2011 September | Forex Blog

September 29, 2011

USD/JPY To Break-Out?

Filed under: Forex News — Tags: a-fairly-tight, after-the-bank, biggest, chart of the day, clear-support, created-between, currency, haven-as-the, having-passed, japan, over-the-past, surprisingly, time-the-yen, weakne-the-yen — admin @ 7:52 am

Over the past few weeks, the USD/JPY pair has been trading in a fairly tight range for the safe haven currencies. A bottom had been put in near 76 after the Bank of Japan intervened in the currency the last time the Yen saw that level vs. USD.

So there were many questions as to whether or not the Yen would be deemed a more “desirable” safe-haven as the risk aversion due to the Euro debt crisis picked up. Surprisingly, the markets didn’t really favor one over the other to this point, and the BOJ resolve to weakne the Yen was not re-tested.

Thus a range was created between 76-77 for USD/JPY and it had been trading there ever since. But now, with the vote for the EFSF having passed in Germany (they were seen as the biggest potential obstacle) the market may move back toward risk taking which should encourage US Dollar buying vs. the Yen. With clear support established at 76, a confirmed breakout above 77 means that we could be at 79 in no time.

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Bernanke Calls Unemployment “National Crisis”

Filed under: OANDA News — Tags: a-speech-yesterday, been-unemployed, cleveland, federal-reserve, forex round up, jobs, months-or-more, percent-have, the-people, unemployment, unheard-of-, years-and — admin @ 7:26 am

Federal Reserve Chairman Ben Bernanke referred to the U.S. unemployment situation as a “national crisis” in a speech in Cleveland yesterday.

“This unemployment situation we have, the jobs situation, is really a national crisis,” Bernanke said in response to questions after a speech yesterday in Cleveland. “We’ve had close to 10 percent unemployment now for a number of years and, of the people who are unemployed, about 45 percent have been unemployed for six months or more. This is unheard of.”

Source: Bloomberg

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German Parliament Approves Bailout Fund

Filed under: OANDA News — Tags: bailout-fund-, cleveland, forex round up, jobs, large-majority, months-or-more, must-register, the-measure-, unemployment, years-and — admin @ 7:21 am

The tight vote expected in the German Parliament over the question of supporting an expansion of the European Union bailout fund never materialized. A large majority voted in favor of the bill which was also seen as a strong endorsement of Chancellor Angela Merkel’s continued influence on the ruling coalition. The next test will take place Friday when Germany’s Upper House must register its approval but it is expected to pass without issue.

All 17 countries that use the euro must ratify the commitment to expand the powers of the EFSF and boost its bailout guarantees to 440bn euros (£383bn).
So far, 10 have approved the measure.

Source: Reuters

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Forex Market Outlook 9/29/11

Filed under: Forex News — Tags: australia, commodities, currency market, expectation, fundamental, improved-on-the, practice account, push-the-german, trend — admin @ 7:19 am

This morning, all eyes were on Germany which voted to expand the scope of the EFSF, laying the groundwork for the Greek bailout to continue and effectively buying more time for EU leaders to figure out a plan to resolve the crisis.

This has been dragging on the global economy for some time now and has discouraged investment and capital formation from taking place. And while this vote is not the end all be all and just one vote in series of others that need to take place, leaders are hopeful that the EFSF can be ratified by mid-October.

So to turn our focus away from the debt crisis for a moment, there was actually some economic data that came out today that surprisingly shows a bit of economic resilience. In Germany, unemployment figures fell by 26K vs. the expectation of a decline of 8K which helped push the German unemployment rate down to 6.9% from last month’s 7%. And while five different measures of Euro zone confidence all came in worse than expected, it must be noted that things typically need to get better before business and consumers start believing.

Here in the US initial jobless claims came in better than expected, with 390K newly unemployed vs. the expected 420K. While not a dramatic turn-around, at least it halts the declining figures we have seen of late.

