 to 80.39. Although it wasn’t actually tested, a downtrending Gann angle from the 80.99 top is at 80.24. This angle combines with the 50% level today to form a resistance cluster at 80.20 to 80.24.

The dollar index weakened on Tuesday when it failed to hold an uptrending Gann angle from the 79.40 bottom at 80.15 today. This set up the break into another uptrending Gann angle at 79.77. This angle was tested overnight and became short-term support when the market rallied. A failure to hold this level will likely mean a test of 79.59 later in the session.

Based on the short-term range of 79.40 to 80.27, a minor retracement zone has formed at 79.84 to 79.74. This area is currently being tested. Yesterday it held as support so it is possible that buyers are stepping in to prevent a total collapse in the index.

One reason why the March U.S. Dollar Index is holding in a support zone may be because investors feel it will rally if the U.S. debt ceiling talks fall apart. This would trigger a flight to safety move which would send the index soaring. Investors appear to be trying to establish support while they wait out the negotiations. 

US Dollar Index Forecast January 23, 2013, Technical Analysis

The US Dollar Index initially fell during the session on Tuesday, but got enough support at 79.60 level in order to bounce and form a hammer. Looking at the set up right now, a break above the Friday highs should open the door to the 80.50 level in relatively short order. However, we could also break down but see quite a bit of support at 79 itself. If we can get below that on a daily close, we think this market could begin to really selloff. As far as buying is concerned, if we managed to get above the 81 handle, we think this market could really take off at that point. In the meantime, we are simply trading this from shorter-term perspective as it does looks like a market once to consolidate and grind sideways.

 

US Dollar Index Forecast January 23, 2013, Technical Analysis
US Dollar Index Forecast January 23, 2013, Technical Analysis

US Dollar Index (DX) Futures Analysis – January 22, 2013

The March U.S. Dollar Index is under pressure this morning in a volatile, active session. The selling pressure is in reaction to the surprise news that the Bank of Japan is going to adopt an open-ended commitment to buy assets next year. Also underpinning the Yen is the news that the BOJ doubled its inflation target to 2 percent. The Australian Dollar and New Zealand Dollar are also soaring on the news.

A stronger Euro is also pressuring the dollar. News that the German ZEW Survey for Economic Sentiment beat expectations by rising to 31.5 is fueling the rally. Analysts are saying that this news may encourage Bundesbank to revise its GDP outlook.

Daily U.S. Dollar Index
Daily U.S. Dollar Index

Technically, the U.S. Dollar Index ran into resistance as it approached a major 50% level at 80.20. The failure to overcome Gann angles at 80.16 and 80.25 also led to renewed selling pressure. With nowhere to go but down, the index dropped quickly into an uptrending Gann angle at 79.78. If downside momentum continues, then this angle should fail, leading to a test of 79.59.

Additionally, the new short-term range is 79.40 to 80.27. The retracement zone of this range is 79.84 to 79.74. The index is currently testing this zone. Buyers may step up inside this zone in an effort to form a potentially bullish secondary higher bottom. A successful test of this retracement area could trigger a shift in sentiment later today. Day traders should pay close attention to the activity inside 79.84 to 79.74. 

The EUR Strong Ahead of Eco Data

The EUR Strong Ahead of Eco Data
The EUR Strong Ahead of Eco Data
Yesterday in economic news, Germany’s producer price index fell last month, official data showed on Monday. In a report, Destatis said that German Producer Price Inflation fell to a seasonally adjusted annual rate of -0.3%, from -0.1% in the preceding month.  The Spanish trade deficit dropped by 29.5 percent from January to November 2012 compared to the same period of 2011, the Spanish Ministry of Economy and Competitiveness reported on Monday.

