Provided by CPM Group, Vol. 2, No. 17, 25 April 2010
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Greetings!
Welcome to the Weekly Market Views report from DGCX, providing you with a snapshot of what׳s happening in the energy, precious metal and currency futures markets.
Please note that the observations and views expressed in this newsletter do not reflect the views of DGCX and are solely the view of the writer (CPM Group).
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Commodities Overview |
Currencies Overview |
Prices for gold, silver, and crude oil rose last week, following a round of profit-taking in the previous week. Prices did not rally to the highs seen earlier this month, but these levels could be tested this week. Commodities prices have been consolidating over the past several weeks in broad ranges, reflecting shifting investor sentiment over financial markets and economic conditions. Shorter term and longer term investors both have been tugging at prices, with shorter term investors reducing their long exposure to these commodities while longer term investors seek to take advantage of price dips to add to their long positions. These conflicting forces have kept prices in narrow trading bands recently. Investor attention at times has focused on Greece’s fiscal problems, influencing gold and U.S. dollar activity, but most investors in gold and commodities in general continue to hold large long positions. Gold and silver have been benefiting from investors anxieties and uncertainty over eurozone fiscal and economic problems. Silver and crude oil meanwhile continue to gain support from strong economic activity in developing markets. Commodities also are receiving support from developed market economic expansion, which is increasingly gaining traction.
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The U.S. dollar is expected to move broadly sideways this week, following last week’s overall consolidation in currency markets. Shifting investor levels of concern over Greece’s fiscal problems have been influencing the euro while politics in the United Kingdom are increasingly guiding the pound. The yen continues to test support as investors look abroad for higher yielding assets. Developing market economy currencies meanwhile are receiving a boost from strong economic activity in these countries and high levels of foreign investor fund flows. This week should see the dollar consolidate against most currencies while strengthening against the yen. Recently market expectations of an imminent revaluation of the Chinese yuan have grown more intense, with Chinese government officials making public statements about the currency and financial markets pricing in a near-term appreciation. The timing and methodology of a revaluation are not clear, although a strategy of gradual appreciation is most likely. Government officials want to limit the negative effects of a stronger currency on export-oriented sectors. Revaluing the currency could be perceived as a form of monetary and fiscal tightening to counteract the overheated economy and avoid rampant inflation.
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DGCX Prices & Daily Volumes |
Market
(as at April 23, 2010) |
Current Week close |
% Change |
Change |
Weekly High |
Weekly Low |
Gold ($/ounce) |
$1155.70 |
1.65% |
▲ |
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Silver ($/ounce) |
$18.280 |
3.16% |
▲ |
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Euro ($/Euro) |
$1.338 |
-0.96% |
▼ |
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GBP ($/GBP) |
$1.537 |
-0.12% |
▼ |
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INR ($/100 INR) |
$2.255 |
0.55% |
▲ |
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JPY ($/100 Yen) |
$1.063 |
-2.09% |
▼ |
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WTI ($/b) |
$85.12 |
2.26% |
▲ |
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ADV (5,232)
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Economic Indicators
Indicator |
Change |
Value |
Change |
% Change |
CRB Index |
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2.5% |
U.S. Dollar Index |
▲ |
81.49 |
0.66 |
0.8% |
T-Bills
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▲ |
0.16% |
0.01% |
0.0% |
DJIA |
▲ |
11,204 |
186.12 |
1.7% |
FTSE Global All-Cap
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▲ |
206.67 |
0.20 |
0.1% |
Source: Bloomberg Data |
COMMODITIES |
Crude Oil |
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WTI oil prices staged a modest recovery last week. Oil prices settled at $85.12 on Friday 23 April after falling well below $81 at the beginning of the week. Investors continue to build long positions in the oil markets, primarily based on a strengthening oil demand linked to robust economic expansion in emerging markets and gradual, but stronger economic growth in developed economies. Oil prices may stay above $82.50 this week and a brief move toward $86.50 is possible. Contrary to this bullish sentiment, the fundamentals are playing catch up to current price levels. Crude oil inventories in the United States increased by 1.9 million barrels during the week of 16 April, according to the U.S. Department of Energy. In addition, higher refinery utilization rates have been pulling supplies into the product markets and leading to further inventory builds. With these fundamental downside risks, oil prices remain vulnerable to profit-taking.
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Gold |
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Gold prices may continue to move sideways this week. Over the past several weeks, prices have been capped at $1,160 for the most part while support has held up at $1,130. This week may see a similar range. Both short-term and longer term investors continue to push and pull at prices. Profit-taking has been sparked as prices test resistance levels amid the lack of follow-through buying, and gold near support levels has attracted buying interest. Investment demand seems to have eased over the past week, but market participants continue to hold large net long positions. Combined exchange traded fund gold holdings were 57.34 million ounces as of 22 April, little changed from the end of the previous week, but up 521,402 ounces from the end of March. While nervousness over financial markets is not at the heights seen this time last year, many investors are reluctant to substantially reduce their gold holdings. High levels of market participation and large long open positions are helping to keep prices at current levels. That said, the gold market is heading into a seasonally weak period for prices.