US GDP Annualized figures came in slightly better than expected showing a gain of 1.3% vs. the expectation of 1.2%. The GDP price index also came in a higher than expected, showing a gain of 2.5% vs. 2.4% which means that inflation is steady to rising slightly. Personal consumption figures also came in better than expected, posting a gain of .7% vs. .4%. This perhaps might be the most positive reading, as the US economy needs the consumer to come back in order for it to flourish. Though this could also be a function of the “back to school” phenomenon.

Later this morning we will get pending home sales which if improved, could round out a pretty positive morning for the US economy in light of recent events. August home sales were expected to have declined 2.1%.

In the UK, mortgage approvals came in better than expected with 52.4K approvals vs. the expected 49.7K. This is either a result of improved sentiment or the fear of inflation but either way it is producing positive economic activity. The UK sometimes gets lost in the shuffle when we look at the problems in the Euro zone.

The markets are rallying this morning as risk appetite has improved on the German vote as well as the better than expected economic data. But the markets are still pretty range-bound at the moment, so we are seeing cases of “buy the rumor, sell the news”. The Euro was actually higher earlier this morning before the vote as the anticipation of it passing held more promise than the actual vote itself.

Even with this vote passed, the problems are far from over and the market can turn quickly if it loses confidence in the EU resolve to save the union. The global economy has not recovered just yet, even though there is some decent economic data. In fact, estimates are calling for a slowdown in China, who reports PMI figures tomorrow.

So don’t be fooled into believing that everything is peachy-keen just yet, as the global economy still has a long way to go.

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Forget EURO EFSF Issues, It’s Quarter-End Pricing

Filed under: OANDA News — Tags: biggest, cards, chf, cleveland, from-the-prior, gold, market, morning, must-register, unemployment, years-and, yellow — admin @ 4:34 am

Despite the toing and froing of austerity ideas and Greek sovereign debt solution suggestions, the market remains in a defined range as dealers execute month and quarter end-demand requirements. It can be the silly season for price action, and trying to complete it in this politically and economically charged environment may come at a price. Liquidity remains a premium, as dealers try to end this exhausting month above water.

Now that Germany has handily passed the EFSF ratification (523 vs. 85) this morning, investors should expect some of the market premium to be taken back ahead of US data. Market focus will shift towards the Troika committee, who arrive back in Greece today. They will decide whether Athens has done enough to secure a new batch of aid vital to avoid bankruptcy. Eurozone leaders likely will not decide whether to release Greece’s next bailout installment until the Eurozone Summit on October 13.

Trying not to be distracted by what was said, what is being said and what’s expected to be said, the market had to chew on some softer US durable order numbers yesterday. The details in the August report highlight the uneven nature of the US economy and despite all this the economy is doing better than a year ago. Durable good orders decreased by -0.1% from the prior month to $201.7b. The market had been expecting a +0.2% rise in orders. The drop followed a +4.1% total orders jump in July and are up a stellar +10% from a year ago.

Digging deeper, a healthy sign was the spending by businesses on equipment rose. Orders for non-defense capital goods, ex-aircraft, happened to increase by +1.1% after dropping in July. The first half of this year has been tough, especially since consumers have reduced their spending as they worry about finances, future incomes and a high unemployment rate. Confidence numbers earlier this week support their financial concerns and mood for this month. The US manufacturing sector continues to struggle. Despite the recent ISM reports showing growth in the sector, the rate of expansion is ‘something not to write home about’. The decline in durable orders was driven by motor vehicles falling -8.5%. Ex-transportation, orders fell -0.1% after rising +0.7% in July. August shipments of durables fell -0.2%, following three consecutive increases. Finally, unfilled orders (future demand) continue to rise.

The dollars is lower against the EUR +0.74%, GBP +0.61%, CHF +0.56% and JPY +0.09%. The commodity currencies are stronger this morning, CAD +0.30% and AUD +0.72%.