US markets were closed to the Martin Luther King Holiday as President Obama was officially inaugurated in grand celebrations in Washington, which was the main news focus yesterday. There was little else in headlines and very little eco data to support moves the US dollar.  The euro slipped against the U.S. dollar, but the change was nearly imperceptible. After gaining nearly 10% during the past six months, the euro has been confined to an exceptionally narrow range closing at 1.3313 This morning the euro was able to climb to 1.3343 after the Bank of Japan announced its new inflation target of 2% and ongoing aggressive asset purchases.

Today markets may see the euro come under pressure as German and Austrian warning that direct bailout will not be widely available before 2014, when ECB will take its role as single supervisor and ESM will be the last resort to lend. The euro may come under pressure ahead of Spain GDP due today. However, expected improvement in the German and eurozone ZEW survey numbers may limit the downside pressure.

In view of last week’s weaker than expected Q4 German GDP release, investors will be training their attention on forward looking indicators like the ZEW. Consensus is for continued improvement in the “expectations” component. Such an outcome would see anticipated growth pull even further away from the constrained “current conditions” measure. Fiscal uncertainties however should continue to temper investor growth expectations through Q1 2013. Indeed with ECB policy yet to show its hand with regard to OMT policy, a meaningful rebound in hard data still fails to support such expectations.

The euro may weaken swiftly in coming months if manufacturing and employment indicators remain subdued contrasting against over-optimistic growth expectations. 

Gold and Silver Climb After Bank of Japan Decision

Gold and Silver Climb After Bank of Japan Decision
Gold and Silver Climb After Bank of Japan Decision

In Asian trading this morning gold climbed by $6.00 to trade at 1693.15 as it continues a slow climb to the resistance at 1700. Over past weeks gold has march close to the 1700 level reaching as high as 1698 but was unable to break above. This morning the Bank of Japan announced unlimited ongoing aggressive stimulus which has helped give gold momentum to climb. US markets were closed yesterday for a local holiday, and US lawmakers are expected to once again deal with the debt ceiling and spending cuts, which might help support gold’s momentum later today. Gold prices ended yesterday amid low physical demand despite firm global cues. Silver, however, gained further on continued speculative off-take and good demand from industries.

From the economic calendar traders can expect the US existing home sales to increase. According to the mortgage bankers’ association, the jump in applications happened due to a fall in mortgage rates. So, home sales may continue to rise. Since July 2012, inventories of distressed properties are declining and sales of such homes account for 22% of existing home sales. A drop in mortgage rate would have raised the affordability and so existing home sales may increase. The dollar is therefore likely to remain strong which should pressurize gold in the US hours.

India Monday increased the import tax on gold for a second time in 10 months in an effort to cut demand for the yellow metal, one of the biggest contributors to the country’s large current-account deficit

The gradual rise in trading volume is likely to reduce the price volatility of gold and silver. The main event to this context will be held at the end of the month – the first FOMC meeting. This meeting might confirm whether the FOMC is planning to slow down its monetary expansion or not. Last week Mr. Bernanke didn’t offer any insight regarding the future steps of the Fed thus traders are keen to watch the first FOMC meet. The recent rally of precious metals coincided with the rally of other commodities such as oil and stocks markets but perhaps this rally is just part of the whole January effect.  The uncertainty around future steps U.S policymakers will make market choppy but a decision on spending cuts and increase of debt ceiling could keep contributing to the rally precious metals

Holdings in the SPDR Gold Trust, the world’s largest gold-backed exchange traded fund, stood at 1332.61 tons by Jan 21, remains unchanged from the previous business day. While holdings in the world’s largest silver backed exchange-traded fund iShares Silver Trust stood at 10734.99 tons by Jan 21, remains unchanged from the previous business day.

Silver remained very strong, as precious metals gained this morning along with base and industrial metals. Industrial metals prices traded little changed yesterday as apolitical attempt to break a budget impasse in the United States revived risk appetite, but were offset by still weak physical demand from top consumer China. This morning Bank of Japan announcement helped lift metal prices. Silver is trading at 32.030 adding 98 points this morning.

