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Analysis | Commodity Technical Analysis | Written by Compass Global Markets | Mon Feb 20 12 23:04 ET

European governments are inevitably moving towards the approval of a second bailout for Greece as finance ministers meet in Brussels to settle the terms of a EUR 130 billion bailout to avoid a Greek default that could lead to the collapse of the eurozone. An announcement is expected at any time now. There is also an expectation that details of a debt swap deal for private creditors will also be announced with the bond exchanges planned for next month. However, even if there is an agreement on the package and it is announced today, there are still the hurdles of the package having to receive parliamen-tary approval from German, the Netherlands and Finland. The EUR rose to as high as 1.3278 overnight as the anticipation of an approval triggered a quick move higher.

Aiding the risk-on sentiment yesterday was the announcement over the weekend by the People's Bank of China that it would cut bank reserve requirements by 0.5%.. This spurred a rally in equity and metals markets and aided the risk currencies dur-ing the Asian session yesterday seeing the Australian dollar rally to above 1.0810 momentarily. Today we have the release of the minutes from the February meeting of the Reserve Bank of Australia. Investors will be monitoring the release for indica-tions of the next move by the RBA. The Australian dollar is trading around 1.0750.

Share markets across the globe yesterday were buoyed by optimism over the second Greek refinancing and the move by Chi-na's central bank to cut its capital reserve requirements for the nation's banks by 0.5%. The MSCI All World Index reached a 6 month high while US markets were closed for a public holiday. The Nikkei and ASX 200 both rose more than 1% while the Hang Seng lost 0.3%. European bourses closed higher with the DAX gaining 1.46% to 6,948 while the FTSE rose 0.68% to 5,945.

Commodity prices firmed yesterday as metal prices firms after the decision by China to cut its bank's capital reserve require-ments. WTI crude continues its stellar rise as Iran halted shipments to various European countries and Greece moving clos-er to a second bailout package conspired to propel prices above $105.00. Precious metals consolidated with gold gaining 0.56% to $1,735 while silver rose 1.09% to $33.65. Soft commodities were closed for trading because of a US public holiday. Copper gained 1.15%.

GOLD continues to very much trade as we expect between a range of $1,723 to $1,737 overnight. Reduced volatility across all asset classes at the beginning of this year has been particularly characteristic of gold prices for almost a month now. The price action has been very subdued since the price spike in late January prompted by comments supportive of further asset purchases from the Federal Reserve. Gold remains stuck in a broad $1,705 to $1,750 band while trading between a $1,715 to $1,735 band for most of the past two weeks now. Volatility and trading ranges in gold have become markedly lessened in the immediate prelude to today’s expected announcement from European finance ministers in relation to the second Greek bailout package. This cannot continue indefinitely. For those with a long term view, we would suggest you stay on the sidelines. For everyone else, we would advise you sit back and marvel at the mechanics of global financial markets over the next few weeks.

Compass Direction

  • Short-Term: NEUTRAL
  • Medium-Term: BULLISH

Compass Global Markets Pty Ltd

FX research by Keagan York
Commodities research by Peter Turville-Ince

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