By John Kicklighter, Currency Strategist Wed Oct 20 00:16:00 GMT 2010 
North American Commodity Update
Commodities - Energy
US Oil Breaks Two-Week Congestion as Risk Appetite Stumbles
Crude Oil (LS Nymex) - $79.49 // -$3.59 // -4.32%
Energy trades have grown accustomed to significant bear swings over the past few weeks; but these intraday declines have generally been restrained to the bounds of congestion between $83.85 and $80.50…until we came to Tuesday’s plunge. The 4.3 percent tumble was the biggest daily loss since May 20th on a continuous contract basis; while the November contract (which is due to expire tomorrow) suffered its largest loss since February 4th. Aside from this particular loss reflecting a very active session, the real interest in Tuesday’s performance was the fact that it would push the commodity outside the bands of its two-week range. This is the development that can have greater meaning as trend development rather than simply just a large but ultimately limited move.
For fundamental drive, there is an argument to be made for both fundamental supply-and-demand factors and risk appetite conditions supplying the prevailing winds. Ultimately, both catalysts would align; but identifying the more influential element is important for establishing the stability of this fledgling trend. For growth factors, there were a number of top tier economic indicators on the calendar. In the European session, German Investor confidence (the ZEW survey) fell to its lowest level in 21 months while the UK CBI factory orders reading reported its sharpest decline in two years with the October reading. In the US, the focus was on the housing market with September housing starts rising to a five-month high – not that impressive a statistic when we consider how depressed the housing market is. What was the ultimate market-moving impact of this round of macro data? Low. The real growth threat was the news that China hiked its benchmark lending and deposit rates for the first time in three years. This holds clear implications for restraining growth (though it is aimed at preventing asset bubbles).
The other general theme for the day – and ultimately the greater driver – was risk appetite itself. The benchmark S&P 500 dropped 1.6 percent on the day while the dollar saw its largest rally since August 20th. Speculative confidence was bled partly by the move from China; but a rapid loss of confidence in the Fed’s potential stimulus expansion early next month certainly holds an overwhelming influence on this front. This is front where a true trend would develop; so an eye should be kept on oil and equities.
For trading activity, the API industry inventory figures would add to selling pressure with a 2.32 million barrel increase in net crude holdings. This sets up forecasts for a 1.5 million barrel increase in the DoE crude holding figure tomorrow nicely. In the meantime, the November Nymex futures contract expires tomorrow, which likely helped push volume on the December contract up 59 percent to a record 450,997.
Crude Futures Chart (Daily)
Chart generated using FXCM Strategy Trader
Commodities - Metals
Gold Suffers a Potentially Trend-Ending Plunge in the Biggest Drop in Over 3 Months
Spot Gold - $1,332.05 // -$36.40 // -2.66%
After two months of an impressive but restrained advance, gold started to show the symptoms of volatility in October. Initially this enhanced level of trading activity fell in line with the prevailing trend; but higher volatility also exposes a market to a quick reversal. And, we would get just such a break through Tuesday’s session. With this past Monday and Friday’s performance, the argument of a curbed advance could be made; but there was little debating the meaning of yesterday’s development. The 2.7 percent decline was the biggest decline for spot gold since July first – well before the remarkable bull trend set in. More important than the open to close change is the fact that the metal has broken the rising trend that had accelerated its climb back on September 14th. Now traders must ask themselves whether this is the mark of a true reversal or simply an overdue correction to shake out nonbelievers.
