Weekly Fundamental Outlook for Energies and Metals - Dare To Buy Oil At Current Level?
by OilNGold
Last week was a week full of surprises: The Fed reduced policy rates unprecedentedly to a range of 0-0.25% followed by the Bank of Japan’s return to ZIRP by cutting the overnight lending rate by 20 bps to 0.1%. The Organization of the Petroleum Exporting Countries decided to lower oil output by 2.2M bpd, more than expectation of 1.5-2M bpd. However, oil price, instead of rebounding, dived to 4.5 years low of 35.98 (though partly due to January contract expiry). Over the week, the RJ/CRB index dropped 3% to settle at 220.08.
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4:40 pm : The Federal Open Market Committee’s decision to slash key lending rates and make a commitment to remedy the ailing U.S. economy bolstered investor optimism and sent stocks sharply higher. The major indices traded in positive ground for the entire session and finished just off their session highs.

The FOMC was expected to slash its fed funds target rate by 50 basis points Tuesday, which would have brought the overnight borrowing rate banks charge one another down to 0.50%. Instead, the FOMC stated it is targeting a fed funds rate ranging from 0.00% to 0.25%, though the effective fed funs rate was already within this range ahead of the decision.

The decision to make the cut was unanimous and marks the first time the target rate has been below 1.00% in 50 years.

The highly stimulative rate is intended to help the economy get on track toward growth. The FOMC stated that data that indicate deteriorating labor conditions and declining consumer spending, business investment, and industrial production, and the outlook for economic activity has weakened further. However, the FOMC acknowledged it will essentially employ all available tools to promote sustainable economic growth and help relieve strains in the financial system.
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Forex News and Events:
By Ac-Markets

The Dollar fell broadly on Thursday, hitting 7-week lows against the Euro and Yen, as safe-haven demand faded and investors began booking year-end profits following months of steady Dollar buying.

Data showing another weekly rise in the number of Americans filing for jobless benefits, this time to a 26-year high, also weighed on the Dollar, boosting the case for the Federal Reserve to cut interest rates next week from an already low 1%.

With trading conditions thinning ahead of year end, that pushed investors toward the Euro, which carries interest rates of 2.5%, higher not only than US rates but also those in Britain, Japan and Switzerland, where the central bank cut rates by 50bp to 0.5% on Thursday. Implied rate spreads also moved in the Euro’s favor after European Central Bank Executive Board member Juergen Stark said late Wednesday the bank did not have a lot of room to maneuver on rates after lowering them to 2.5% last week. Axel Weber, head of Germany’s Bundesbank, also tried to cool further ECB rate cut expectations, telling a German newspaper “we should be careful when our interest rates enter territory never explored before.” ECB rates have never been lower than 2 percent.

EurUsd hit 1.3406, its highest level in 7 weeks, before easing to 1.3328, up 2.41%. EurGbp rose 0.85% to 0.8870 after posting 0.8909 high. EurJpy rose 0.97% to 121.99. GbpUsd rose 1.56% to 1.5027. GbpJpy UsdJpy fell 1.41% to 91.53.

Part of the reason for the Dollar’s drop was also tied to a fall in the rates banks charge each other to borrow Dollars, reflecting decreased demand for the currency, and a general rise in risk appetite. The Dollar’s rally in recent months was mainly the result of investors unloading stocks, commodities and emerging market assets and putting the money into safer US Treasury debt.

Also on Thursday, data showed the US trade deficit widened unexpectedly in October, with imports from China rising to a new high. Some analysts say rising deficits could pose a problem for the Dollar in the long run. Analysts, however, said the Dollar’s current struggles were temporary and warned that the New Year will likely bring a renewed wave of risk-aversion and deleveraging that renews safe-haven flows into the currency.

After eighty-six consecutive daily declines, the average price of gas nationwide has now increased for the past two days. Have gas prices bottomed?
NEW YORK (CNNMoney.com) — Gas prices rose for the second consecutive day following eighty-six consecutive declines.

The motorist group AAA reported Sunday that the national average price for a gallon of gas rose to $1.663 a gallon from $1.66 the previous day. The reports are based on a daily survey of credit card swipes conducted for AAA. The average price of gas was $1.656, according to AAA’s Friday report.