US Dollar Forecast January 22, 2013, Technical Analysis

The US Dollar Index did very little during the holiday shortened Monday session as Americans were all celebrating the birthday of Martin Luther King Jr. With that being the case, volumes were extraordinarily low in the marketplace simply did almost nothing. It should be noted though that we managed to close above 80 for the second day in a row, and this signals that we may be heading towards the 80.50 level in the short term. Nonetheless, we are in the middle of a larger consolidation area and see this as a market that’s a 50-50 proposition at best right now.

 

US Dollar Forecast January 22, 2013, Technical Analysis
US Dollar Forecast January 22, 2013, Technical Analysis

US Dollar Index (DX) Futures Analysis – January 21, 2013

With U.S. markets closed for a holiday, volume is down in the Forex markets, pressuring the March U.S. Dollar Index. Traders are paring their long U.S. Dollar positions ahead of an anticipated quiet trading day.

The Japanese Yen is trading stronger against the U.S. Dollar. With the start of a two-day BOJ policy meeting, traders are positioning themselves for either aggressive action from the central bank or another disappointment. Oversold conditions are leading to a stronger British Pound. Markets that reversed course to the downside last week like the Euro and Australian Dollar are also showing signs of strength today. All of this action is leading to a weaker dollar.

Investors still aren’t sure whether a compromise over the debt ceiling will be bullish or bearish for the dollar. Some feel that it will lead to a stronger economy which will be bullish. Others feel that it will strip out some of the uncertainty in the markets, leading to greater demand for higher risk assets.

U.S. Dollar Index
U.S. Dollar Index

Based on the main range of 80.99 to 79.40, a major retracement zone was created at 80.20 to 80.39. This zone was tested on Friday when the market reached 80.27. This morning’s weakness was probably triggered by technical selling inside of this zone.  Downtrending resistance is at 80.31.

A new short-term range is forming between 79.40 and 80.27. This makes 79.84 to 79.74 a potential downside target. Currently the market is straddling an uptrending Gann angle at 80.03. A failure to hold this angle should set up an eventual break to a slower-moving Gann angle at 79.72. This angle could be tested within the next 2 days as it crosses the retracement zone. 

Monday Morning Look at the EUR, GBP, JPY and USD

Monday Morning Look at the EUR GBP, JPY and USD
Monday Morning Look at the EUR GBP, JPY and USD

US markets are closed today for the Martin Luther King holiday, as President Obama’s inauguration captures global headlines. The main event of the day will be Mr. Obama’s speech to the American public outlining his goals for the next four years, his views on the fiscal cliff and debt ceiling and his attempts to pull together US lawmakers from both parties. The global economics calendar is thin today and there is not much expectations for the currency markets.

The US dollar started the week on a soft tone against a basket of currencies as the risk rally sparked by the unanimity of the ECB’s decision combined with positive comments from Mario Draghi, continued. Last week just about every Finance Minister and Central Banker was heard from, the outcome was that Mr. Draghi’s comments the prior week saying that he sees the EU beginning to recover in the second half of this year kept euro traders sentiment in a positive mode.

The greenback started to gain traction at mid-week as data released from the US manufacturing sector disappointed the market and pushed investors towards safer assets. However, better-than-expected employment and housing data in the US along-side falling borrowing costs in Spain fuelled the risk-on trade and sent investors chasing higher-yielding assets such as stocks and abandoning their safe-havens. Nonetheless, the move was limited by constant US debt concerns.

The euro reached a high of 1.3404 as the risk rally from the previous week continued. However, the single currency lost most of its gains after comments from EU Finance Minister Jean-Claude Juncker that the euro level is “dangerously high,” pushing the currency to the low of the week at 1.3257. The currency gained dramatically on Thursday as positive figures from the US and China pushed investors to riskier assets. The Euro closed the week at 1.3321.