The loonie under performed and lagged against other commodity pairs on the back of BoC Deputy Governor Macklem’s comments yesterday. He indicated that policy interest rates “can be reasonably expected to remain below normal for some time to come”. The CAD managed to drift lower outright as riskier assets remained vulnerable to doubts over the ability of European policy makers to stem a debt crisis that threatens to trigger a global recession.

Greek lawmakers approving a deeply unpopular property tax has opened the way for the return of international lending inspectors and the release of vital aid is been seen as a huge boost to global confidence and risk appreciation. Commodity prices have also been finding it difficult to maintain traction, especially after US durable data, which obviously does not benefit the loonie. The CAD currently trades like a low-beta currency that is trading in a well defined range with corporate Canada itching to own some of the currency on top and risk aversion strategist looking to pick up dollars close to the greenback’s breakout level at the beginning of the week.

Last weekend, BoC governor Carney was ‘encouraged’ by euro-area policy makers’ ‘diagnosis of the seriousness of the situation’. Carney has become more concerned about global growth, especially now that the IMF has revised their growth forecasts. Investors are happy to keep their cards close to their chest until after month and quarter end trading (1.0300).

The AUD strengthened outright and versus the JPY as Asian stocks reversed earlier losses, supporting demand for higher-yielding currencies. Aussie data last night was also pro-currency. Australian job vacancies rose +3.2% in the three months to August from the quarter before. Many analysts believe the downward pressure that has been applied to this growth currency has created a price overshoot as there is too much ‘bearishness priced into the Australian interest-rate curve’. It was one of the worst performing currencies in the pass month, declining -2.6% outright.

Investors remain concerned that European policy makers will struggle to resolve their debt crisis. Despite domestically having all the strong fundamentals, cash-futures are showing that traders are betting the RBA will lower its key rate by at least-75bp by the end of the year. If anything, the RBA is likely to be on hold for an extended time, allowing investors to sell higher yielding assets on rallies with the top side becoming more contained (0.9854).

Crude is higher in the O/N session ($82.05 up+84c). Oil prices remain under pressure and are heading for the biggest quarterly drop in three years, on concern that Europe’s debt crisis will linger and on rising inventory levels. The value of the dollar remains the commodity’s biggest nemesis. Crude is down -7.2% this month and -9.8% this year. Prices have dropped-14% since the end of June, the biggest quarterly loss since 2008.

Last week’s EIA report showed a build up of nearly +2m barrels of crude. This is not bullish and coupled with the Euro sovereign crisis should continue to pressurize commodity prices. Not to be out done, gas stockpiles also rose +791k barrels to +214.9m last week. Supplies of distillate fuel (heating oil and diesel) increased +72k barrels to +157.7m. Refineries operated at +87.8% of capacity, down -0.5% from the prior week.

Weaker growth predicted by the IMF, which points to lower oil demand, will have dealers thinking of shorting the market again. Expect investors to run into technically selling on some of these rallies.

Gold prices declined yesterday, similar to other commodities, as European leaders strive to tame the sovereign debt crisis. The European Parliament voting to make sanctions more automatic against member nations that breach deficit and debt limits took some of the fear factor out of the market and had investors liquidating their positions ahead of quarter-end. After last week’s price action, investor’s are taking a cautious attitude in entering the gold market.

The eight-month low print this week seems well supported and suggests that the market may have registered its near term overshoot target ($1,530). All the bullish factors for wanting to own the yellow metal, like dollar debasement economic imbalances and sovereign periphery debt, remain. To try to apply supply and demand logic in a panicked market is near impossible.

Last Friday’s dollar decline was the largest dollar selloff on record. Investors had been selling metals to cover losses in other asset classes. Gold is one of the few assets that remain in positive territory this year and, because of this, as investors required cash, they sell the assets that have performed. The Fed’s efforts to drive interest rates lower to support lending should, by default, support commodity prices ($1,631 up+$13).

The Nikkei closed at 8,701 up+86. The DAX index in Europe was at 5,613 up+35; the FTSE (UK) currently is 5,199 down-19. The early call for the open of key US indices is lower. The US 10-year backed up+1bp yesterday (1.97%) and is little changed in the o/n session.

