Commodity Spotlight Agriculturals

Rubber: Gloomier demand outlook weighs on prices

Several years of supply surpluses on the global rubber market have pushed prices in Singapore down to their lowest level since autumn 2009. High prices in the years before had made it attractive to set up new plantations. After the long growth phase of rubber trees, this is now increasing supply. On the other hand, rubber demand is suffering under the uncertainty about the global economy. The focus is on the USA and China especially. As the world’s largest automobile producer, China is also the biggest consumer of rubber, as tyre production accounts for approximately 70% of rubber demand.
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NZD/USD – Daily Chart

Looking for the correction higher to terminate shortly.

NZD/USD’s recovery from .7683 in late June is viewed as corrective only and is expected to terminate shortly ahead of the 38.2% retracement of the move down from the April high. This is located at .8083.
We look for the market to fail shortly and resume its down move.
We will retain our medium termbearish forecast while the currency pair stays below its .8139 June peak and the 200 day ma at .8232.
Our medium term downside target zone is made up of the .7456/.7371 May 2012 low and November 2011 low. These remain our downside targets for the months to come.
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Commodity Spotlight Energy

US environmental policies could make gasoline more expensive in Europe as well

We have seen the strongest week-on-week increase in US gasoline prices in five months in mid-July. One reason was the significant increase in prices for ethanol credits. Demand for these credits is growing as fuel blend requirements are tightened and fuel demand weakens. Next year, the critical blend wall of 10% for gasoline sold in the US could be reached. US refineries might therefore try to step up their gasoline exports. As a result, European refineries might come under pressure and reduce their processing capacities. Gasoline prices in Europe might rise as a result.
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S&P GSCI Total Return Index

Market is approaching the 5010 2011-2013 downtrend

The S&P GSCI Total Return Index has continued to crawl slowly higher. It is approaching the 61.8% retracement (of the move down from the September 2012 peak at 4998 and while we remain unable to rule out a test of the 2011-2013 resistance line at 5010, we look for this to hold the topside and provoke failure.
We then look for a slide back to the 200 day ma at 4835 en route to the 4787/28.2% retracement and eventually the 4611 3 month support line.
Key support remains 4585 the 2009-2013 uptrend which guards the 4493 2013 low and the 4442 50% retracement (of the move 2009-2011). We would expect this 4442 zone to hold the initial test. Failure to do so would see losses to 4212.50, the 2012 low.
A weekly close above 5010 will alter the chart to more positive (not favoured) and target the 5148 2013 high.
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Strategic Technical Themes

US Dollar a mixed bag but AUD/USD just holding sideways – maintain a longer term negative stance

AUD/USD has held broadly sideways for over one month – this serves the purpose of neutralising the momentum indicators and giving time for the market to absorb its losses. While capped by key resistance at .9388/.9404 (the 2011 low and highs from 2009 and 2010) and while capped here our negative bias is entrenched. To trigger another leg lower we suspect that the market will need to sustain a break back below .9000.
Short term we note that the intraday charts are suggesting that the current correction will extend to the .9400 region, but should then struggle. Longer term the close below .9147 which has been seen recently is bearish and we consider that the next target of .8550 is engaged.
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EUR/PLN – Daily Chart

Correction lower should stabilise 4.2180/4.20

The correction lower in EUR/PLN from its one year high at 4.3708 remains in force. The move will shortly encounter both the high from January and the short term uptrend at 4.2181/93. The Elliot wave count on the daily chart is indicating that this correction lower is likely to end ahead of the 61.8% retracement at 4.1990.
Medium term the 4.4125/4.4315 resistance area, made up of the 2009-13 resistance line and the May 2012 peak, remains in view. En route lies the June high at 4.3708 which first needs to get exceeded, however.
The currency pair’s advance is likely to run out of steam in the 4.4147/4.4315 resistance area. Should it be bettered, the 4.5334 September 2011 high and also the 2011 peak at 4.5993 will be back in the picture
Medium term we will retain our bullish forecast while EUR/PLN remains above its 4.2037 June low.
Below 4.1990 would introduce scope to re-test the 4.1536/4.1440 55 week moving average and the 2008-2013 uptrend.
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Gold – Daily Chart

Looking for failure ahead of 1339/1343 – top of the 2 month channel and 55 day ma

Gold remains upside corrective short term and has reached the 1321.50 April low. It has executed a 23.6% retracement (1325.50) of the move down from the October 2012 peak. Directly above lies the twin perils of the top of the two much channel at 1339 and the 55 day moving average at 1343.
We should ideally see the market fail here, in which case another down leg towards the current July low at 1208.08 and the 1180.04 June low will soon be underway.
Failure at 1180.04 will open the way up for the 1162.45/1145.25 significant support zone to be targeted. It contains the January and March 2010 highs, July 2010 low and the 61.8% Fibonacci retracement of the 2008-11 up trend.
Above the 1343 55 day ma would alleviate immediate downside pressure for a deeper retracement to 1415/1424.05 – the June high and the 38.2% retracement of the same move.
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USD/MXN – Daily Chart