The GBP lost ground throughout the week, as sentiments on the economy remained vulnerable after a recent series of weak economic data, including a contraction in the services sector in December that fuelled concerns over a triple-dip recession. The sterling pound started the week at 1.6132 and then reached a high of 1.6155 but quickly lost its gains. The pound broke a number of key support levels to reach a low of 1.5854, and closed the week at 1.5870. An all-important speech by Prime Minister David Cameron on the future relationship between the UK and the Eurozone was postponed due to the terrorist situation in Algeria.

The JPY continued to tumble across the board, as investors anticipate aggressive bond purchasing programs to be added to match the expected target of two percent on the Bank of Japan meeting which starts later today. The yen gained some traction amid comments from the Japanese finance minister that a weaker yen would hurt the economy. On Friday, the yen dropped versus the US dollar to reach 90.21 amid news that the BoJ will engage in an unlimited bond buying programme, an effort to push inflation to two percent, its highly anticipated target rate. The yen gained some footing as concerns over the US debt ceiling pushed the currency to 89.70 levels. The Japanese yen closed the week at 90.10. The JPY climbed a bit this morning as traders booked profits and pushed the JPY above the 89.00 price level.

US Dollar Index forecast for the week of January 21, 2013, Technical Analysis

The US Dollar Index had a slightly positive week over the last five sessions, but more importantly managed to break above the 80 handle which was a short-term resistance area. If you look at the overall shape of the chart, we have a slightly up trending support line that could also be read as a potential next for a head and shoulders pattern.

Because of this, we have to assume at first that this trend line will continue and that buying is probably the only route to go at this point time. However, it looks awfully congested in this general vicinity to do so. On the other hand, this does show that if we get a significant break to the downside, this could be a 500 points move in the making based upon the height of this potential pattern.

 

US Dollar Index forecast for the week of January 21, 2013, Technical Analysis
US Dollar Index forecast for the week of January 21, 2013, Technical Analysis

US Dollar Index January 21, 2013, Technical Analysis

The US Dollar Index had a strong showing during the session on Friday, and even managed to break above the 80 handle. While this is in a major area, it does represent the midpoint between 79 and 81 which we used as the boundaries for recent consolidation. If you look at the longer-term charts, there is an upward bias lately, as we are starting to gently trend higher. Because of this, we are comfortable buying this market on a break above the highs from the Friday session as we think a return to 81 is well within grasp. However, if we break down below we would need to see a daily close below the 79 handle in order to start shorting.

 

US Dollar Index January 21, 2013, Technical Analysis
US Dollar Index January 21, 2013, Technical Analysis

US Dollar Index (DX) Futures Analysis – January 18, 2013

Sharp sell-offs in all major currencies triggered a strong surge in the March U.S. Dollar Index. Traders should look for a higher opening although the index is testing a major 50% level which could trigger a technical bounce.

The Dollar Index popped when the market failed to react to strong Chinese growth data. The bullish number should have fueled more demand for higher risk assets. When currencies hesitated, traders saw this as a sign of weakness and pounced on the dollar, driving it sharply higher.

Daily March Dollar Index
Daily March Dollar Index

Technically, the March Dollar Index futures contract reached the objective we had pinpointed earlier in the week. Based on the main range of 80.99 to 79.40, expectations were for a rally to at least 80.09 to 80.25. Overnight the index reached a high of 80.13 before profit-takers took control, triggering a slight intraday break.

Although there may be a slight pullback to an uptrending Gann angle at 79.90, there is still a strong bias to the upside. If momentum continues to build, then the index may take out the retracement zone and reach a downtrending Gann angle at 80.37. 

Global Markets Trade on Positive Note

Global Market Trade on Positive Note
Global Market Trade on Positive Note

European exchanges closed higher on Thursday as encouraging sales figures from retailers Carrefour and Associated British Foods helped offset losses in the mining sector. US Stocks ended sharply higher Thursday, with the S&P 500 at its best level in more than five years, as Wall Street cheered a pair of encouraging data and largely shrugged off weakness in financials. Asian markets are climbing this morning as the JPYcontinues to weaken and on positive data from China.

