Contributed By: DailyFx
Europe Session Key Developments
* Stocks Edge lower as China Increases Reserve Requirements
* 14 of the 18 Western European Benchmark Indexes Close Lower
European Stocks Close Lower Amid Debt Concerns and Chinese Economic Policy
European markets closed lower as investors waited on whether Ireland would accept a bailout and China increased reserve requirements in order to cool inflation. When a central bank decides to increase the reserves a bank must hold, they are essentially tightening credit and slowing the money multiplier process, thereby pursuing contractionary monetary policy. The effect of this is a decreased rate of inflation at the cost of slower economic growth. Overall, many investors feel that the economic picture remains uncertain as European debt concerns are still weighing down markets. National benchmark gauges declined in 14 of the 18 western European markets, as the FTSE 100 experienced the largest decline among the major indexes.
FTSE 100 / 5,732.83 / -35.88 / -0.62%
The FTSE 100 experienced the largest decline among the major western European gauges. Lloyds Banking Group Plc and HSBC Holdings Plc fell over one and a half percent. European banking shares dropped 2.3 percent today, the worst performance among 19 industry groups in the Stoxx Europe 600 index. Rio Tinto, the world’s third-largest mining company, fell 2.3 percent, while BHP Billiton ltd dropped 2.6 percent. Basic resource shares were the second largest decliners in the Stoxx Europe 600. Hammerson fell 2 percent as Morgan Stanley downgraded the stock to “equal weight” from “overweight.”
CAC 40 / 3,860.16 / -7.81 / -0.20%
The CAC 40 closed lower at the end of the trading session on Friday. Essilor International SA fell 0.9 percent, ending a two-day advance. The company was cut to “underperform” from “neutral” at Exane BNP Paribas. Lagardere SCA advanced 0.6 percent as the company may surpass its upgraded guidance for the year thanks to a stronger advertising market. Technicolor gained 2.6 percent, the largest advance in more than a month. The production and distribution services company announced a court rejected an appeal to its restructuring plan.
DAX / 6,843.55 / +11.44 / +0.17%
The benchmark DAX managed to be one of the few major European indexes to close in the green on Friday. Bayer jumped 2.2 percent after Germany’s largest drug and chemical maker announced it aims to cut about 800 million Euro a year in expenses. Volkswagen preferred shares surged 3 percent. The 20-member supervisory board approved the outlays for plants, vehicles, and developing the carmaker’s nine brands at a meeting today in German. Henkel AG rose 2.4 percent as the company was upgraded to “overweight” from “equal weight” at Barclays Plc.
IBEX 35 / 10,271.70 / -53.60 / -0.52%
The IBEX 35 closed lower as 7 out of 10 sectors retreated at the end of the week. The benchmark index closed lower for the first time in three days. Banco Bilbao Vizcaya Argentaria SA fell 1 percent to 8.26 Euros, the second drop this week. Spain’s second-largest bank today ends a 5.06 billion-Euro rights offering. Ferrovial SA advanced 1.6 percent, the stock’s third gain this week. The UK competition regulator announced it may reconsider its ruling that the company must sell three airports after the UK government cancel plans to build a third runway at Heathrow.
S&P/MIB / 21,385.45 / -95.92 / -0.45%
Italian equities lost 0.8 percent for the day and 0.6 percent for the week. Banca Popolare di Milano Scrl declined 2.4 percent, retreating from a 3.2 percent gain yesterday. The Milan-based cooperative bank was cute to sell from hold at UnicreditSpA. Lottomatica SpA, Italy’s largest lottery company, advanced 2.5 percent to 10.5 Euros, leading gains in the FTSE MIB.
Contributed By: DailyFx
Given all that stress that the Federal Reserve's currency debasement program is laying on the global economy, last week's G-20 summit in South Korea should have been the monetary equivalent of a military degradation for the U.S. dollar. The greenback should have been slapped across the face, stripped of its medals, and cashiered from the ranks of respected currencies. Instead the dollar escaped unscathed, retaining its privileged status as the world's reserve.