During the nearly three months that gas prices were falling, prices decreased by $2.199 or 57 percent. The current national average is now $2.451 below or 59.6 percent off the record high price of $4.114 that AAA reported on July 17, 2008. Read the rest of this entry »

Weekly Review and Outlook: Obama Mixed Up Short Term Market Outlook
It looked as if dollar and yen staged a board based victory last week on risk aversion when S&P 500 dived to 11 year low while DOW took out 7884 support and tumbled to 7450. Crude oil tumbled to below $50 psychological level, sending the Canadian dollar sharply lower too. However, late rebound in stocks on news that NY Fed Chief Geithner is picked by President-elect Obama to be next Treasury mixed up the short term picture again. With the exception of USD/CHF, the greenback is still kept in range against most major currencies. Dollar is still struggle to break away from prior high of 87.87 despite edging higher to 88.46. Yen crosses are still bounded in range too.

The news of Geithner seemed to be well received by the markets and it lifted some hope that Obama is assembling a group of very strong and qualified people to lead US out of the worse financial crisis since the Great Depression. Also, on Saturday, Obama outlined his place to create 2.5m jobs in the coming years, including rebuilding roads and bridges, modernizing schools, developing alternative energy sources. The news will likely provide further boost to the stock markets early this week which in turn trigger some more pull back in dollar yen.

Technically speaking, though, there is no change in the medium term up trend of dollar and yen. Even if both currencies weaken in the near term, that should be treated as part of a medium term scale consolidation only which should the be followed by another round of buying.
By ActionForex

Daily Report: Dollar and Yen Retreats Overnight Rally, UK in Focus

Dollar and yen were sharply higher overnight on concern of recession in the global economy. DOW was once down to as low as 8560 while crude oil also dropped to 19 month low of 58.32. Though, strength in dollar and yen was limited by late rebound in stocks and both retreat in Asian session. Technically speaking, as discussed before, the triangle consolidation in dollar index and EUR/USD might have already completed earlier this week and the current rise in the greenback could represent resumption of recent up trend. However, note that the strength of the current rise in dollar is not too convincing yet. Also, the development in DOW argues that another recovery might be seen before it breaks out of recent range. More importantly, triangle consolidations are usually more complicated than expected and the current rise might be just one leg inside the pattern. Hence, we’d still be cautiously bullish on the dollar as long as 85.69 support holds and are still expecting retest of recent high at 87.87. However, a break of this support will indicate that the consolidation is still in progress for another brief fall before completion.
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Economic calendar is relatively lighter this week. From US, trade balance , Fed Budget. retail sales, University of Michigan consumer sentiments will be released. In Eurozone, main focus is on Germany ZEW Investor Confidence, HICP final, Q3 GDP. Form UK, PPI, Trade Balance, employment report will be featured. Other scheduled data include Swiss ZEW, combined PPI, Canadian housing starts, new housing price index, trade balance, and New Zealand retail sales.

On the technical side, main focus is on how the current consolidation, in particular in dollar index and DOW, will develop. It will become even harder to trade if range in the dollar index continues to narrow as the triangle consolidation goes. Though, a break of 86.89 will be an early signal that the consolidation has completed. Focus on DOW will be on whether it will continue the current slide to next near term support at 8599. Another focus will be the development in yen crosses. So far, with the exception of GBP/JPY, most yen pairs are still holding above near term supports. However, weakness in the stock markets this week will likely trigger selling in yen crosses which will send them through near term support and thus pave the wave to retest recent lows.

Nymex Crude Oil (CL)

Crude oil continues to stay in tight range between 61.3 and 70.6 today. Intraday outlook remains neutral for the moment. Nevertheless, the three wave structure of the price actions from 70.6 argues that it’s corrective in nature. In otherwise, it supports the view that a short term bottom is in place at 61.3 and further rally is to be seen. Above 70.6 will confirm and bring rise to test trend line resistance at 87.43. On the downside, however, below 61.3 will indicate that recent down trend has resumed for 100% projection of 147.27 to 90.51 from 110.45 at 53.69.

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Oil price keeps trading below 70.6 today. Direction is unclear as investors are still trying to get clues on demand outlook. In Asian session, the benchmark futures rebound from Friday’s close at 67.81 to 69.19 on expectation that rate cuts in US, China and India would induce economic growth. Also, OPEC’s production cut in December in order to defend a floor at $80/bbl, as well as the possible reduction in non-OPEC countries such as Russia led to speculation on tightened supply. However, the black gold retreated by more than $2/bbl to 66.84 after news on reduced imports by Asian refiners was released.