The rebound in U.S. homebuilding accelerated in December, capping the best year for the industry since 2008 and adding to signs residential real estate is contributing to economic growth. Manufacturing in the Philadelphia region unexpectedly contracted in January, an indication companies are becoming more concerned about across-the-board U.S. government spending cuts that could slow growth.  The number of Americans filing first-time claims for unemployment insurance payments fell more than forecast last week to the lowest level in five years, pointing to further improvement in the labor market. Applications for jobless benefits decreased by 37,000 to 335,000 in the week ended Jan. 12.

Federal Reserve officials are voicing increased concern that record-low interest rates are overheating markets for assets from farmland to junk bonds, which could heighten risks when they reverse their unprecedented bond purchases.

The euro approached a 10-month high against the dollar as Spain’s borrowing costs fell at a 4.5 billion-euro ($6 billion) sale of bonds, underscoring increased confidence in European debt markets. The International Monetary Fund agreed to disburse 839mn Euros ($1.1bn) to Portugal under a loan with the European Union and said the country needs a public debate on ways to further reduce its deficit.

China released its monthly data dump with most reports printing above expectations. Chinese GDP reported at 7.9% against expectations of 7.8%, while industrial production and retail sales soared above forecast. The Chinese economy expanded more than expectations in calendar 2012, according to data from the National Bureau of Statistics of China. Despite the result, annual growth has now slowed for a second straight year in the face of weakness at home and in key overseas markets. The data showed gross domestic product (GDP) in the year grew a seasonally adjusted 7.8 per cent.

The statistics bureau also released other key indicators this morning. Industrial production grew 10.0 per cent in 2012 and 10.3 per cent in December year-on-year. Retail sales, China’s main gauge of consumer spending, increased 14.3 per cent in 2012 and 15.2 per cent in December.

A decade and a half after Japan slumped into deflation; the central bank is set to signal its strongest effort yet to reverse the trend. The biggest challenge may be that the nation has come to rely on falling prices. More than 80 percent of respondents in a Bank of Japan survey released this month who noticed rising prices last year said it was bad.

Prime Minister Abe said yesterday that he is seeking a “soul mate” to head the Bank of Japan, someone who sees the future of the Japanese economy in the same frame as he does. This is interpreted to mean ongoing monetary stimulus.

A key address by Prime Minister Cameron on the relationship between the UK and the Eurozone has been postponed due to the terrorist acts in Algeria as Ministers prepare a joint statement today.

Gold Soars Close to 1700

Gold Soars Close to 1700
Gold Soars Close to 1700
Early morning the Chinese industrial production, retail sales and GDP data all turned out to be higher and supported optimism in riskier assets including base metals. The Asian equities have braced the positive news supported by better US equities performance yesterday. Precious metals prices climbed to one month high yesterday as a weak reading on Philly Fed manufacturing underlined the view that U.S. growth may not be robust enough for the Federal Reserve to pull back on its accommodative monetary policy. Gold climbed to trade at 1690.00 yesterday and this morning has given back a few dollars to trade at 1687.75. Silver did not follow suit but Platinum soared.

China’s Gross Domestic Product (GDP) rose by 7.9 percent in Q4 of 2012 as against a previous rise of 7.4 percent in Q3 of 2012. Fixed Asset Investment was at 20.6 percent in December from 20.7 percent in November. Industrial Production grew by 10.3 percent in December as compared to rise of 10.1 percent a month ago. Retail Sales increased by 15.2 percent in December with respect to earlier rise of 14.9 percent in prior month

Persistent concerns over the health of the U.S. economy and pressure on the dollar will send gold prices to a record average high this year; Thomson Reuters GFMS said on Wednesday, before the metal’s 12- year bull run tops out late in the year. Ongoing negotiations over the debt ceiling and budget and spending cuts continue to weigh on traders, as no progress seems to be made. Negotiations seem to be following the same course as they did at the end of December, with lawmakers, pushing off decisions until the last moment and hastily passing a bill to postpone most of the tough decisions. Treasure Secretary Geithner says that he is using “extraordinary measures” to continue to fund the government. On the flip side, US data continues to print on the positive side, with unemployment claims declining and new housing starts climbing to recent highs. The Federal Reserve Beige Book showed the economy expanding cautiously.

