Thursday, October 12, 2006


'Critical Resistance Levels' For US Dollar

Reuters reports on the currency markets. "The Canadian dollar rose modestly on Thursday, as Canada's trade surplus beat expectations in August, while the greenback was pressured by data showing a massive U.S. trade deficit. 'The U.S. trade balance number carries a lot of weight because of the sheer size of it,' said Ted Gould, trader at Investors Bank & Trust."

"The Bank of Canada will set rates on Tuesday. Analysts are now projecting the bank's next move will be a rate cut sometime next year, as they expect a slowing U.S. economy to have a heavier impact on Canada than many have factored in."

"'To imagine that the U.S. economy is going to slow from an average growth rate of about 3.5 percent down to an average growth rate of about 2 percent and for Canada not to be affected, is dreaming in technicolor,' said Marc Levesque, chief fixed-income strategist at TD Securities."

From Daily FX. "Seven days of consecutive weakness has once again proven to be the most that the EUR/USD could handle. The dollar started the day on a softer footing even before US data hit the tape. To the surprise of the market, the trade deficit widened to record levels once again in the month of August. With oil prices remaining stubbornly high and above $70 for most of the month, the import bill continued to rise."

"At the same time, imports from China continued to grow despite the recent appreciation in the Yuan. This makes the gap between US trade related outflows and foreign investment related inflows even more difficult to close."

"If you recall, the Treasury's net foreign purchases report was extremely weak for the month of July. Foreign demand for US assets is expected to rebound in August thanks to the rally in stocks, but if it does not jump significantly, we would have two months of funding deficiencies, which would be a problem for the dollar."

"Aside from the weak trade balance this morning, the Fed’s Beige Book report also disappointed traders by not containing the same hawkish tone as the FOMC minutes released yesterday. At this point, the US dollar is reaching critical resistance levels. A true top in the mighty buck will be dependent upon tomorrow’s consumer spending data."

From MarketWatch. "Gold futures for December delivery closed up $3.80 Thursday to close above the $580-an-ounce mark for the first time in three days, finding support in a weaker dollar and slightly higher oil prices."

"Gold moved higher after data showed the U.S. trade deficit widened by 2.7% in August to a record $69.9 billion. Adding more support for prices Thursday, consultancy firm GFMS reiterated its mildly bullish stance for gold once again, 'as it envisions a return to the low $600's before year-end and then to a possible $700 within six months' time,' said Kitco's John Nadler."

"But Dale Doelling, chief market technician at Trends in Commodities, said metals traders are becoming increasingly frustrated with gold's reluctance to break in either direction. 'Maybe we'll see the majority of the long-term bulls finally throw in the towel which would push prices sharply lower for a session or two,' he said."

"Oil prices gained Thursday, but remained under $58 a barrel on the heels of a rise in U.S. crude supplies and a decline in distillate inventories."

"December silver futures closed up 5 cents at $11.38 an ounce and January platinum finished up $1.80 at $1,074.60 an ounce, but December palladium dipped $1.05 to close at $307.90 an ounce."

Financial Sense University has a very interesting piece up from Golden Jackass. I posted two trhreads about Gsax and oil prices in the HB blog several days ago; Jim Willie in this FSU piece points to GSax manipulation of its fund index to drive down oil just before the elections -- and that these new low prices will not stay that way for long at all. Willie points out six clear and seemingly irrefutable reasons why a recession is now inevitable, and puzzles about why central banks, except Germany, seem to have given up completely on gold. Good reading.
Another great article, perhaps mentioned in an earlier post, is also Jim Willie: "Housing out of the box," at Kitco. He gives a strong, persuasive argument that momentum will carry the housing market down not matter what, that Fannie Mae will implode and that gold will then be launched on an indefinite up-ramp. Wish I could convince my wife that we neede more of the stuff.
Make it all gold jewelry -- chains, bracelets, etc. -- and she might go along! ;-)
Everything is supply and demand, no? It is just that it gets messed up sometimes by misallocation/mania/whatever. Russia started selling all their petroleum products in Rubles in July. I have no statistical data on the impact, but some logic below.

If I could only buy oil in dollars, the more dollars I create and the more oil is in demand, the more the price rises. Now, Russia starts trading in Rubles only. Being a large producer, that will initially take away demand from those pricing in $ (oil in $s falls). However, after the initial adjustment, people who sell in the $ are still going to want a fair trade (dollars for their resource). It will just take a while for the fear of buying a depreciating asset (oil instead of homes) to wear off, and it'll be going up again especially as they realize our deficits are still at records and climbing (who doesn't realize, except most Americans, that we are funding the debt by creating more $s)

That could be totally not true if people are actually able to flood the market for the foreseeable future with supply. I don't think that is the case, but time will tell.
Numerous articles have pointed out that worldwide production has apparently plateaued at just under 85Mb/d, having reached that level over a year ago. Now all we have to do is wait for either a supply shock or demand to grow a few more percent.

CNN's reporting that "Buffalo is buried in snow". Could a harsh winter send oil (and gold) skyward?
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