It is early to call a true reversal on gold; but fundamentals can clarify investors’ intentions. What is particularly meaningful in Tuesday’s developments is the high correlation across the various asset classes. Not only did gold mark a sharp retracement; but equities slid, the US dollar rallied and crude fell. This is an important mix that closely reflects the consistent flows between high yield (risky) assets and safe havens back during the 2007-2008 financial crisis period and the subsequent recovery period. Confidence in yields and nascent growth were shaken through the session first by the news that China’s central bank had raised its benchmark lending and deposit rates for the first time in three years. What effect does this have on global financial markets? Such an effort to curb expansion (and indirectly expected returns on the country’s investments) lowers the potential for capital performance in one of the world’s best performing economies and markets. If China believes growth trends are overleveraged, speculators are the ones that have passively fed the obligatory advance. What’s more, today’s drop in risk appetite persisted through a round of Fed commentary that not only supported stimulus expansion but further offered details on the approach. It seems this eventuality is more or less priced in; and there is growing skepticism surrounding its effectiveness in supporting growth and investment. Given this mix, it may seem surprising that gold – a traditional safe haven – would fall alongside equities. This development is a factor of the dollar’s strong performance. A lot of investment has been made on leverage given low market rates. However, there is still a heavy fundamental argument to be made in gold’s safe haven appeal which could keep the metal’s trend.
For trading activity, it is interesting to note that the CBOE volatility index showed a jump in response to today’s trading level; but it wouldn’t rise above the high from two weeks ago. Furthermore, the 243,671 contract turnover (while an 82 percent increase from Monday) was still below Friday’s high for the December futures contract.
Spot Silver - $23.37 // -$0.96 // -3.93%
With risk appetite sliding and gold tumbling, there was little for silver traders to fall back on. Speculative efforts to close a perceived value gap between gold and silver has contributed to the latter’s aggressive run; so when this trading interest is undermined; we are left with the biggest daily loss since July 1st. That being said ETF holdings of silver rose to a record 459.1 million ounces.
Spot Gold Chart (Daily)
Chart generated using FXCM Strategy Trader
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Written by John Kicklighter, Strategist
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Wed Oct 20 00:16:00 GMT 2010
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charts with strategy trader - prepared created by John Rivera the GBP/USD tests trend-line support started, their recent slow decent and could generate a period of consolidation. Threatening event adds the case for subdued volatility go forward and dealer should wait to recognizable patterns develop enter indentify targets and leave positions. 
Charts with strategy trader - prepared created has seen quantitative metrics the GBP/USD by John Rivera key support/ResistanceLevels to watch his Bollinger band start to narrow and 475 is pips at the bottom of most traded pairs. However, can the current volatility that change how the couple from his broken short-term channel. A growing ATR has increased I also an other ref flag as daily volatility to 152 pips and close to the top of the majors. 
Trader - created charts using strategy prepared, John Rivera volatility / activity click indicators for additional info on scalping strategies to discuss scalping strategies and get tips from other traders visit the scalping Forum. Added to this report to discuss or e-Mail list, contact John Rivera, currency Analyst: jrivera@fxcm.com
This latest report arrested a three week trend in which the total petroleum surplus had been declining. The surplus to the 5-year average now stands at 96.769 million, or 9.3%, up from 9.2% in the prior week. Four weeks ago the surplus peaked at 10.7%. 
Crude oil inventories increased more than is typical. Crude oil inventories have been remarkably stable over the past few months, displaying very little in the way of the seasonal fluctuations that we would typically expect. The surplus to the 5-year average stands at 38.045 million barrels, or 11.8%, up from 11.6% in the prior week. 
Product inventories diverged with gasoline inventories increasing counter-seasonally, while distillate inventories decreased more than normal. In the bigger picture, we have seen product inventories trending lower after rocketing to multi-decade or all-time highs. There remains an overcapacity in the refining sector, however, thus product inventories should remain ample. The gasoline surplus now stands at 9.6% above the 5-year average, while distillate inventories are 22.6% above the 5-year average. 
Demand 
Imports 
Refinery Activity 
Miscellaneous 
Inventories at the NYMEX delivery point, Cushing, Oklahoma fell over 1 million barrels last week. Front month calendar spreads are little changed from last week at -0.72. 
charts created using FXCM's strategy trader GBPUSD: after testing 1600, the GBPUSD quickly reversed course and broke below both the 10 and 20-day SMA's. In fact, the pair sees poised to close below the latter which is important because has served as a moving average support since mid-September. All in all is facing couple downside risks towards 1.5600 with a pause in exposing 1.540.It is also worth noting, messages, understanding that our speculative sentiment index to 1.81 and signals for more declines stands for more technical analysis visit of the DailyFX technical page written by Michael Wright, currency analyst to receive future articles via email, please contact me under mwright@fxcm.com Michael Wright author FX vs. technical of intraday trading, Forex trading weekly forecast weekly spotlight
Written by Jonathan Granby, DailyFX research team if you want to keep Joel reports in a more appropriate Mode-e-Mail-jskruger@fxcm.com and you will be added to the distribution list. When you visit this or any other subject feel to free our forum page want to discuss.