Gold climbed due to higher physical demand from Asia and as dollar eased after positive US data which supported gold. Gold was also supported ahead of the BOJ policy meet which is expected to take bold steps for monetary easing

Gold in India is expected move in a range as a stronger rupee can put pressure on gold prices while expectations for duty hike and bargain prices can lead to fresh buying. Gold holdings of SPDR gold trust, the largest ETF backed by the precious metal, declined to 1,332.61 tons, as on Jan 17. Silver holdings of ishares silver trust, the largest ETF backed by the metal, increased to 10,734.99 tons, as on Jan 16.

The dollar index, which measures the US unit against a basket of six major currencies, slipped to 79.691.

Gold is expected to remain in a tight range for the rest of the day with little eco data due and the main event, which was David Cameron’s address on the relationship between the UK and the EU has been postponed as global ministers prepare a joint statement on the Algerian terrorist attack of a gas facility.

US Dollar Index Forecast January 18, 2013, Technical Analysis

The US Dollar Index initially tried to rally during the session on Thursday, but met significant resistance at the 80 handle in order to pullback and formed a shooting star for the session. The market is still within a larger consolidation area that is bordered by both 81 and 79, so we are not overly pressed to take any large positions at this point time.

We believe that the 79 level should offer significant support, but if it does get broken down we think that this market could rocket much lower. This is because the 79 level has been so supportive, and this of course would represent a significant sea change in sentiment towards the US dollar. On a break of that level, we suspect that you will have quite a few choices as to how you want to short the US dollar in general. You can use this market of course, but we also suspect that commodity currencies will do quite well if we break down below that level also.

It’s obvious that the Euro would be a good choice also, as it is 40% of the Dollar Index. However, we feel that there aren’t plenty of other ways to play the anti-dollar sentiment if we get that break down and the European Union still offers plenty of headline risks out there.

As for buying, we now have to clear the 80 level as breaking the top of the shooting star would be enough to get us interested in going long, but it shows just how much trouble we are running into at 80 based upon the scandal. We would be interested in buying a supportive candle down near 79, just simply because the risk to reward ratio is so high at that point. Nonetheless, we think that this market is going to continue going sideways overall, but with a decidedly bearish bias over the next couple of sessions. Again, keep an eye out for the breakdown in a daily close below 79, as I could lead to fairly significant moves.

 

US Dollar Index Forecast January 18, 2013, Technical Analysis
US Dollar Index Forecast January 18, 2013, Technical Analysis

US Dollar Index (DX) Futures Analysis – January 17, 2013

After early session strength, the March U.S. Dollar Index is trading weaker. The dollar is taking heat this morning in a delayed reaction to yesterday’s dovish Federal Reserve Beige Book. In addition, the overnight strength in the Euro, triggered by a drop in Spain’s borrowing costs is also contributing to the dollar’s weakness.

A dollar is also weakening against the British Pound which is rebounding following a four day setback. Supporting the dollar this morning is a weaker Australian Dollar and Japanese Yen. The Aussie weakened on an unexpected drop in employment while the dollar is shaking off the recent sell-off against the Yen.

The mixed currency moves leads me to believe that we could be looking at a choppy, two-sided trade today unless the Euro challenges the high this week at 1.3403. If this occurs, the Dollar Index is likely to weaken throughout the session.

Technically, the March U.S. Dollar Index ran into resistance at the high for the week at 79.95. In addition, a downtrending Gann angle from the 80.99 top may have contributed to the sell-off when the market failed to breakout over 79.87. This price could become resistance later in the session.

