Currencies and Metals Outlook- An Excerpt from CRB'S Futures Market Service

CURRENCIES

The dollar index fell back from its recent 8-1/2 month high, while the euro corrected up to a 2-week high from its recent 9-1/2 month low. The dollar/yen slipped to a 2-3/4 month low, modestly above November’s 14-year low. Bearish factors for the dollar include (1) strength in the yen on speculation that Japanese companies will repatriate overseas earnings before their fiscal year ends this month, and (2) the Greek government announced an additional 4.8 billion euros ($6.6 billion) of deficit cuts, which increased confidence that Greece can rein in the European Union's biggest budget gap. Bullish factors include (1) the yen Libor rate falling below the dollar Libor for the first time since Aug, which reduces the appeal to sell the dollar in carry trades, and (2) comments from Philadelphia Fed President Plosser who said the Fed should back away from its pledge to keep interest rates low for an “extended period.”

According to Deutsche Bank AG, China may increase its reserve ratio, or the amount of funds banks must set aside as reserves, for a third time this year as a record amount of maturing bills inundates China’s banking system with cash. Deutsche Bank estimates that some 876 billion yuan ($128 billion) of debt will mature this month, including 796 billion yuan of bills. China has raised its reserve-requirement ratio by 50 bp each time on Jan 18 and Feb 25 to help soak up a net 328 billion yuan of excess cash from its financial system. Deutsche Bank estimates that the PBOC may increase the cash-reserve ratio by another 50 bp to 17% this month, a signal that China is moving ever closer to raising interest rates.

METALS

GOLD— Apr gold prices jumped to a 1-1/2 month high, moderately below their nearest-futures record high of $1,226.40 an ounce. The main bullish factor for prices is strong demand for gold as a store of value as the massive liquidity programs of global central banks may debase their respective currencies and fuel inflation. Bearish factors include (1) the recent 8-1/2 month high in the dollar index, and (2) recent comments from Fed Chairman Bernanke that inflation is likely to be “subdued for some time.” As of Feb 23, large specs added to their large long position of 200,622. The Gold Council reported that with gold prices up 38% in Q4 vs the year earlier, gold demand fell -24% y/y in Q4 to 819.7 MT, Q4 jewelry consumption fell -8% y/y, Q4 industrial demand rose +11% y/y, and Q4 gold supply fell -8% y/y to 898 MT.

COPPER—May copper prices are just below January’s 1-1/2 year high. Bullish factors include (1) possible disruptions to copper supplies due to the recent earthquake in Chile, the world’s largest copper producer, and (2) China’s manufacturing sector expanding for the 12th straight month in Feb and the US manufacturing sector expanding for a seventh straight month in Feb, signaling strength in the global economy. Bearish factors include (1) the +31% y/y jump in global copper inventories to a 6-yr high of 794,657 tons, signaling adequate supply and slack demand, (2) the -11.2% plunge in Jan US new home sales to a record low 309,000, (3) the -19% m/m drop in Jan China copper imports, and (4) ICSG’s estimate of a 539,000 MT global copper surplus for 2010. Large specs as of Feb 23 increased their moderate long position to 15,964.

******************************************************************************************************************
Like what you're reading? Get a Free Trial to CRB's Futures Market Service!

This weekly publication is designed to make you a more powerful trader through the understanding of the fundamental factors moving the comodity and financial futures markets. Also included in the service is a weekly version of the highly rated CRB Futures Trend Analyzer, an automated technical trading system providing specific trade recommendations with exact market entry and exit points. Sign up today!
******************************************************************************************************************

Copyright © 1934-2010 Commodity Research Bureau, a Barchart.com, Inc. company. All rights reserved. 330 South Wells Street, Suite 612, Chicago, Illinois 60606-7110 USA • 800.621.5271 or 312.554.8456 • E-mail: info@crbtrader.com • Website: www.crbtrader.com. The information herein is compiled from public sources believed to be reliable but is not guaranteed as to its accuracy or completeness. No responsibility is assumed for the use of this material and no express or implied warranties are made. Nothing contained herein shall be construed as an offer to buy/sell, or as a solicitation to buy/sell, any security, commodity or derivatives instrument.