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Analysis | Commodity Technical Analysis | Written by Compass Global Markets | Tue Mar 27 12 22:56 ET

The Dollar strengthened overnight after losing ground in the previous session as Fed Chairman Bernanke raised expectations of further quantitative easing. US treasuries rose paring the biggest monthly drop in over a year and the Dollar gained against 11 of its 16 major trading counterparts. The IMF maintained its forecasts for the global economy which it had cut to a 3.3% growth rate in January. The deputy managing director of the IMF said, 'We expect modest growth in the US, mild recession in Europe and a continuation of a comfortable level of growth in Asia with a soft landing in China.' The EUR is currently trading at 1.3315.

House prices in the United States are showing signs of stabilisation as prices fell at a slower pace in January. The Case-Shiller Index of property prices in 20 major US cities fell 3.8% year on year. An improving labour market has supported housing demand despite foreclosures remaining at stubbornly high levels. 16 cities showed price declines with Atlanta reporting the biggest fall of 15% while Detroit reported the largest gain at 1.7% 8 cities including New York and Los Vegas made new post GFC lows. The markets are now treading water in the days before the next European Summit to be held on March 30 in Copenhagen. EU finance ministers are expected to focus on the European rescue fund and rising concerns over the financial health of Spain. The Australian dollar is trading at session lows of 1.0455.

US Consumer confidence at its highest levels in almost a year failed to impact much on equity prices as the S&P 500 hovers at near four year highs. American consumers have indicated that they plan to buy cars, homes and appliances in a positive sign for the US economy. Last week's losses on worse than expected manufacturing data in Europe and China have now all been erased and the index is higher by 3.7% in March but trading 0.3% lower for the day at 1,413. European equities recorded losses with Spain's IBEX continuing to fall, losing over 1%, after the defeat of PM Rajoy's party in a key State election refocussed investor's attention on fears of a Spanish default. Asian equities had surged on the back of more QE talk with the Nikkei gaining 2.36% while the Hang Seng gained 1.83%.

Commodity prices are generally lower. WTI crude is slightly lower at $106.85 supported by continued talk of potential easing of monetary policy in the US. Precious metals have lost some ground after the strong rises recorded in the previous session. Gold is lower by 0.3% to $1,682 while silver has lost 0.55% to $32.55. Soft commodities are mixed with wheat and sugar falling more than 2%. Copper has lost 0.5%.

GOLD gradually approached $1700 during yesterday's afternoon session before being heavily sold as expiring put and call options concentrated at the level precipitated a pull back to $1680 this morning. The yellow metal surrendered its early gains in line the euro which lost ground against the dollar as a twoday rally petered out. As part of our view yesterday, Bernanke has never taken QE3 off the table and his talk about more supportive monetary measures the previous day did not change his rhetoric. The market has probably come to recognition of this fact and the USD rebounded to correct the overreaction. Looking ahead, as we have suggested before, conservative traders could stay sidelined until the price drifts towards 1600 on a genuine lack of market interest before entering to sell gold, or until the price moves above 1800 before buying for bulls.

Compass Direction

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

Compass Global Markets Pty Ltd

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

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