Daily March Dollar Index
Daily March Dollar Index

The failure to hold an uptrending Gann angle at 79.78 also contributed to an acceleration to the downside overnight. This sets up the possibility of a further decline into 79.59.

Based on the short-term range of 79.40 to 79.95, a retracement zone was formed at 79.68 to 79.61. The market is currently testing this area. A possible support cluster has formed at 79.61 to 79.59. A test of this area could trigger a technical bounce.

Traders should pay close attention to the activity inside 79.68 to 79.61. It is possible that traders are trying to establish a secondary higher-bottom inside this zone. This will be a strong sign that the sentiment is starting to shift to the upside. 

The EUR/USD Wanes As World Bank Lowers Growth and Forecast

The EUR/USD Wanes As World Bank Lowers Growth and Forecast
The EUR/USD Wanes As World Bank Lowers Growth and Forecast

The euro has been bouncing up and down on words from European leaders. The euro regained ground against the greenback yesterday after an ECB policymaker soothed investor concerns that officials might take steps to undermine the currency’s recent strength. ECB member Ewald Nowotny said the exchange rate was “not a matter of major concern”, contrasting with comments from Eurogroup head Jean-Claude Juncker who on Tuesday prompted investors to sell the euro by saying it was “dangerously high”.  The euro is trading at 1.3280 as it continues to lose momentum against the US dollar. There is no eco data due in the zone today. Yesterday, the Federal Reserve presented the “Beige Book” which showed the US economy is good shape and “expanding”. The report, known as the Beige Book, reports on the economic conditions of the Fed’s 12 regional banking districts. The Fed said 12 of its regional banking districts reported “modest or moderate” growth in the final weeks of 2012.

The World Bank and the IMF have been very active over the past days.  The International Monetary Fund said it would release 3.2 billion euros in aid to Greece that had been frozen for months amid fears about the country’s ability to surmount its debt crisis.

The World Bank cut its global growth forecast for this year as austerity measures, high unemployment and low business confidence weigh on economies in developed nations.
The Washington-based bank projected the world economy will expand 2.4%, down from a June forecast of 3%, after growing 2.3% in 2012. It halved its forecast for Japan, cut the US projection by 0.5 percentage point and predicted a second year of contraction in the Euro region. It also lowered projections for emerging markets led by Brazil, India and Mexico. 

A report from Thomson Reuters said that Spain, Greece and Portugal face a tougher 2013 than previously thought, while the outlook for growth in Ireland, the only bright spot among the euro zone’s most vulnerable economies, and was cut for the first time in nearly a year. A Reuter’s poll of 46 economists published on Wednesday showed austerity has caused the southern economies to shrink far more than authorities predicted but will only lead to slow fiscal improvement and unemployment will keep rising. The gloom is incongruous with optimism in financial markets that started when European Central Bank President Mario Draghi promised in July to do “whatever it takes” to preserve the euro.

The euro recently climbed over 1.34 after comments from ECB Draghi said that the eurozone was beginning to recover and said that we should see a turnaround in mid-2013, which is contrast to the numbers and eco data released afterwards. The positive sentiment towards the euro is waning in light of this contrary data and reports.

The US will look at housing data today which could further support the strength of the greenback.

EIA Inventory Surprises Crude Oil Speculators

EIA Inventory Surprises Crude Oil Speculators
EIA Inventory Surprises Crude Oil Speculators
Global crude oil prices are trading at 94.28 this morning, with a marginal change from yesterday’s closing. Traders might expect oil prices to gain as fuel demand has been increased for the first time in last three months in the US. Secondly, the Beige Book said:

“Reports from the 12 Federal Reserve Districts indicated that economic activity has expanded since the previous Beige Book report, with all 12 districts characterizing the pace of growth as either modest or moderate.”