Product further out the US curve pushed yields higher yesterday. Treasuries fell, extending the advance of 10-year note yields from a record low print (+1.67%) earlier in the week, as speculation that Europe’s leaders are moving toward agreement on measures to counter the region’s debt crisis sapped refuge demand. Also pressuring prices is the US treasury department coming to the market with $99b’s worth of product this week.

The second debt tranche was the issuing of $35b 5-year notes yesterday at record low yields as investors continued to seek shelter. Just like the shorter product, the 5’s withstood the test of the Fed’s “Operation Twist”. The overall demand was strong at a yield of +1.015% and an impressive bid-to-cover ratio of 3.04, well above the four auction average of 2.78. Indirect bidders took +45.9% of the supply, above the +40.9%average and direct bidders took +13.8%. Analysts had feared that the Fed’s move to sell the short end would hurt demand, this was not to be. Today we get the last of this weeks tranches with $29b 7‘s. The current market conditions should see good demand for supply.

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September 28, 2011

Canadian Home Prices Higher in July

Filed under: OANDA News — Tags: cad, calgary, composite-house, country, eurozone, halifax-taking, market pulse, montreal, national-bank, price, toronto — admin @ 2:28 pm

Canada’s housing market continued to expand in July marking the eighth straight monthly price increase. According to the Teranet-National Bank House Price Index, across the country prices rose 1.3 percent for the month to reach a new high on the index.

The Teranet-National Bank House Index measures monthly price changes on single-family homes based on data from Vancouver, Calgary, Toronto, Ottawa, Montreal, and Halifax. Taking into consideration the latest property sales data from these six cities, the index calculates a composite index for each city, as well as for the entire country.

As has come to be expected, Vancouver and the surrounding suburbs head the list of most expensive home prices with an average price of nearly $780,000 as of August. However, it is interesting to note that for July, three other cities recorded a greater amount of change than Vancouver. Also, of the six cities included in the survey, only Halifax realized a decline in the average price:

City	July Change
Calgary	+2.3%
Toronto	+1.7%
Ottawa	+1.0%
Vancouver	+0.9%
Montreal	+0.5%
Halifax	(-0.9%)
National Average	+1.3%

Source: Teranet-National Bank Composite House Price Index

House Prices Increases Expected to Slow Next Year

While analysts predict Canadian house prices will continue to gain next year, a report released by ScotiaBank earlier this week said the rate of appreciation will be considerably slower than 2011. The reason – according to the bank – is the growing likelihood of a slowdown in the global economy.

The Canadian economy relies heavily on exports and is a leading distributor of oil and minerals, as well as manufactured goods including automobiles and heavy equipment. Over 70 percent of Canada’s exports find their way to the U.S. market and even a slight decline in U.S. demand can have a huge impact on Canada’s important export sector.

Recent indicators suggest the pace of growth is slowing in the U.S. and has raised cautionary flags on this side of the border. There is also the question of the Eurozone debt crisis and the uncertain impact a default by one or more of the sovereign countries struggling with massive debt loads could have on the global economic system.

It is this uncertainty that may have home buyers waiting on the sidelines to see how the next few months unfold before committing to a major purchase.

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U.S. Business Spending Higher in August

Filed under: OANDA News — Tags: a-1-1-percent, a-4-1-percent, actual-result, businesses-feel, capital-goods, declined-0-2, likelihood, recession, should-business, the-likelihood, the-near-term- — admin @ 7:34 am

It is estimated that American businesses continue to maintain $2 trillion in reserve cash but remain reluctant to use this money to expand operations and hire more workers on fears that another recession is looming. In July, business expenditures as tracked by non-defense capital goods orders, declined 0.2 percent – for August, this category recorded a 1.1 percent increase in spending.

This increase is seen as an indication that businesses feel the likelihood of another recession in the near-term has diminished and it is hoped that should business continue to spend, it could lead to a gain in employment.