Strong Mexican Peso appreciation continues with the 12.3665 April peak about to be hit

USD/MXN’s drop back from its ten month June high at 13.4622 has taken it to below its major 12.55 pivot – the March 2012 and January 2012 lows.
We have therefore neutralised our medium- to long-term forecast.
The April high at 12.3665 and the 78.6% Fibonacci retracement of the May-to-June rally at 12.2640 are thus back in the picture.
Medium term resistance above 12.5516 sits at the 13.1510 current July high and can also be seen around the 13.2924 November peak.
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S&P GSCI Total Return Index

Market is stalling at the 4943 April high and is expected to react back toward 4763 Fibo support

The S&P GSCI Total Return Index has extended its short term rally higher to reach the 50% retracement (of the move down from the September 2012 peak and the 4943 April high, where it is showing signs of failure. We are unable to rule out an extension to 5000/5017, the 61.8% retracement of the same move and the 2011-2013 resistance line, which is expected to hold the topside if seen that is.
Loss of the 4763 (38.2% retracement) is needed to alleviate immediate upside pressure. Below here would refocus attention on the 2009- 2013 uptrend at 4569.
The 4569 support line guards the 4493 2013 low and the 4442 50% retracement (of the move 2009-2011). We would expect this 4442 zone to hold the initial test. Failure to do so would see losses to 4212.50, the 2012 low.
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NZD/USD – Daily Chart

Is still trying to gradually recover from its June low at .7683 but remains medium term bearish

NZD/USD formed a major top over the past few months but is still trying to level out around the 200 week moving average at .7785, having dropped to .7683 in late June and to .7687 in early July.
Further range trading between these lows and last week’s .7970 high looks to be likely for the week to come.
Should this not be the case, the minor psychological .8000 region and the 55 day moving average at .8012 may also be revisited before NZD/USD struggles once again.
We will retain our medium term bearish forecast while the currency pair stays below its .8139 June peak.
Our medium term downside target zone is made up of the .7456/.7371 May 2012 low and November 2011 low. These remain our downside targets for the months to come.
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JPY- Even more to be worried about?

Purchases of foreign bonds by Japanese investors are not a risk to JPY exchange rates. However a slowdown in emerging market economies most definitely is.

Last week the FX market was thrown into turmoil following Bernanke’s comments regarding the outlook for monetary policy in the US. The reaction in USD-JPY was unforgiving, falling by 3 big figures from 101.50 towards 98.50. However, what investors seemingly missed was that in the same week, Japanese investors finally bought foreign bonds to the tune of 973 billion JPY. The question is whether this development marks the beginning of the so called wall of money and what are the implications for JPY exchange rates.

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Gold – Daily Chart

Reached the 1300.00 resistance zone where it may struggle; if not, 1321.50/1338.05 should cap

Since making a multiyear low at 1180.04, the gold price has been rising in three corrective waves and nearly reached our 1300.00/1321.50 target area. It consists of minor psychological resistance and the 1321.50 April low.
Around the 1300.00 mark or in the next higher 1321.50/1338.05 resistance zone (April and May lows) it is expected to run out of steam, however, in which case another down leg towards the current July low at 1208.08 and the 1180.04 June low will soon be underway.
Failure at 1180.04 will open the way up for the 1162.45/1145.25 significant support zone to be targeted. It contains the January and March 2010 highs, July 2010 low and the 61.8% Fibonacci retracement of the 2008-11 up trend.
We will retain our medium term bearish forecast while the gold price remains below the 1424.05 June high.
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EUR/PLN – Daily Chart

Looks to be short term sidelined below the 4. 3708 June high but medium term remains bullish

The jury is still out as to whether the minor correction lower in EUR/PLN from its one year high at 4.3708 to the early July low at 4.2638 has run its course but medium term the 4.4125/4.4315 resistance area, made up of the 2009-13 resistance line and the May 2012 peak, remains in view.
En route lies the June high at 4.3708 which first needs to get exceeded, however.
The currency pair’s advance is likely to run out of steam in the 4.4147/4.4315 resistance area.
Should it be bettered, the 4.5334 September 2011 high and also the 2011 peak at 4.5993 will be back in the picture.
Medium term we will retain our bullish forecast while EUR/PLN remains above its 4.2037 June low. Support below the current July low at 4.2638 but above the 4.2037 June low can be seen along the 55 day moving average at 4.2452.
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Bund Futures – Daily Chart