However, the meeting did have its dark moments for America. The troubles starting even before the summit began with the failure of president Obama to conclude a long-planned trade deal with South Korea. Once the G-20 meetings began in earnest, the United States made scant headway with its main initiative to pressure the Chinese on Yuan revaluation. Just when it looked like the dollar would benefit from strife in Europe, a joint statement by key European leaders signaled that potential problems within the euro-zone may have been averted. In other words, nothing from this meeting should give any confidence that the dollar has a bright future.
Over the past three years, while the Chinese Yuan has appreciated ever so slightly against the U.S. dollar, it has depreciated against almost all other major currencies. As a result, one may have expected wider support for America's calls for appreciation of the Chinese Yuan. But in Seoul this issue was buried amidst rancor and fractious all-night meetings between splintered partners. Most participants were so focused on America's second campaign of quantitative easing, that the question of Yuan appreciation was moved to the back burner.
In an effort to avert competitive devaluations, the U.S. proposed that nations should restrict their current account surpluses and deficits within agreed percentages of economic output. Ironically, this idea had been proposed by the British at Breton Woods in July 1944. But this was at a time when war-ravaged Europe was in huge current account deficit. America was in massive surplus and vetoed the idea. Now that America is in chronic deficit, it is surplus countries such as China, India, Brazil, and Germany that oppose the idea.
While such restrictions would certainly be beneficial for all, given the lack of international enforcement mechanisms, it's hard to envision how, when push comes to shove, sovereign countries would respect the guidelines. Certainly America's power to persuade is greatly diminished.
America has lost much of the enormous political, economic, and financial prestige it enjoyed following World War II. In past G-7 and G-20 meetings, what America suggested usually was adopted. Now that other nations see the United States in trouble with no clear plan, rancor has replaced respect and argument has supplanted compliance.
In economic terms, the world appears leaderless, and China is anxious to fill the vacuum. Although its economy is still but one-third the size of that of the United States, China's power is growing daily. It is clear that it will not bow to American pressure. However, as an ancient and experienced nation, China knows a thing or two about diplomacy. Publicly, at least, China withheld its closely held push to challenge the U.S. dollar's privileged role as the international reserve currency. There can be little doubt that China is carefully choosing its best moment to strike.
In the meantime, the dollar is benefited from continuing trouble in Europe. Based on the growing crisis in Ireland, it now seems clear that sovereign debt problems of many 'euro zone' countries were only papered over temporarily by the ECB and IMF rescue plan of early 2010. Hard working German voters are now voicing revulsion at the prospect of more bailouts. To stem a voter revolt, German Chancellor Merkel has called for private holders of sovereign bonds to share the losses. But there are problems with this approach.
The EU treaty precludes individual states from bailing out others for reasons deemed "unexceptional" (defined as issues within a country's control). In order to bypass this rule, Euro zone governments had persuaded their banks to buy sovereign bonds to camouflage a direct bailout. The deception worked. Investors moved funds out of the U.S. dollar and into the euro, driving it higher. However, Chancellor Merkel's pronouncement reversed this trend, the euro faced a second great crisis and the U.S. dollar experienced temporary strengthening. However, a joint G-20 announcement from the finance ministers of Germany, France, Italy, Spain, and Great Britain effectively diluted Chancellor Merkel's position. This German retreat was enough to stem euro declines.
As far as investors are concerned, the G-20 provided little new information, but confirmed the continuing drift. The international monetary system is still based upon the gravely flawed U.S. dollar. The Yuan will not be allowed to rise in the near term, the euro faces great political challenges, and the U.S. dollar seems continually to be devalued. Meantime, precious metals, key commodities, and hard currencies should continue to benefit.
Contributed By: DailyFx
I need to reflect on a few of my rules. First, I don't like to take on new positions that are short to medium-term before the weekend. Second, I like to keep my exposure to a specific currency or theme measured. I am tempting both of this requirements with my holdings heading into the weekend. In addition to the long-term and reduced size USDJPY long that is being carried over, new setups taken yesterday (so not technically in breach of my weekend rule - though I fully expected Friday to be a write off session for trend development) include short EURUSD, GBPUSD and NZDUSD. These are all based on the same concept - we are seeing a correction on a burgeoning risk aversion move that is naturally occuring given a lull in the fundamental wave that instigated the initial break. Looking ahead to next week, we have a range of fundamental themes that can easily inspire fear and deleveraging. However, it is up to the market to decide whether they will let fear overtake them. That said, we need to also account for the drained speculative interest with the extended Thanksgiving holiday period in the US - a period that usually curbs volatility as well.