The Commerce Department also noted that orders for durable goods slipped by 0.1 percent in August after a 4.1 percent gain in July. The actual result was better than the 0.5 percent decrease expected so even this news is being interpreted as a positive signal.

Source: Reuters

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Euro (EUR) In Focus– Again!

Filed under: Forex News — Tags: chart of the day, condition-which, eur, euro dollar, from-the-euro, global-markets, greek, market, risk-appetite, start-the-week, week — admin @ 7:24 am

It doesn’t really make sense to look at anything other than the Euro today as it is the Euro debt crisis that continues to drive sentiment in the markets. This creates the “risk environment” where the market decides if they want to take it or avoid it. Then the correlative properties of the currencies take over and we esentially have two trades in the market.

To start the week, risk appetite has picked up after last week’s selling but today we are at “crossroads”. The market has been anticipating some good news from the Euro zone regarding the Greek debt deal and the overall debt crisis and the potential resolution to it. And so far, we have seen little to believe that we are any closer than we were last week.

Yet the markets are willing to give the benefit of the doubt when it’s early in the week, but become more fearful as we near the weekend when markets are closed and nothing has been accomplished. This has been par for the course for EU leaders and frankly has been what has been weighing heavily on global markets.

Looking at the 1-hour chart of EUR/USD, we can see a familiar pattern emerging– early week risk appetite followed by end of the week risk aversion. Last week I called a move lower in this pair which hasn’t happened–yet.

But should there be no resolution or a negative outcome, then that selling could resume rather quickly. Earlier this morning, EUR/USD bumped up against its R1 daily pivot resistance and could have problems advancing further. Alos note that our fast-setting stochastic is showing a bit of an over-bought condition which could foreshadow some further selling.

A new range is being established, so perhaps a return to 1.34 by the end of the week may occur.

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Forex Market Outlook 9/28/11

Filed under: Forex News — Tags: australia, cad, carry trade, credit-default, currency, currency market, currency trading, default-at-over, fear, interest-rates-, invest, loonie, president, rate-decision, trader — admin @ 6:52 am

Sometimes it feels like Groundhog Day in the forex market as we focus on the same thing over and over again. So it should come as no surprise that again we are focused on the Euro debt crisis as there is very little other news to sway market sentiment.

Perhaps it will be best if examine the recent events and what they mean for the markets. Yesterday, Greece was able to pass the vote that raised property taxes as was required by the deal that was made back on July 21^st as part of their austerity measures.

But now there is some concern that figures that were used to hammer out that deal have now changed, which means that there could be some opposition to the already-agreed-to plan. What’s more, the votes to ratify the EFSF are just taking place now in each of the individual countries of the Euro zone, to be able to ratify the previous deal.

The vote to ratify the EFSF deal has already been delayed and is just a formality if all of the countries agree to ratify. But why has it taken so long to put it to a vote? This really should be a done deal by now, that is, if they really want to rescue Greece. If you do X, you get Y.

But now there are fears that some countries are balking and the constant delaying has kept markets on edge. I agree with President Obama when he said that Euro inaction is “scaring the markets”. Of course this elicited a pushback response about the fiscal situation in the US, which of course is true, however it doesn’t justify Europe’s behavior throughout this mess.

So the markets are waiting for the “Troika” (ECB, IMF, EC) to come back with their findings in order to potentially move forward. One of the additional impediments is that there will be multiple votes over the course of this process and any on slip-up could put Greece in default. This is one of the reasons why the CDS (Credit Default Swap) market has the odds of a Greek default at over 90%.

So what can the Euro zone do? Well the idea of expanding the EFSF by levering the balance sheet up has been dismissed as “stupid” by a German official as it could incur a credit downgrade. So much for Geithner’s suggestions to help.

Contagion is the obvious issue that plagues the Euro zone right now. If they could let Greece go without causing similar problems in the other countries with debt issues then I think they would in a heart-beat as Greece is actually a pretty small percentage of the region. Which is also why Merkel’s comments about “building a firewall” around Greece the other day were telling as perhaps there may be more of a push to that end.