Correction is expected to terminate 143.60/144.00

September Bund futures bounce from the 139.90 level is ongoing and we note that the Elliott wave count/Fibonacci retracement and 55 day moving average come in at 143.60/144.00. A move to and failure in this zone is our favoured scenario.
We have recently seen the market break down from the 2012-2013 uptrend, this is currently located at 143.64 and is expected to act now as additional resistance. A rally back to here and failure would be regarded as a ‘return to point of break down’ and be viewed negatively. The 55 week ma is also found here at 143.27 and is expected to act as additional resistance.
Above 144.00 resistance is layered right up to the 147.20 recent high. We remain of the opinion that the market has topped from a longer term stance and this view will remain entrenched while below the 147.20 high.
The divergence of the weekly and monthly RSI, indicate that the market has in fact topped longer term and the medium term risks remain on the downside. Below 139.90 we look for losses towards 138.41, the September 2012 low. This would be considered to be only the initial downside target. Longer term we look for losses to 132.99/82, the lows from the end of 2011 and the 50% retracement of the 2011-2013 move.
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Commodity Spotlight Precious Metals

Headwind for gold should ease in the autumn

The gold price has suffered its largest quarterly loss for more than 40 years triggered by record ETF outflows, a forthcoming reversal of US monetary policy and rising US real interest rates. The price should increase again as soon as the scaling back of Fed bond purchases is factored in and most of the ETF in vestors willing to sell have withdrawn. We expect this to happen in the autumn. Silver, which has lost even more of its lustre than gold, should also recover. Platinum and palladium have remained largely unscathed by the weakness affecting gold. Supply risks and robust demand are also continuing to support prices.
In the second quarter, the gold price registered its largest quarterly percentage decline since the system of fixed exchange rates ended and the as sociated floating of the gold price started in the early 1970s. After the historic steep decline of mid-April and a 2-month stabilisation phase, the yellow precious metal came under renewed pressure in the second half of June, sinking to a 3-year low of USD 1,180 per troy ounce by the end of the month. What are the reasons for the ongoing price weakness and what are the future prospects?
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FX Week

FX overreacts to Fed

FX markets were abruptly affected by the Fed’s June minutes released last week, as well as by comments from Fed Chairman Ben Bernanke, with the USD selling off sharply, taking EUR/USD from 1.28 to above 1.32 at one stage. However, we saw this reaction as exaggerated, as the central thrust of the Fed comments was largely similar to the Fed statement made in June (following the same FOMC meeting) in our view, as well as to Bernanke’s press conference at the same time. It was also largely consistent with the message from a number of Fed officials made over the last month aimed at calming the reaction in financial markets. In fact, the FX market reaction on Wednesday evening seemed incongruous to us as it was not mirrored in similar moves elsewhere.In fixed income markets for example, yields only fell back marginally compared to the overreaction in FX. It might be expected that bond yields would be more likely to be affected if a material change to Fed tapering policy had been announced, but this was not the case with the 10-year yield ending the week only 17bps below the July peak. With the USD also recovering its poise on Thursday and Friday, with EUR/USD falling back to 1.3050 from 1.32, it seems as if this has already started to be recognized, with the USD’s initial weakness more a reflection of thin liquidity than any substantial alteration of Fed tapering prospects
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USD/CAD – Daily Chart

Made a 21-month high at 1.0608 from which it rapidly dropped to 1.0328
USD/CAD’s advance to its 21-month high at 1.0608 has been followed by a rapid sell-off to 1.0328, close to the 1.0341 March peak and the 1.0297 April high.
In view of the impulsive surge higher having been made over the past few weeks, further upside remains in store for the months to come, however.
The 1.0656/75 resistance area (July and August 2010 highs and the 2011 peak) will be targeted once the current July high at 1.0608 has been overcome on a daily chart closing basis.
Another potential longer term upside target can be seen around the 2010 peak at 1.0850, made in May of that year.
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NZD/USD – Daily Chart

Is still trying to recover from its June low at .7683 but remains medium term bearish
NZD/USD formed a major top over the past few months but is still trying to level out around the 200 week moving average at .7778, having dropped to .7683 in late June and to .7687 last week.
Since the currency pair stayed above the .7683 low, our anticipated bounce back to the two month resistance line at .7878 has now taken place. Around this resistance line it may struggle again, however.
Should this not be the case, the minor psychological .8000 region may also be revisited before NZD//USD struggles.
We will retain our medium term bearish forecast while NZD/USD stays below its .8139 June peak.
Our medium term downside target zone is made up of the .7456/.7371 May 2012 low and November 2011 low. These remain our downside targets for the months to come.
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FX Alpha

I’ll buy that for a dollar!

I’ll buy that for a dollar!I Clearly divergent policy cycles amongst the majors will lead to USD appreciation. The question is how to position for the USD move. We think USD-JPY should outperform USD-CHF, whilst the likes of AUD, NZD and GBP remain vulnerable to further downside.
The leap towards explicit forward guidance policies by the BoE and ECB last week clearly highlights the divergence in monetary policy amongst the majors with respect to the Fed. A clear majority of market participants now expect a significant USD rally in the coming months and years. The only question is what to buy the USD against?
USD outperformance against safe haven currencies is perhaps the most obvious position to initiate. The trade should benefit from rate spreads moving in favour of the USD and also from the dollar’s transformation into a more growth oriented currency. So should one buy USD-JPY or USD-CHF?
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