We use a range of cookies to give you the best possible browsing experience. By continuing to use this website, you agree to our use of cookies.
You can learn more about our cookie policy here, or by following the link at the bottom of any page on our site.

Free Trading Guides
EUR/USD
Bearish
Low
High
of clients are net long.
of clients are net short.
Long Short

Note: Low and High figures are for the trading day.

Data provided by
GBP/USD
Bearish
Low
High
of clients are net long.
of clients are net short.
Long Short

Note: Low and High figures are for the trading day.

Data provided by
USD/JPY
Bullish
Low
High
of clients are net long.
of clients are net short.
Long Short

Note: Low and High figures are for the trading day.

Data provided by
Gold
Bearish
Oil - US Crude
Mixed
Bitcoin
Mixed
More View more
Real Time News
  • Taiwan Government have confirmed their first case of infection with Coronavirus
  • 🇪🇺 EUR Euro-Zone ZEW Survey (Economic Sentiment) (JAN), Actual: 25.6 Expected: N/A Previous: 11.2 https://www.dailyfx.com/economic-calendar#2020-01-21
  • 🇪🇺 EUR German ZEW Survey Expectations (JAN), Actual: 26.7 Expected: 15.0 Previous: 10.7 https://www.dailyfx.com/economic-calendar#2020-01-21
  • 🇪🇺 EUR German ZEW Survey Current Situation (JAN), Actual: -9.5 Expected: -13.5 Previous: -19.9 https://www.dailyfx.com/economic-calendar#2020-01-21
  • Heads Up:🇪🇺 EUR Euro-Zone ZEW Survey (Economic Sentiment) (JAN) due at 10:00 GMT (15min), Actual: N/A Expected: N/A Previous: 11.2 https://www.dailyfx.com/economic-calendar#2020-01-21
  • Heads Up:🇪🇺 EUR German ZEW Survey Expectations (JAN) due at 10:00 GMT (15min), Actual: N/A Expected: 15.0 Previous: 10.7 https://www.dailyfx.com/economic-calendar#2020-01-21
  • Heads Up:🇪🇺 EUR German ZEW Survey Current Situation (JAN) due at 10:00 GMT (15min), Actual: N/A Expected: -13.5 Previous: -19.9 https://www.dailyfx.com/economic-calendar#2020-01-21
  • 🇬🇧 GBP Claimant Count Rate (DEC), Actual: 3.5% Expected: N/A Previous: 3.4% https://www.dailyfx.com/economic-calendar#2020-01-21
  • 🇬🇧 GBP Jobless Claims Change (DEC), Actual: 14.9k Expected: N/A Previous: 14.9k https://www.dailyfx.com/economic-calendar#2020-01-21
  • 🇬🇧 GBP ILO Unemployment Rate 3Mths (NOV), Actual: 3.8% Expected: 3.8% Previous: 3.8% https://www.dailyfx.com/economic-calendar#2020-01-21
Fears that a Financial Troubles Will Turn into Growth Problems Push Crude Briefly Below $70

Fears that a Financial Troubles Will Turn into Growth Problems Push Crude Briefly Below $70

2010-05-17 22:42:00
John Kicklighter, Chief Currency Strategist
Share:

North American Commodity Update

Commodities - Energy

Fears that a Financial Troubles Will Turn into Growth Problems Push Crude Briefly Below $70

Crude Oil (LS NYMEX) - $69.89 // -$1.72 // -2.40%

When boiling the energy market down to the speculative tides of crowd behavior, explaining trends and volatility becomes far easier. However, rationalizing the current trend and pace of an asset isn’t the objective of the trader. Instead, a market participant’s intention is to ascertain where the market is most likely going to go in the future; and the path that it will take along the way. To project the current requires a mix of fundamental and speculative analysis. For crude, the outlook for economic activity has long run below the premium that current price would suggest; but it would take a catalyst to break the steady cycle of capital appreciation. However, since Greece’s troubles turned into a European Union crisis (which may further be developing global implications), the benchmark NYMEX crude futures contract has fallen nine of the past 10 active trading sessions and shed as much as 20 percent of its price from the 18-month highs set earlier this year. Over the months, there have been efforts to truly break the advancing trend that has colored this market since the March 2009 reversal; but all those previous attempts have fallen short. Why then is the current bear trend succeeding where previous slumps have failed? This time around, there is conviction in unwinding risky positions across all the major asset classes. The pressing concern now is that the EU situation is deteriorating to an inevitable flash point that could tip the world’s financial and credit markets back into turmoil. Yet, assessing the situation today, crude maintained its unfavorable trajectory while equities would recover from steep morning losses. From this divergence, we can better see the influence of fundamentals.

For equities, the promise of positive earnings has already triggered investors’ endorphins – leading some to believe that stocks will be able to outperform even in the absence of robust growth. Manufacturing and inventory building (and to a lesser extent business investment) are responsible for the positive quarterly income numbers for the first quarter. Absent was true consumer demand. Filling in for a dearth of spending from the economy’s largest sector is a temporary condition. But for commodities, the reality sinks in a little more quickly. Without the prospect of demand, production plans are scaled back and energy needs in turn pared. We have already seen these detrimental effects in the supply/demand balance for crude. The inventory figures measured by the US Department of Energy have increased 14 out of the past 15 weeks. This highlights another peculiarity though. The benchmark US crude futures contract is based on West Texas Instrument (WTI) which is stored in Cushing, Oklahoma. Recently, there has been an unusual build in the stockpiles of this particular grade, which has led to an unusual $5.57 premium in the UK’s Brent contract. This is an abnormality that will inevitably be reconciled as demand and supply functions level out (for better or worse).

COM517a

Commodities - Metals

Investors Skeptical on Gold’s Steady Climb to Record Highs Without Another Catalyst

Spot Gold - $1,228.50 // -$4.68 // -0.38%

Fundamental and trading conditions are always in flux. A good example of this truism in action is gold’s activity Monday. If we were following the same speculative template of the past two weeks, we would expect gold to have climbed to new record highs today as risk appetite extended its retracement through the morning hours of trade. However, where the benchmark S&P 500 stock index and EURUSD exchange rate were both plunging to new lows, the precious metal would spend the early hours little changed – and a reversal would actually take place well before the other assets began to recover. Why the divergence? Is gold no longer considered a viable alternative to currencies and other risky assets? This particular commodity maintains its role as a safe haven; but the simple correlation between asset and market condition starts to warp when record prices come into the picture. If we substituted gold for Treasuries, the concept of value would seem clearer. At a certain point, government debt would be considered expensive as investors start to measure the costs and probability of a correction in the asset classes value – which would invariably lead to losses in capital. The situation is the same for gold. Though it represents a meaningful alternative to equities, Treasuries and the US dollar; the commodity which yields no interest, has limited liquidity and is leveraged by speculators is far more susceptible to reversals. This is one concern that will not be easily overlooked.

Spot Silver - $18.94 // -$0.40 // -2.08%

No longer drawn in by the gravity of an aggressive move from gold, silver would defer to its normal fundamental backdrop of risky asset and dollar-based speculative instrument. However, despite both the dollar’s pullback and equities’ recovery, the metal would maintain most of its losses through the close of Monday’s session. The biggest decline in nearly two weeks has pulled silver well off its record highs and suggests there is excess premium built into this asset that straddles the two worlds (that of a precious metal versus an appeal of a speculative asset).

COM517b

Discuss gold and oil trading with other traders in the DailyFX Forum

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

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

DISCLOSURES

News & Analysis at your fingertips.