South Korea, the fourth biggest economy in Asia, imported 1.4% less crude oil in October as the global credit crisis impacted on the nation’s economy. In the meantime, Sinopec, Asian’s biggest oil refiner, will process less crude oil because of lower profitability. The news, which further evidenced “re-coupling” of emerging markets, worried investors and they sold off their long positions on oil.

Oil price movement slightly deviated from equity markets today. Extending the rally last week, the MSCI Asia Pacific excluding Japan Index rose 5.2% to 256.26, led by financial stocks. Some of the sectors have fallen to very low valuation and that spurred investors’ risk appetites to enter into the market.

Gold rebounded today as dollar weakened. The dollar fell for the first time in three days against the Euro amid speculation that US economy will slow further and FED would continue to cut interest rate after the next FOMC meeting. US Presidential election is the focus of the week. Unless some extraordinary thing happened, we do not expect much impact to the markets as the result was largely priced in. Although the gold contract fro December delivery recovered $16/oz to 734.3 from 718.2, Friday low, outlook is mixed and we expected it will gyrate within the range of 681 and 778.3. Read the rest of this entry »

October was a disastrous month for most markets. The CRB index closed at 268.39 last Friday, down from 345.50 on Sep 30. UBS AG cut its forecast for global growth for 2009 to 1.3%, from 2.2%. This then translated a reduction of more than 45% in its 2009 forecasts for many commodity prices.

November is a month for easing monetary policy. After central banks in US, Japan and China announced rate cut, ECB and BOE will meet this week. ECB is tipped to slash rates by 50 bps to 3.25%. For BOE, it’s expected to cut lending rate by at least half a percentage point from 4.5%.

Crude oil

October was proved to be an ugly month for oil price performance as the NYMEX futures had its biggest fall of 32% since trading began 25 years ago. Last week, crude oil fell to 61.3, 18-month low, as investors did not believe OPEC’s production cut would help oil price. However, in the middle of the week, the black gold rebounded to as high as 70.6 after rate cuts in US and China and better- than- expected oil inventory data. The market rejoiced as lower borrowing costs may stimulate economic growth and hence oil demand. However, the one day wonder was then destroyed by weak economic data such as US GDP growth for 3Q and UK consumer confidence and the black gold tumbled to 63.12 Friday before rebounding to settle as 67.81 in late session due to short-covering and Wall Street rally.

Oil demand remained the most important issue in determining medium- to long- term oil price. Without an improved outlook on economy which gives investors confidence on demand prospect, any favorable news would only present a short-term bounce for the price. We view this as good opportunity to take profit. Equity indices have been recently treated as a proxy to global economic health. Oil price has been following the ups and downs of stock markets in the past weeks. We believe downtrend in stock markets is yet to complete and further fall in oil price is likely.

China, the world’s second largest oil consumer, also reduced oil consumption. Although global oil prices have corrected 50% over the past three months, China’s fixed retail oil price policy restrained the country from enjoying low price. This probably is the government’s attempt to slow down domestic oil consumption. The nation also announced last month a plan to reduce oil import which negatively impacts oil prices.

OPEC’s target is to restore oil price to at least $80/bbl. After the 1.5M bpd cut last Friday, the cartel may further reduce 0.5-1M bpd at its December meeting in Algeria. OPEC will probably continue to cut oil productions going forward and it may take 12 months for price to react to the adjustments.

Apart from demand/ supply imbalance, dollar’s strength against Euro further dampens oil price. We expect the greenback would strengthen against Euro, as the Euro zone has suffered more from the financial crisis than the States. Recent correction of Euro/USD would continue after the pair peaked in July 2008. As there is a high correlation between oil prices and the USD and Euro, this is a bad news for oil bulls.

Price movement for the coming week is mixed. The black gold’s breach of 69.5 last week indicated the decline from 110.45 may have completed. However, it has to break 84.83 to confirm this view. On the downside, oil may still re-test 61.3 if the any weak economic data (such as non-farm payroll on Nov 7) is released.
By Oil N ‘ Gold