Surprisingly, the markets have been faring pretty well the last two days, though yesterday’s afternoon sell-off in stocks here in the US and the subsequent follow-through in Asian markets caused some overnight risk aversion. We have clearly been trading on risk themes in the market and the correlations of currencies have been pretty strong of late.

It’s essentially Dollar and Yen strength on risk aversion, everything else strong on risk appetite. The risk appetite we’ve been seeing this week has been pretty strong, though some are dismissing it as a bit of a relief rally. We have seen expanded to declining range-bound activity in the markets, and this makes sense when we consider that it is the same things over and over again that are ruling market sentiment.

This means increased volatility as the markets proceed with caution, knowing that at any given moment, news can break from the Euro zone which could impact market sentiment. Therefore, it is very important to keep yourself informed about the news and its potential impact, as it has the ability to disrupt trades if you’re not paying attention.

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EURO’s Left Hand Side the Most Vulnerable?

Filed under: OANDA News — Tags: a-1-1-percent, businesses-feel, cad, capital-goods, chf, eur, president, previous, the-likelihood, time, usd — admin @ 4:21 am

Risk sentiment remains vulnerable to headlines out of Europe. EC President Barroso “State of the Union” has done little to garner stronger EUR support this morning. European policy makers continue to find it difficult to agree and remain split over the terms of Greece’s second bailout, with about 7 members arguing for greater private sector write-downs.

Month-end and quarter-end trading has seen the JPY benefit outright and against the EUR as Japanese exports go about repatriating some profit, and this despite speculation that the BoJ could intervene ahead of the end of its financial half-year. To date, Japanese exporters have been stung by the dollar’s -5.8% drop this year. Yen appreciation is adding support to market consensus that the EUR will retest the weekly lows again by week’s end. For a short time Euro-policy makers did improve market confidence with their correct ‘perception’ tone and rhetoric. However, similar to most Euro agreements, it tends to be short lived.

Euro event risk remains heightened with the ratification process of the EFSF amendments continuing today. This time its the Finnish parliament vote. Slovenia voted in favor of the measure yesterday and Germany is set to vote tomorrow. The sticky point in the negotiations will be about collateral. The Finnish parliamentary finance committee have already stated that if their request for collateral were denied, it would heavily impair the country’s ability to take on more liability in supporting troubled countries. This would certainly throw a wrench amongst the EFSF expansion plans. Perhaps the Euro’s left hand side remains the most vulnerable.

US data proved a bit of a challenge to investors yesterday who were otherwise caught up in the Euro euphoric belief that EU policy makers are on the verge of implementing something substantial that would stabilize global markets finally. These are certainly volatile timee and not for the faint of heart.

US home prices rose in July, driven by seasonal demand. This was the fourth consecutive monthly increase registered by the S&P’s Case-Shiller index. In the 20-City index (+0.9%, m/m), seventeen regions reported higher prices from the previous month, led by Detroit (+3.8%). However, apart from Washington and Detroit, prices were down -4.1%, y/y. The housing market continues to be impeded by the same fundamental reasons of high unemployment, an abundance of foreclosures and tighter mortgage requirements. It’s not all doom and gloom, the NAR last week reported that existing home sales rose +7.7% in August. Foreclosures accounted for +31% of sales.

The US CB’s consumer confidence again provided a print on the soft side this month (45.4), extending the prior months plummeting number, but did beat market expectations (46). Consumers continue to worry about future income. Digging deeper, expectations for economic activity over the next six-months happened to increase to 54 from a revised 52.4 in August. The present situation index, an indicator of consumer assessment of current economic conditions, fell to 32.5. This is the fifth consecutive monthly decline and a “sign that the economic environment remains weak”. Consumers continue to express a concern about current earnings, which does not bode well for present spending. The report also showed that consumers expect inflation to accelerate to +5.7% a year from now, down from +5.9% in August.