As for my setups, the USDJPY carries the same explanation as before. Rather than this being a vote of confidence for the US dollar, it is based on a lack of confidence in the yen and a general belief that the Japanese currency should be so high through any concept of yield potential, financial stability or capital stability. I have a loose first target at 85; so we will see what happens. More demanding of my attention are my three new setups. EURUSD was entered short at 1.3635 with an initial stop and first target of 150 points. GBPUSD was taken short at 1.6035 with a 150 point buffer as well. And, the NZDUSD short was put on at 0.7775 with a 125 extension in both direction. I recognize that these are riskier than I usually allow for. To partially mitigate this risk, the position size is a third of my full size. Nonetheless, all of these are exposed to risk appetite trends as we await guidance on Ireland's bailout, China's inflation fight and the United States' housing problems.
Looking for those pairs that are one or two steps away from a great trade, the list is filled with some really attractive setups. At the top of my list is still that AUDCAD reversal pattern following the aggressive bull trend channel. Like gold and the S&P 500, consistent trends don't survive long without a meaningful pullback; so I continue to watch 0.99. Next is GBPJPY. This is a short-term look at the rising trend channel seen on the 60 minute chart of the past four weeks. Both a range and breakout trade is possible here. USDCHF is nearing parity in a possible reversal. GBPCAD is pushing deeper into a terminal congestion pattern. EURNZD is at the bottom of a mult-month and wide range. CHFJPY is maintaining its chop but the 83.50 pivot is looking dangerous. Finally, even though EURJPY has jumped from its range low; I'm still concerned about the euro's future.
Contributed By: DailyFx
U.S. Session Key Developments
* Investors Optimistic About Ireland Bailout
* China Raises Reserve Requirement for Second Straight Week
Markets Close Higher Amid Optimism over Potential Bailout Package
U.S. Markets closed higher at the end of the week as investors became more optimistic about a bailout for Ireland. However, the markets were kept from surging after China’s move to curb inflation. Friday, China raised its banks’ reserve requirements for the second time in 2 weeks. When a country requires banks to hold more cash in their reserves, banks will have to lend less money in order to meet the new standards. The move is expected to help curb inflation at the cost of some economic growth. Overall, markets plunged this week amid concern that the policy in China could cut demand for US goods and commodities. The markets managed to close higher after statements from Irish Prime Minister Cowen, who announced the second day of talks on a possible aid package is going well.
DJIA 30 / 11,203.55 / +22.32 / +0.20%
The DJIA closed slightly higher at the end of the trading session on Friday. Walt Disney and Boeing were among the Dow’s worst performers and experienced 1.8 and 1.6 percent declines, respectively. Hewlett-Packard advanced 1.6 percent ahead of its fourth quarter earnings report Monday.
S&P 500 / 1,199.73 / +3.04 / +0.25%
The S&P 500 also closed flat as investors were uncertain how to balance improved European outlook with the contractionary Chinese monetary policy. Among stocks in focus, AnnTaylor Stores surged 8.5 percent. The women’s apparel retailer reported fiscal third quarter profits that substantially outpaced expectations. The company also boosted its sales target for the year. Foot Locker climbed 12 percent after announcing better-than-expected profit in the fiscal third quarter as its comparable sales climbed and gross margin imporved. General Motors gave back some of yesterday’s gain, as the stock fell 0.3 percent. GM surged yesterday after the auto company returned to the public market.
NASDAQ / 2,518.12 / +3.72 / +0.15%
7 out of 10 sectors closed in the black Friday for the NASDAQ. The US benchmark gauge experienced the smallest advance among the three major indexes. Oil & Gas and Basic Materials led the index with 1.10 and 0.63 percent gains, respectively.