Raw materials - metals gold gets pounded on dollar rebound gold$ 1338.95 / / $6.90 / / 0.52% comment: it little surprising is the US dollar ahead sharp versus rivals on Tuesday, Gold hard beat got. The metal was to pay $36,40 or 2.66% to $1332.05. We have extensively about how recently gold dealer have used as a vehicle to written against the greenback bets. After the latest moves a month correlation between gold and the dollar is to 0.96. Gold has been show a strong positive correlation with stock markets, and this pattern instead both on Tuesday. The one-month correlation between S and P 500 stock index and gold is 0.92. The latest step in gold and the dollar can the Chinese interest rate hike, a reversal in all established trends as a merchant catalyzed attributed to lock in profits. Now we will look at to see if it follow through when a meaningful reduction now is in the works or whether this is a unique move was. Technical Outlook: prices have broken out by a growing channel in the town since the end of September, session help the 23.6% Fibonacci retracement of the advance 7/28-10/14 ($1332.99). Continued selling here aims at the level of 38.2% to $1299.37. Initial resistance lines where $1350-$ 1360 congestion region. Silver$ 23.62 / / $0.25 / / 1.09% commentary: gold, and how was acted as a leveraged game in typical fashion silver the day wennicheinanderes for gold, it was even uglier for silver. $0.96 Or 3.93% lost the metal to close to $23,37. The gold/silver ratio is now at 56.7, close to the lowest level since August 2008. (The ratio measures the relative performance of gold and silver) (A higher number indicates gold outperformance while a lower number indicates silver outperformance). Technical Outlook: prices reversed lower after retesting is resistance at the bottom of support turned set a growing channel from late September, the broken earlier this week, was taking out the next disadvantage barrier at $23.50. From here, the bears are a rising trend line of end objectives August, now at $22.83. 
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Despite a somewhat choppy day of trading yesterday the dollar index scored a second consecutive day profits for the first time in more than a month. This occurs after the index it not, shut down the 76, 50 60 support levels that we may be languages about last week, indicating, that the dollar carving some type of short-term base finally. During the dollar still in the clear is easily wiped out these last days, we consider the euro as a period of consolidation and the fact that ahead was its bullish trend of above the previous day closing lows, for 27 consecutive sessions as a bullish signal for the dollar with deep setbacks for the euro broken has. 
However, a word of caution is back in the dollar falling, we saw something similar Spiel-Out psychological 80.00 early in August, when the index bounced level and managed to consolidate this threshold before the door was opened further to delete. Therefore we cannot exclude that the index again will consolidate on a support level before the test lower, 2009 lows above 74,00 will be the target of each step certainly lower. As we continue the scenario that the dollar will make significant gains on forthcoming meetings how much return stretched technical readings on line, it is still too early to call a bottom. To ensure profits is a catalyst for another $ official comments by US officials. We mentioned how it last week, a growing number of fed members concerns expressed more QE amidst the current economic situation is not justified. We suspect that the markets so far gone in the expected $500 billion more easing price that now a disappointment, as the Fed are primed a far smaller extension adopted you for your current actions. We remind readers that more quantitative easing, the flood would the driving force behind the last drop of the dollar that was the promise of dollar devaluation of the currency market, the market in this action pricing has been. Any disappointment the Fed should have only a result; significant USD gains, therefore we recommend that players too crowded for notes which seen from officials with regard to the size of the package QE. Written by Jonathan Granby, research will be added team if you want to keep Joel reports in a more appropriate Mode-e-Mail-jskruger@fxcm.com and DailyFX to the distribution list. When you visit this or any other subject feel to free our forum page want to discuss.