The dollars is lower against the EUR +0.20% and JPY +0.46% and higher against GBP -0.03% and CHF -0.20%. The commodity currencies are weaker this morning, CAD -0.51% and AUD -0.17%.

Any currency that could benefit from risk being applied did so in spades yesterday. The loonie, after printing a 16-month low earlier in the week, aggressively accelerated on the back of robust equities and commodity prices, as European officials discussed new actions to cut Greece’s debt and recapitalize the region’s banks. Risk trading got a boost from ‘perception’, month end and quarter end trading.

Greek lawmakers approving a deeply unpopular property tax has opened the way for the return of international lending inspectors and the release of vital aid is been seen as a huge boost to global confidence and risk appreciation. Commodity prices have also found new support which can only benefit the loonie even more as it encroaches upon key Canadian resistance point or dollar support levels outright that which marked the currency’s low on the day it began its steep sell off last week.

The AUD retreated from its recent highs in the overnight session on the back of equities taking a back seat and Japanese exporters repatriating yen for their half-year end requirements. Even commodities trading on the softer side pressurized the Aussie. The currency dropped against all of its 16 major counterparts ahead of this morning’s US data that is expected to show that bookings for US durable goods declined. The AUD maintained losses even after sales of newly built dwellings rebounded +1.1% in August following three-consecutive monthly declines, according to reports from the HIA.

Crude is lower in the O/N session ($83.66 down-0.79c). Oil prices jumped close to +4% yesterday, and this after falling to a seven-week low earlier in the week and posting weekly losses of more than-7% last week. Similar to all commodity price action, the volatile swings are subject to whatever is said, stated or rumored out of the Euro region. Clarity on the euro zone plan is still ‘key’ and until the market gets this, current price can be anything. Presently, the fundamentals are being ignored.

This morning we get the weekly inventory report and the market anticipates a build in inventories, in sharp contrast to the last couple of releases. Last week’s EIA release was bullish for the market. Commercial crude inventories decreased by -7.3m barrels from the previous week. Analysts expected a-700k barrel decline. At +339m barrels, oil supply’s are above the upper limit of the average range for this time of year. Refineries operated at +88.3% of capacity, up +1.3% points from the prior week. On the flip side, gas inventories increased by +3.3m barrels last week and are at the upper limit of the average range.

Weaker growth predicted by the IMF, which points to lower oil demand, and production in Libya is coming on stream faster than expected, will have investors thinking of shorting the market again. Expect investors to run into technically selling on some of these rallies.

Similar to other commodities, gold rallied +3% yesterday and is +7% higher than the lowest print on Monday. This eight-month low seems well supported and suggests that the market may have registered its near term overshoot target ($1,530). All the bullish factors for wanting to own the yellow metal, like dollar debasement economic imbalances and sovereign periphery debt, remain. To try to apply supply and demand logic in a panicked market is near impossible.

In reality, the continued concerns over euro-zone sovereign debt is likely to drive gold higher in the longer term before policy makers are forced to take more effective action. The Fed’s efforts to drive interest rates lower to support lending should, by default, support commodity prices ($1,656 up+$4.20c).

The Nikkei closed at 8,615 up+6. The DAX index in Europe was at 5,565 down-63; the FTSE (UK) currently is 5,253 down-37. The early call for the open of key US indices is lower. The US 10-year backed up+3bp yesterday (1.97%) and is little changed in the o/n session.

The first debt tranche was the issuing of $35b 2-year notes yesterday. Surprisingly, they withstood the test of the Fed’s “Operation Twist”. The overall demand was strong at a yield of +0.249% and an impressive bid-to-cover ratio of 3.76, well above the four auction average of 3.28. Indirect bidders took +36.7% of the supply, above the +28.2% average and direct bidders took +12.1%. Analysts had feared that the Fed’s move to sell the short end would hurt demand, this was not to be. Today we get $35b 5’s and tomorrow, the last of the week’s issues, $29b 7‘s. The current market conditions should see good demand for supply.

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