Contributed By: DailyFx
* Dollar Ready to Respond to a Clear Sentiment Trend but Liquidity may be an Issue Next Week
* Euro Traders Prepare for a Resolution for Ireland and to Shift the Focus on Portugal, Spain
* British Pound Stumbles on Drop in Construction Expectations, Tucker Downplaying Inflation
* Canadian Dollar Sensitive to Investor Optimism but CPI and Retail Sales May Steal the Show
* Japanese Yen Slowly Deflating as Market Comes to Grips with Lasting Stimulus
* Australian and New Zealand Dollars Remain Highly Sensitive to Ripples in Global Risk Appetite
Dollar Ready to Respond to a Clear Sentiment Trend but Liquidity may be an Issue Next Week
The dollar retraced nearly all of the gains it had made in the first two days of this past week when all was said and done. Friday offered up the third consecutive decline for the benchmark currency; and the technical implications of this final performance could not be ignored. For the trade-weighted dollar index, the week-ending push made a notable test of the same level that held the currency down for nearly six weeks before Tuesday’s critical breakout. It is no coincidence that this former ceiling is now marking a tentative floor to impede trend development. From the majors, we can see the same measured correction. The most familiar setup comes from EURUSD which has moved back up to the frequented 1.37 level; though retracements for GBPUSD, USDCAD and AUDUSD are very similar in nature even if the technical figures are not as prominent. What truly grounds this shared path for the greenback in fundamentals though is the correlation it maintains with other asset classes. With the S&P 500 equities index gravitating back towards 1,200 and gold testing $1,365 (the breaking point of a bull trend that directed price action for over three months), it is clear that there is an underlying current to investor sentiment itself.
Through the final 24 hours of this past trading week, there were notable updates on two of the market’s most headline-worthy themes. Ireland has focused general concerns surrounding the convoluted situation the European Union faces in securing financial stability in the region. That said, a definitive move from capital flows and the dollar in response to this matter is now being reserved for the next consequential development – namely, the announcement of a bailout. Therefore, speculation that Ireland will have to abandon its favorable tax policies and news that Allied Irish is marching towards a liquidity crisis is merely building interest into what traders see as a meaningful climax (though Europe’s troubles hardly end with this single member). The same, tepid interest from investor confidence was paid to the announcement that China had raised the reserve ratio for its banks for a fifth time this year. Though a step clearly intended to cool growth and capital turnover in the economy, the market has grown accustomed to the PBoC’s measured efforts. Going forward, either or both of these particular catalysts can shape the appeal of the dollar as a safe haven currency; but a market weary of the pitfalls in speculative trends overshooting fundamentals may require a more explicit resolution to these bigger fundamental themes before committing to a lasting run.
When the financial headlines are dedicated to global developments, it is easy to miss the fundamental developments that direct the dollar’s bearing. The US docket may have been empty of scheduled indicators through the final session of this past week; but comments directed to the Fed’s stimulus program bear reflection. Board member Plosser remarked Friday that it was “premature” to assume the central bank would buy the entire $600 billion available over the coming 8 months. If indeed the Fed decided it was appropriate to discontinue its monthly purchases, a significant burden would be lifted for the greenback. Looking out over the next week, we have a concentrated docket for economic releases. A range of indicators including the second reading of 3Q GDP, existing and new home sales, personal income and spending, durable goods and a national activity index are squeezed into a period foreshortened by the Thanksgiving holiday. Falling on Thursday, this American holiday will sap speculative liquidity over the final two days of the week. As such, it could be exceptionally difficult to jump start a meaningful trend next week.
Euro Traders Prepare for a Resolution for Ireland and to Shift the Focus on Portugal, Spain
We seem to detect new symptoms of the Euro-region’s financial troubles every day. However, the market seems to be acclimatizing itself to these developments, waiting for evidence of the true fallout. However, as fundamental traders, we should take note of these developments to assess the likelihood of and full consequences to a true crisis. With EU, IMF and ECB officials currently scrutinizing Ireland’s financial books; news that Allied Irish lost 17 percent of its deposits this year and tripled its dependency on ECB loans suggests there is no natural solution to be found. In the meantime, Germany and the Netherlands are forging ahead with permanent bailout regulations to share losses with bond holders.