Positive sentiment may support oil prices to take positive cues. However, concern from eurozone may be seen after a downward revision in Germany growth outlook. Reports from the World Bank have also downgraded the economic situation in Japan, which will weigh on demand. There are no economic releases from Europe today.

Crude oil prices rose yesterday, after an Algerian gas field came under attack from Islamist militants and as data showed crude stocks fell in the United States last week. Traders were well surprised by the outcome of this week’s EIA inventory. Crude oil inventories fell 951,000 barrels, gasoline stocks rose 1.91mn barrels and distillate stocks rose 1.69mn barrels, as per EIA.  Crude stocks at Cushing rose by 1.78mn barrels to an all-time high of 51.86mn barrels, as per EIA. Markets had been expecting an increase in stocks.

The dollar held showed gains against the euro, as Japan’s yen slowed its pace of appreciation, with some technical levels and comments from central bank officials leading traders to reversed bets. The stronger US dollar weighed

The International Monetary Fund agreed to disburse 3.2bn Euros ($4.3bn) to Greece, after the country made new budget cuts, received more favorable aid terms from European nations and conducted a bond buyback.

WTI crude oil prices are expected to trade in an upside direction with limited gains ahead of the US economic releases tonight. Increase in housing starts and building permits of the US is likely to support oil prices on speculation of higher fuel consumption.

Natural gas futures closed lower on Wednesday, for the first time in five sessions and continued to decline on Thursday morning to trade at 3.420, pressured by some profit taking ahead of Thursday’s weekly inventory report despite colder weather in the Northeast and Midwest this week that has boosted demand. Natural gas inventories are expected to decline by 137bn cubic feet, actual data will be released by EIA later in the day.

Thomson Reuters Survey Says Gold Could Top $1900

Thomson Reuters Survey Says Gold Could Top $1900
Thomson Reuters Survey Says Gold Could Top $1900

A new outlook and revision released yesterday to its Gold Survey 2012, Thomson Reuters GFMS said it expects gold to extend its more than a decade long bull run in 2013, with prices potentially testing $1,900 per ounce in the first half of the year, as solid demand for the metal from central banks and from opportunistic buyers in India and China outweighs a “sizeable bearish contingent” in the market. This report helped give markets a boost as gold broke above the 1680 price level. Gold futures declined, pulling back after gains over the past two trading sessions, but prices finished well off their lows of the day amid upbeat prospects for investment demand. This morning gold is trading at 1678.05 relaxing a bit. Gold prices are consolidating in a tight range since two days failing to breach strong resistance at $1685 levels.

Despite the Beige book indicating economic growth was held down by the fiscal policy, gold could not recover. It means fundamental weakness is still working on gold while the market division is also playing a pivotal role in gold’s move on intraday basis.

Gold holdings  of SPDR gold trust, the largest ETF backed by the precious metal, declined to 1,334.42 tons, as on Jan 16. Silver holdings of ishares silver trust, the largest ETF backed by the metal, increased to 10,734.99 tons, as on Jan 16.

Reports today are likely to show an improvement in the US housing sector. Building permits are expected to improve while the starts may increase at a slower pace after the US housing delinquencies reduced in recent times. However, the Philadelphia Fed manufacturing may not improve much after the Beige book indicated except three regions among the twelve in US could not improve much in manufacturing. Overall, traders can expect the housing sector release will the major support for the dollar to get strengthen and hence gold may remain under pressure. There are no euro area releases today. Gold is expected to remain range bound in today’s session moving between the 1670-1685 price levels.

Base metal were trading lower mirroring similar trend in contracts on the London Metal Exchange, where prices declined on firm US dollar against the euro  trading now at 1.3302 and caution in the market ahead of China’s growth data. Investors avoided taking major positions due to caution  ahead of China’s gross domestic product data due to release on Friday. Silver fell by 0.65% ($31.33) this morning. Silver however may rebound as the investment demand is remaining at its peak. ETP holdings rose by 50tons yesterday while the I-share holdings have also increased.