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Silver |
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Silver prices are expected to remain volatile this week, most likely moving between $17.50 and $18.75. If prices manage to break above $18.75, then a quick move toward $19.00 or perhaps $19.25 cannot be ruled out. The roll from the May silver contract into forward months in the New York market is currently underway. This could push prices higher as the shorts either unwind their positions or roll forward the active silver contract. With the improvement in global economic conditions and easing concerns over financial markets, some investors have been unloading their silver holdings in ETFs over the past several weeks. Since peaking at 474.8 million ounces on 24 February, combined ETF silver holdings have declined 3.5% or 16.1 million ounces. At the end of last week total silver ETF holding were 458.7 million ounces. Most of the redemptions in the ETFs have been confined to short-term investors. Longer term investors continue to hold large amounts of silver as they continue to look at silver as a safe haven and as having more potential for price appreciation as economic conditions improve.
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CURRENCIES |
Euro / Dollar DEUR (US $ quoted in cents per Euro) |
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The euro may move broadly against the U.S. dollar this week, possibly trading between $1.32 and $1.36. Investor sentiment toward the euro has shifted back and forth as the focus remains on the ebb and flow of the Grecian financial situation. Confidence in the euro was rising two weeks ago, as the European Union and the International Monetary Fund announced a financial aid package. Last week, however, confidence in the euro fell as data over Grecian finances appeared worse than had been expected. The euro fell toward $1.32 before recovering. Greece’s credit rating was downgraded last week by another ratings agency and Greece’s budget deficit was revised higher. Yields on Greek bonds meanwhile continued rise. On Friday 23 April Greece announced it would request financial aid to help shore up its fiscal situation.
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Indian Rupee / Dollar DINR (US $ quoted in cents per 100 Indian Rupees) |
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The Indian rupee could trade between 223 cents and 225 cents per 100 rupee this week. On Tuesday 20 April the Reserve Bank of India (RBI) raised interest rates once again to curb rising inflation. The Indian economy has been growing at a rapid pace compared to many other Asian nations. The latest International Monetary Fund report forecast the Indian economy to expand at an 8.8% rate this year. A large part of the growth in India is likely to come from strong domestic demand for goods and services. There have been robust capital inflows into equity markets over the past several months. On a net basis foreign institutional investors purchased $213.4 million in Indian equities last week, according to the Securities and Exchange Board of India.
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Sterling Pound / Dollar DGBP (US $ quoted in cents per Pound) |
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The British pound may move between $1.52 and $1.55 this week, taking some direction from pre-election polls. There have been mounting concerns over the parliamentary election, scheduled to be held on 6 May. Anxiety has been over the political will needed from elected officials to adequately address fiscal reform. These concerns may result in rising volatility in the pound over the next couple of weeks. There have been signs of improvement in some industrial and manufacturing sectors in Britain, which has been supportive of the sterling. United Kingdom’s gross domestic product (GDP) grew 0.2% in the first quarter of this year, compared to 0.4% in the last quarter of 2009. A large part of the decline in the GDP could be attributed to lack of domestic demand for goods and services amid weak consumer spending.
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Japanese Yen / Dollar DJPY (US $ quoted in cents per 100 Yen) |
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The yen could head toward 104 cents if it manages to forcefully break below 106 cents. While economic conditions in Japan are showing signs of improvement they remain tenuous. Economic activity in the rest of the world meanwhile is recovering at a much faster and better pace than that of Japan. Exports surged in March, reflecting economic expansion in other countries but also provided some confidence in the Japanese economy. Meanwhile domestic demand for goods remains lackluster as deflationary conditions continue. Expectations of stronger economic growth in the United States have been attracting investor funds from Japan. Economic data, scheduled to be released this week, from both countries may continue to support this trend.
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Further Information
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Tel: +971 (0)4 361 1616 Email: info@dgcx.ae |
CPM Group is a leading independent commodities market research and consulting firm. CPM focuses on various commodities markets from precious metals to soft commodities. In its twenty three years as an independent company, CPM has consistently delivered unique, market-leading research and services to clients ranging from individual investors to leading international organizations worldwide. For more information and additional research please contact Adam Crown at +1 (212) 785 - 8324 or acrown@cpmgroup.com or visit www.cpmgroup.com. |
Copyright CPM Group 2009. The views expressed within are solely those of CPM Group. Such information has not been verified by the DGCX, nor does DGCX make any representations as to its accuracy or completeness. Any statements non-factual in nature constitute only current opinions, which are subject to change. While every effort has been made to ensure that the accuracy of the material contained in the reports is correct, CPM Group or DGCX cannot be held liable for errors or omissions. CPM Group or DGCX are not soliciting any action based on it. Information contained here should not be relied on as specific investment or market timing advice. At times the principals and associates of CPM Group may have long or short positions in some of the markets mentioned here. This report is distributed weekly by DGCX to provide market participants with information and statistics related to specific commodities and currencies. CPM Group, a commodities consulting company, produces this report for DGCX. Visit www.cpmgroup.com for additional information.
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