British Pound Stumbles on Drop in Construction Expectations, Tucker Downplaying Inflation
Bank of England Deputy Governor Paul Tucker could have balanced dovish rate expectations when he said the group shouldn’t dilute its price stability commitments; but a forecast for prices to drop below the 2 percent target did little to further interest rate calls. For macro data, a quarterly RICS construction activity survey dropped to its lowest level in a year-and-a-half as a supply glut and weak economy curb activity.
Canadian Dollar Sensitive to Investor Optimism but CPI and Retail Sales May Steal the Show
When it comes to USDCAD, the influential swings in risk appetite trends are significantly subdued. For a true trend to develop for this pair, the outlook for growth and interest rates between the two has to shift. We may see just such a meaningful change develop next week. On the loonie’s docket, we have both retail sales and CPI data. This could raise doubts about growth and feed criticism in the BoC’s early hikes.
Japanese Yen Slowly Deflating as Market Comes to Grips with Lasting Stimulus
It is worth noting that over the past three weeks we have seen both a strong rallies and slumps in risk appetite trends. And, through it all, USDJPY has maintained its steady appreciation. From this, we can start to see the yen’s position as a safe haven fade – a reality that has been ignored for too long. Next week, CPI data will help to remind investors that there is long-standing deflation and little hope for yield in Japan.
Australian and New Zealand Dollars Remain Highly Sensitive to Ripples in Global Risk Appetite
In monitoring underlying sentiment trends, the natural inclination is to keep track of those currencies that are directly responsible for the fundamental bustle. However, given the nature of capital flow, it is those currencies that are at the extremes of the risk spectrum that see the biggest moves. Both the Aussie and Kiwi dollars are tuned into Irish, Chinese and the US news wires, waiting for their net meaningful trend.
Contributed By: DailyFx
EUR/JPY:The market has done a very good job of holding above the daily Ichimoku cloud to suggest that we could be on the verge of a material shift in the structure in favor of significant upside over the medium and longer-term. Daily studies are however in the process of consolidating, so the preferred strategy is to look to buy into dips rather than on upside breaks. Ultimately, only a close back below 110.00 would put the pressure back on the downside.
Contributed By: DailyFx
EUR/CHF:Despite the latest setbacks, we retain a constructive outlook with the market in the process of carving out a major base. There is some very solid internal range support in the 1.3200’s and we would expect to see any additional declines very well supported ahead of 1.3200 on a close basis. Ultimately, only a close back below 1.3200 would give reason for concern. Look for a break back above 1.3500 to reaffirm outlook and open the next major upside extension beyond 1.3835.
Contributed By: DailyFx
AUD/USD:Clear signs of another short-term top emerging with the market stalling out by fresh post-float record highs at 1.0185 several days back, and then reversing course to end a sequence of consecutive daily higher lows. The latest break back below the 20-Day SMA further encourages bearish outlook from here, and we will look for a 2-day close below the 50-Day SMA (0.9750) for additional bearish confirmation. From here the risks are for declines towards critical support by 0.9650, below which will really accelerate. Any intraday rallies should be very well capped ahead of 1.0000.
Contributed By: DailyFx
North American Commodity Update
Commodities - Energy
Where Risk Trends Pull out of its Dive, Crude Maintains its Tumble
Crude Oil (LS Nymex) - $80.44 // -$1.90 // -2.31%
Though broader risk appetite trends were able to level off through US trading hours Wednesday, US oil maintained its tumble. This decline marked the fourth consecutive decline (fifth if Thursday’s unchanged performance is counted) and is thereby matches the worst performance the commodity has suffered since the series of declines through August 24th. The extension of this bearish phase is a combination of both fundamental and sentiment-based factors; but technical traders have no doubt taken note of the session’s low. Looking back at historical price action, the $80 figure besides representing an easily identifiable, even level is also a well-worn support/technical level and represents the mid-point of the September to December advance. So, while the technical trend channel of this period has indeed been breached, there is still meaningful support and the market has already retraced half of the previous two months’ advance.
