Oil stays range bound despite support from weaker dollar.
The main driver for Commodity markets were once again the dollar which made a new 2009 low versus the Euro and the S&P 500 which made a new high for 2009.
One year on from the Lehman collapse the market is full of what it lagged a year ago, namely liquidity. This liquidity continues to look for investment opportunities and it helped drive the dollar lower last week as commodity and other higher risk currencies made good gains. This favourable risk environment also saw stock markets making new highs as the appetite for mergers and bid activity returned.
Despite all this and continued bullish updates from various major commodity trading houses Crude Oil failed to break out of its three months old range. It finished the week on a relatively weak note after Fridays price action saw it loose 5.5% within the last few hours of trading. The main reason for the selling was probably a sense of disappointment that these positive factors had failed to drive the market higher.
Trading the range has now been the favoured strategy over the last three months and that looks set to continue a little while longer. That leaves Crude for October delivery stuck between $66.50 and $75.25. Additional resistance can be found at $72.90 while a break below $66.50 could target $64.70.
Forex analysis. A trade war is brewing between the world’s largest debtor and the world’s largest lender – and the ramifications could prove very costly. Over the weekend in a very quiet and contrite manner, the US government imposed a 35% additional tariff on Chinese made automobile tires.
The Chinese, since finding this out via a news source rather than an official communication, have accused the US of protectionist policies and referenced the manner in which the tariff was imposed (in the dark of night) and the manner in which it was disclosed to them (via a Reuters report) to prove this point.
The Obama is under immense pressure from internal lobbyists for the Automobile parts industry which claim that 5,000 jobs have been lost so far as a direct result of the mass influx of cheaper Chinese made tires.
Coupled with the declining popularity of Obama’s policies and administration as a whole, the pressure caused them to make a serious mistake in enacting this policy – and I have to agree with the Chinese that the manner in which it was enacted and disclosed was irresponsible.
The ramifications of this deal will only serve to hurt the US Dollar moving forward. If Forex traders perceive the US to be losing favor with China – and if it was not apparent this was happening until this point, be sure that this surely seals the issue – they will stay as far away from the Dollar as they can.
China has already been converting their Dollar reserves to commodities like gold and platinum, they have already slowed down on their purchases of US Government securities to the point that the largest buyer now of US debt, is the US Government itself. This action will only worsen the situation moving forward.
The Dollar has been beaten on the Forex trading Market – down to yearlong lows against a basket of currencies. Forex traders cannot afford to have the US Dollar further harmed by inadequate policies that were borne out of politically motivations.
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