Investors continue to blow hot and cold as the economic outlook remains uncertain and the sovereign debt problem is not going away.
The dollar rally ran out of steam during the early parts of the week as traders decided to book some profit ahead of the monthly U.S. employment rapport. A record large speculative short position in Euros has increased the risk of a swift short covering rally. So far the EUR 1.3740 has stopped the euro from making any further progress and dollar buyers emerged after the report assuring a relative strong close on the week.
The Greek debt office finally managed to sell EUR 5 bn of 10 year bonds with the issue being heavily oversubscribed. It however came at a very high price, some two percent above Portugal and double the rate paid by Germany. With another EUR 20 bn of debt falling due in the coming week’s investors will be watching Athens commitment to fiscal tightening closely.
The price of crude oil has been trading close to USD 80 this past week looking for the catalyst that can drive it up towards the January high at USD 84. Inventory levels are largely unchanged and are expected to stay that way in the coming weeks.
One worrying sign was news out of China that refineries there will be scaling back crude runs in March. The cut in runs has been explained by large build in unsold stocks of products, such as heating oil and gasoline, as supply has outpaced the growth in demand. This buildup comes at a time where the stockpile of products in the Western world is already at high levels. Until inventories begin to draw properly the current range for crude oil looks set to prevail with dollar movements being the main source of inspiration.
Gold moved higher this week helped by a temporary reversal of the recent dollar strength combined with news that the Russian Central Bank would be looking to divert additional reserves into the yellow metal. ETF demand has picked up recently indicating continued retail support for the market and the large overhang of speculative long positions on Comex has been reduced. The next obvious upside target is the January high at 1,162 and support can be found at 1,125 followed by 1,107.
Silver has been the highflyer recently, reaching the highest level since January 22nd and once again shows that it follows gold but tend to outperform in both direction. The current range is between USD 17.05 to USD 17.55.
The ratio (gold price / silver price) has now come down from 71 to 65.70, giving silver a 7.5 percent lead over gold during the last month. We are looking for support on that ratio down towards 65 where we would be looking for gold to begin a new round of outperformance which overall would indicate a reversal of the recent rally on both.
The tragic earthquake in Chile last weekend triggered a spike in copper prices on concerns that mines and thereby near term supply could have been affected. Chile produces one third of the global output but as the mines are located in the north of the country far away from the epicenter they turned out to be unaffected. Codelco the world’s largest copper producer estimated its output to be impacted by less than 0.5 percent of annual production.
Despite the initial sell off following the spike prices have held firm and now sits 20% above the lows from a month ago. Inventories are still rising albeit at a slower pace while cancelled warrants for copper on the LME remain high, suggesting physical market activity is picking up.
Short term we are looking for the metal to trade in a USD 329 to USD 350 range with economic activity indicators and the dollar being the main drivers.
The price of corn has slowly continued to recover from their early April low at USD 359. Corn has since January been trying to recover from the 16% sell of that was seen after the WASDE report which showed an unexpected increase in production. Technically the market has still got a gap to close between USD 396 and USD 403 on the CBOT contract for May delivery.
On March 10th the Crop Production report will be released and there is some speculation that the USDA will reduce the production numbers from those reported back in the January thereby lending support to prices. Several other factors seems to be supporting prices in the weeks ahead; robust ethanol demand, quality concerns, potential problems with planting delays after a cold winter and not least the historical pattern where corn tend to move higher during the spring planting season.
Technically May corn is trading in an upward sloping channel between USD 372 and 394. We favor the upside and would be buying on dips for an eventual attempt on closing the above mentioned gap. The technical pattern for wheat looks similar but the fundamental picture favors Corn so alternatively a long corn short wheat strategy can be an alternative