For fundamental guidance on the day, we saw a shift away from risk appetite trends to the more tangible macroeconomic drivers. Looking at investor sentiment in fact, we see that the S&P 500 (a good, basic barometer for the level of optimism) was little moved through Wednesday’s session just a day after marking a critical shift in trend. This change in the backdrop reflect a market that is reluctant to unwind otherwise profitable positions and are therefore waiting to see the level of contagion financial problems in the US, China and especially Europe will have. In the meantime, the demand/supply balance behind oil’s fundamental value was tipped by a few big ticket developments. In Asia, China’s Premier followed up on his vow to fight inflation with a more refined effort to put temporary price controls on “important daily necessities.” This is a more elegant solution than simply vowing to put in inflation measures; but the effect on growth will likely be the same. What’s more, energy commodities can be grouped under necessities. Another indicator to note from China was the quarterly consumer confidence survey which dropped for the first time in six quarters. Moving forward to the US session, the lowest reading on core inflation on record warns of a slowing economy though does support stimulus efforts. Something to take note of for future concerns, October housing starts plunged 11.7 percent to its second lowest levelon record. Depressed activity, growing foreclosures and overleveraged real-estate derivatives could prove a new crisis.
From macro concerns to energy market-specific issues, we see that there was a big miss on the Department of Energy crude figures. Instead of the no change expected by economists, the API figures (which showed the biggest plunge since September 2008) were more reasonable forecasters with a 2 percent drop in inventories equivalent to 7.286 million barrels. On the futures market, the December contract is soon to expire; and we have seen activity roll out to the January contract – which reported a 52 percent jump in volume to its own record 341,921 contracts.
Crude Futures Chart (Daily)
Commodities - Metals
Gold Little Moved After Critical Break as Investors Wait for the Next Shoe to Drop
Spot Gold - $1,336.00 // -$3.70 // -0.28%
Though it would put in for a fourth consecutive loss, gold was still looking at a far more reserved decline through Wednesday’s close. This tempered pace fits both a fundamental pause from the speculative ranks and a meaningful technical backdrop. For guidance on the supply and demand course, the ‘alternative asset’ value for the metal was little changed as other gauges for sentiment trends were similarly little changed for the day. From price action, the break of the three-and-a-half month rising trend channel yesterday doesn’t mean the market is in free fall. The past month, the metal has developed a frequented level of support around 1,320 and there is still a range of short-term term rising trendlines to fall back on.
Yet, despite the technical levels that exist, fundamental and sentiment concerns can easily drive this market to resume its plunge or otherwise completely reverse the losses of the past week. There are many general financial and economic concerns that quickly puts the metal’s safe haven appeal and alternative asset value back to work. European developments are still at the forefront. However, with Ireland’s decision to not ask for financial aid at the monthly EU meeting, the region is floating in limbo. Nevertheless, EU, IMF and ECB members are scheduled to travel to Ireland and comb the nation’s finances to see if its banking system can stand up by itself. A passing or failing grade will be delivered soon. In the meantime, clearing housings for investors that are trading Ireland’s debt are boosting margin and there is concern that support for Greece’s bailout program is disintegrating. State-side, the US saw inflation trends cool to the lowest level on records going back half a century. This curbs the appeal of gold as an inflation hedge on the one hand but confirms the devaluing effects of Fed stimulus on the other hand. And, in Asia, investors are waiting to see what measures China will take towards cooling rampant inflation. This could curb speculative turnover globally and lower the risk of financial crisis from this particular region.
In addition to the big, intangible themes, we can see there is still a supply and demand influence on price. The World Gold Council released its 3Q market outlook with projections for demand growing through jewelry use, institutions, central banks and industrial. At the same time, the supply trend is also seen rising in the months ahead. One highlight for demand however shows India’s imports have through the first three quarters already overtook the total consumption of 2009 at 624 tons. Meanwhile, total ETF demand was little changed for the day.
Spot Silver - $26.17 // $0.53 // 2.07%
Wednesday’s performance for silver was essentially a mirror of the previous day. There was little progress made as volume on the active December contract dropped to its lowest level since November 2nd. Momentum has slowed on this metal’s decline for a number of days; yet it is still early to say whether this is simply a reduction in speculative interests after the increase in margin by the CME or a shift back towards optimism.
