Monday, May 21, 2007


The Bearish Tone Is Not Over

The Associated Press reports on currencies. "The euro slid against the U.S. dollar in trading Monday, but rose to a new high against the Japanese yen on moves by China. The 13-nation euro bought US$1.3440 in afternoon trading, down from the US$1.3505 it bought in New York trading late Friday."

"Against the yen, the euro rose after the Japanese currency was ignored by a weekend meeting of finance officials with the Group of Eight near Potsdam, Germany. The yen's fall came after China on Friday agreed to let its yuan rise faster against the dollar and to cool its sizzling economy ahead of what are expected to be contentious talks in Washington over Beijing's soaring trade surplus."

"The free-floating yen sometimes acts as a proxy to the tightly managed yuan on currency markets. The U.S. dollar bought 121.54 yen, compared with 121.15 yen late Friday."

"The Chinese central bank cautioned that the latest change, widening the band in which the yuan is allowed to fluctuate against the dollar, will not lead to "large appreciations" for the yuan."

From Reuters. "'The dollar is doing well against the euro and yen and (is helped by) the Goldilocks scenario in the U.S., where's there's not too much worry about a hard landing,' said David Powell, currency strategist at IDEAglobal in New York."

"'In terms of the dollar's performance against the euro, long euro/dollar has been a very crowded trade based on the specs (trading) data last week. Euro longs hit another record high and people are reluctant to bring it any higher without a fundamental story to back it up,' he added."

"Following China's move, Kuwait over the weekend switched to a basket system from a dollar peg. Analysts said the pressure for managed currencies to move toward a floating regime will only intensify."

"'It will do so because countries can't cope with the liquidity created by fixed currency systems when the dollar is weak and it will also do so because there is political pressure from G7, particularly the U.S.,' said Bear Stearns in a research note."

From MarketWatch. "Gold futures climbed Monday, overcoming strength in the U.S. dollar to follow oil prices higher and regain some lost ground, after a more than $10-an-ounce loss last week. 'After the declines last week, we expected some bounces,' said Jon Nadler, an analyst at Kitco Bullion Dealers. The climb is 'probably good for $665 or so at the least.'"

"'It may take a handful of closing at levels of well over $665 to turn this ship around for sunnier climes and somewhat warmer waters,' he said. 'The bearish tone is not over.'"

"Gold for June delivery closed up $1.80 at $663.70 an ounce on the New York Mercantile Exchange, bouncing from a low of $657.50. Other metals prices closed higher, with the exception of platinum, which saw its July contract give back $6.50 to close at $1,319.70 an ounce, extending last week's loss of more than $15."

"June palladium tacked on $9.05 to end at $374.30 an ounce, July silver added 12.7 cents to close at $13.13 an ounce."

"Meanwhile, the World Gold Council reported that investment demand was down in the first quarter, according to Nadler. 'Gold cannot ignore a 26% drop in investment demand at a time when physical demand was already not so hot,' he said."

"So, 'yes, it does look like $650/$630/$605 are the next bowling pins down the lane,' he said. 'But we are sure to hear that all is well and the bull market has resumed, as soon as we get the next $20 upside pop.'"

"Palladium is moving higher 'underscoring what we have seen from some clients taking positions in the physical metal,' said Neal Ryan, director of economic research at Blanchard. 'This is allowing some investors to benefit from increasing ETF demand in Europe and the potential, however remote, that ETFs may possibly spring up in the United States.'"

"At the same time, Ryan pointed out that while platinum and palladium continue to grab the headlines in the precious-metals markets and sentiment around the markets become increasingly bearish toward the outlook for gold and silver, 'we believe it is the true contrarian that will benefit from the situation at hand.'"

"'The fundamental picture for the market continues to improve and it might be good to have the gold and silver markets take some time away from the constant market analysis while some technical damage is repaired,' Ryan said."

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