Weekly Market Outlook: Uncertainty Looms Over Energy and Currencies
Hurricane season is now behind us, however there were some serious storms brewing last week in Mumbai, India as terrorists killed more than 150 and injured over 300. China announced its biggest interest rate cut in decades, raising the prospect that the country’s booming demand for commodities will weather an economic slowdown. This, in combination with the recently announced stimulus plan, ought to help China remain as the global engine that should propel commodities higher into 09-10.
We are not expecting prices to rush higher immediately, but do contend that traders exercising patience are getting entries at bargain levels in a number of commodities. It appears a good amount of commodities are stabilizing and we even see some markets moving higher, although we wouldn’t read too much into this as last week we experienced a light volume holiday week.
Energies
Oil has traded higher only 2 of the last 9 weeks, and last week was one of them as January Crude gained $4.21 or 8.25%. As long as prices are able to hold the previous week’s lows at $48.25 we would suggest being long lightly. Current support comes in at $50.50 with resistance at $60.00. Over the next few weeks we would not be surprised to see oil make a run at $70. Members of OPEC left an informal meeting in Cairo this past weekend without an agreement to reduce production, but with rising doubts about fraying discipline and tensions within the group which accounts for 40% of the world's oil exports. A great uncertainty still looms over the market. Have producers managed to draw a line in the sand, or will oil prices keep falling in coming months? Overproduction remains a concern if countries are producing with waning consumption. OPEC meets again on December 17th in Algeria.
January heating oil gained 3.44 cents in a volatile week, a trading range of 17.22 cents. On a move to $70 in crude, we would expect prices to trade back above 2.00. For now, support comes in at 1.67 with resistance at 1.84/1.85. A move over the 20 day moving average at 1.89 would signal a potential move to 2.00. RBOB put in an impressive showing lifting January 13.34 cents or 12.2% on the week gaining 4 out of 5 trading sessions. Prices closed above the 9 day moving average for 2 consecutive days, which last happened in late September when prices were above 2.60. Expect a bounce with support at 1.15 in January.
January natural gas ended down 21 cents with mild temperatures over most of the US. Last week’s AGA report showed a larger than anticipated withdrawal in injections which we have not seen in several weeks. Charts show a potential triple bottom around $6.25. We are suggesting buying the $8 February calls for approximately $2000 with an objective of $4000-4500. We expect to see a short covering bounce that could propel the futures $1-1.50 higher. Playing the futures we would look for a long entry in January with a stop at 6.18. The previous support from 06-07 comes in $2 higher at 8.50 on the charts; this being our ultimate objective.
Currencies
If you intend to be in a currency position for more than 2 weeks we would suggest trading March as opposed to December.
The December Euro gained 114 ticks last week, but closed 377 off its weekly high. Prices remained within the 5 cent trading range we’ve seen over the last 5 weeks with 125 serving as the floor and 130 the ceiling. Over the same time period traders have continued to sell rallies, so we would advise the same and still hold our bearish bias. Our expectation would be at least a 50 basis point reduction in rates on Thursday, potentially more. The current rate is 3.25%.
The Swiss franc too saw a failed rally but was able to muster a 50 tick advance on the week, closing 225 ticks off its weekly high. Last week we saw a brief rally only to see a reversal mid-week, ending the week below the 9 day moving average with new lows expected this week. Although we expect a reduction in rates the Swiss National Bank does not meet until December 11th.
The Aussie was able to gain just over 2 cents on the week, but how long will that last, with the RBA largely expected to reduce rates 100 basis points on Tuesday bringing rates to 4.25%. Support comes in on December just above .6400 with resistance at .6675. We expect a trade higher to .6900 over the next several weeks, but this week all bets are off.
It was fairly impressive last week to see a gain in the Japanese yen even in the face of a sizeable gain in equities. The yen gained 22 ticks and a positive streak has now carried on for 4 consecutive weeks. We see support at 1.0250/1.0300 and resistance at 1.0530/1.0570. We are expecting a move up to 1.08 in coming weeks. Futures can be traded, but one will not be on top of their game because of the volatility. We prefer options for most clients and are currently positioned in the March 105/110 calls spreads; they are investing just over $1500 with an objective of $3000-3750.
The Loonie gained 163 ticks last week, and as long as we see gains in metals and energies that trend should continue. Support comes in at the 9 day moving average at .8017 with resistance at .8200 followed by .8325. The double bottom at .7690 should serve as solid support on a pullback.
The BOE’s Governor King hinted that interest rates may have to be reduced again to cope with the growing recession with the current expectation of a 75-100 basis point reduction on Thursday. The current rate is 3.00%. The pound was able to gain 487 ticks last week or 3.25%. Prior to last week, we had not seen 2 consecutive positive weeks since mid-September. There is no real resistance until 1.6100, however last week’s high at 1.5530 may slow the acceleration higher. We see support at 1.5000 although on an aggressive rate cut look out below.
The US dollar lost 93 ticks last week continuing on the wild ranges with a high to low of over 325 ticks. We did see a trade below the 9 day moving average as we forecast, but losses were pared by the end of the week to end just 10 ticks under the moving average. Support comes in at 85.00 with resistance at 87.70. This week prices could go either way with numerous Central banks meeting and a new month underway. The upside objective would be 89.00 and the downside objective would be 83.50.
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This article has 4 comments:
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Pipo
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266 Comments
My Website
Dec 02 06:53 AMI certainly agree.
oiltradersblog.blogspo...
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axelrod608
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305 Comments
Dec 02 11:00 AMAs for currency, as Dirty Harry once observed, "A man's gotta know his limitations". I would no more put money in the currency market than on the spin of a wheel in Vegas. It is the most manipulated market on earth and my crystal ball broke years ago.
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Crank Monkey
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32 Comments
Dec 02 01:36 PM-
patio
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97 Comments
Dec 02 02:59 PM" ya gotta ask yourself a question, " Do I feel lucky?"
Well, do ya, punk?
On Dec 02 01:36 PM Crank Monkey wrote:
> In one of his westerns Clint gets told that he's killed an unarmed
> man, to which he reponds, "Well, why didn't he arm himself?"