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Another Stalled Drive in Risk Appetite and Tumble for the Dollar Keeps Crude Below $83

Another Stalled Drive in Risk Appetite and Tumble for the Dollar Keeps Crude Below $83

2010-03-30 23:38:00
John Kicklighter, Chief Currency Strategist
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North American Commodity Update

Commodities - Energy

Another Stalled Drive in Risk Appetite and Tumble for the Dollar Keeps Crude Below $83

Crude Oil (LS NYMEX) - $82.45 // $0.28 // 0.34%

Fundamental and technical interests are working together to prevent crude oil from fully developing a renewed bull trend. From price action itself on the benchmark commodity, bulls seem to have lost conviction just below a frequently tested and repeatedly fortified range high in $83. What’s more, this particularly level isn’t even the psychological high that most non-technical traders will react to. Rather, the $84 swing high set back on January 11th will be the level at which the broader markets start paying attention. Technical’s aside, Monday’s momentum (leading to the biggest advance for the active NYMEX crude futures contract in six weeks) was handily sidelined by curbed investor sentiment noted in other risk-sensitive asset classes. Most notably, the Dow Jones Industrial Average maintained chop that has developed over the past week and the US Dollar advanced for the first time in three days. Risk appetite was setback Tuesday by a deteriorating situation in Greece. Just days after the EU reached an accord the member economy has already accessed the debt market twice; and weak demand has cast a long shadow over the nation’s financing abilities over the near and medium-term future.

From speculative concerns to growth’s influence on energy demand, only a few big ticket indicators were available for release; but they carried enough influence to alter the perception of consumption for the immediate future. From the Japanese economy (the world’s third largest energy consumer), a steady bearing on the unemployment rate was offset by notable declines in household spending and industrial production. For the biggest consumer of fuel, the US, consumer confidence ticked higher for March on improved employment perceptions; but plans to make purchases of autos matched a record low. For influence over the crude market, tomorrow’s factory activity report will hold far greater tout. Refocusing on the supply-and-demand in the oil market itself, the American Petroleum Institute’s (API) inventory reading for the week ending March 26th reported a 421,000 barrel increase in crude stockpiles. This goes a long towards confirming a cooldown in tomorrow’s Department of Energy report for the same period. The 2.5 million barrel increase in crude stores would extend the build to a ninth consecutive month. A comparison of demand, imports and refinery capacity are far more important than the headline change though (though not when it comes to immediate volatility). Outside the normal flux of investor appetites and supply-and-demand balance, there was a remarkable announcement that has preceded the biennial International Energy Form ministerial meeting. International Energy Agency Director Tanaka suggested that the IEF, IEA and OPEC would work together to reduce market volatility. They supposedly intend to accomplish this through greater transparency and shared expertise in forecasting; but regulation is likely the only aspect that could truly have a dramatic impact on price future price action.

COM330a

Commodities - Metals

A Dollar Bounce Curtails Gold’s Weak Advance

Spot Gold - $1,104.40 // -$5.33 // -0.48%

Just as the dollar index put in for its first advance in three days, its on-again, off-again hedge would subsequently put in for its first decline in four active sessions. The correlation between the two is still remarkably strong, a relationship that can likely be attributed to the recent stability in investor sentiment and sovereign debt risk concerns. Nonetheless, these multiple roles expose the precious metal to sudden swings and bursts of volatility should any one of them spring to life or a complicated fundamental interpretation of events should multiple roles begin to conflict. Today, the dollar’s advance fit nicely into the scenario of speculative caution that was roused by Greece’s debt auction shortfalls. The nation was perhaps zealous in tapping the market Monday with a 5 billion euro auction just days after a plan for rescue was agreed upon. However, with Tuesday’s surprise 12-year auction (which fell remarkably short of its cap 1 billion euro offer), there is now little doubt that the international market is still wary about the credit worthiness of the EU member. And, certainty is not beneficial when it pertains to doubt. On the other hand, the concern surrounding Greece has not gotten to the point where gold’s appeal as an alternative to traditional fiat currencies as a store for wealth has kicked in. That would require far more dire circumstances. In other news, the SPDR Gold Trust (the largest ETF backed by gold) increased its holdings by 5.2 tons to a December 31st high of 1,129.8 tons.

Spot Silver - $16.34 // -$0.07 // -0.37%

With relatively mild changes in the US dollar and risk appetite Tuesday, silver would not put in for any extraordinary moves of its own. Ending the day slightly in the red after setting the smallest range since March 18th (notably just before instituting a notable sell off), silver was gleaning direction from the US dollar but moderating the decline this would encourage with the congestion established with the Dow Jones Industrial Average. Traders in this commodity are awaiting a clear and robust shift in one of these two primary catalysts before significantly changing their positioning.

COM330b

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Written by John Kicklighter, Strategist
Questions or Comments about this article? Send them to jkicklighter@dailyfx.com

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