Spot Gold Chart (Daily)
Contributed By: DailyFx
Commodities – Energy
Crude Oil Wipes Out November Rally Despite Plunge in Inventories
Crude Oil (WTI) - $80.91 // $0.47 // 0.58%
Commentary: Crude oil fell for a fourth day in a row despite a steep drop in U.S. crude oil inventories. The move in crude was interesting considering that U.S. equity markets were virtually flat the entire day. Crude was down between $0.50 and $1.00 before the inventory report, proceeded to rally up to unchanged after the numbers, and then sold off for the rest of the day to end down $1.90, or 2.31%, to $80.44. Crude has virtually wiped out this month’s entire run.
We can only speculate as to why crude underperformed to such a degree on Wednesday. OPEC could be keeping a lid on prices by raising production, or the impact from the diesel-related spike in demand from China could be abating as imports make their way to the region. We have seen crude oil imports into the U.S. plunge in recent weeks, with distillate imports in particular virtually disappearing, which could be an indication that supply has simply been shifted from North America to Asia.
As we said in our latest report on petroleum inventories: “Imports remain extremely depressed and fell further last week to the lowest since 1997. Such a low level of imports is likely a function of weak demand rather than tight supply. U.S. inventories were and still remain extremely elevated—especially on the product side. Thus, we have seen refineries cut production to bring stocks to more normal levels. Imports fell as refineries demanded less crude. Furthermore, a spike in diesel demand in China has led to premium pricing in that part of the globe, which is another factor that has led to reduced volumes coming into the U.S. Indeed, we have seen U.S. distillate imports completely evaporate, but even so, stocks remain more than ample.”
Technical Outlook: Prices have continued to tumble, with the bears just a hair away from challenging the horizontal barrier at $79.49. A break below this boundary exposes a rising trend line set from May’s spike low, now at $77.04. Near-term resistance remains at $83.27.
Commodities – Metals
Gold Falls for a Fourth Day but Rebounds Overnight
Gold - $1348.20 // $12.20 // 0.91%
Commentary: It’s been awhile since gold fell four days in a row, but that was the case on Wednesday as the metal shed another $3.70, or 0.28%, to settle at $1336. It was a day of pause for the rally in the U.S. dollar as the currency fell just slightly versus most of its rivals. Tomorrow we will publish our weekly Gold – Forex Correlations report and all indications are that the numbers will show that this week was another in which gold and the dollar held true to their inverse relationship.
Now that gold prices are $90 below last week’s all-time highs, some may be anxious to dip their toes into the water. We would be extremely cautious here, however, for the potential downside remains significant. Consider that it was less than two months ago that gold first surpassed $1300. Meanwhile, gold ETF holdings have risen only slight over the last five months.
Technical Outlook: Prices have stalled above support at $1322.39, the 38.2% Fibonacci retracement for the 7/28-11/9 advance. Near-term resistance stands at a previously broken rising trend line set from late July, now at $1358.96. Alternatively, renewed selling pressure that takes prices through current support will target the 50% Fib at $1290.81.
Silver - $26.18 // $0.54 // 2.11%
Commentary: Silver again bucked the trend in gold prices to advance $0.16, or 0.62%, to settle at $25.63. From peak-to-trough silver had fallen from $29.36 to $24.99, or 15% in a little over one week. A bounce is to be expected, but given how frothy silver remains, it will likely be some time before prices make another significant run higher.
The gold/silver ratio fell to 51.5, but remains higher than levels earlier this month near 50. (The gold/silver ratio measures the relative performance of the two precious metals. A higher ratio indicates gold outperformance while a lower ratio indicates silver outperformance).
Technical Outlook: Prices are testing higher through resistance at 26.10, the 50% Fibonacci retracement of the 10/22-11/09 upswing. A daily close above this juncture exposes the 38.2% Fib at $26.87. Near-term support stands at $25.33, the 61.8% level, with a reversal lower through this boundary exposing the 76.4% Fib at $24.37.