Crude Oil Price Crashes after Unusually High Inventory Data

Crude Oil:

Yesterday’s volatile downward plunge has pushed many short- and mid-term indicators into showing an impending correction. However, the long-term indicators on the daily chart show that there may still be room to run for this bearish movement. The sudden pull-back in Crude Oil’s price may not yet be finished and, as such, forex traders may want to set their short positions as soon as possible to capture some of the remaining bearish movement.

More…

Crude Drops $3.85 Per Barrel – USD Explodes to the Upside

The metals complex closed broadly lower today led by an almost $4.00 decline in the price of Oil. Given the inverse correlation between the U.S Dollar and the price of Oil; the Greenback exploded to the upside with the Euro losing about 1.5 cents against our Dollar. Last on the Euro $1.4020.

Energy traders got hit by a double whammy today with speculators continuing to exit the markets fearing new potential treading restrictions. The selling pressure was compounded by a much larger than expected spike in the Weekly Oil Inventories. Crude supplies surged 5.1 million barrels causing an acceleration in selling. Last trade $63.38 down $3.85 per barrel.

The commodities complex including the metals turned sharply lower in sympathy. Silver was off 46 cents at $13.32. Gold lost an even $10.00 closing at $928.00. Palladium finished at $255.00 down $7.00. Platinum closed at $1173.00 off $26.00. Volume was lighter than the price declines indicated.

In the stock market a continuous stream of under performing corporate earnings and a disappointing Durable Goods Report has the Dow lower by 80 points with two hours left in the day. Durable Goods clocked in with a decline of 2.5%; substantially worse than the estimated decline of .6%. Furthermore; a luke warm reception to today’s Treasury note auction served to keep pressure on stocks. When trading gets underway tomorrow, participants will have the Initial Weekly Jobless Claims to help steer trading direction.

Crude Stayed Under Pressure Overnight

Crude Oil continued to stay under pressure in overnight trading on growing concerns over potential trading restrictions in the energy markets. Click here for a better understanding of the perceived problem surrounding oil speculation: CFTC Considers strict limits in energy trading. Snipped from the article:

“The CFTC’s hearings came amid dramatic changes in energy prices and the Obama administration’s call to limit exotic derivatives trading. Oil futures traded on the New York Mercantile Exchange jumped to almost $150 a barrel last year, only to fall back to below $40 this spring before rising again to $70.”

Another snip from the end of the article: ” Steven Strongin, managing director of Goldman Sachs, one of the biggest commodities traders, said last week in a Senate committee hearing that “attempts to regulate volatility have rarely — if ever — succeeded.” “Yet they often have unintended and significant consequences,” said Strongin.”

Crude is now trading at $65.69 down another $1.54 per barrel.

Precious metals are trading lower in sympathy. Silver is $13.65 down 13 cents. Gold is $2.00 lower at $936.00. Palladium slipped $2.00 to $260.00. \Platinum is off $10.00 and trading at $1189.00.

In the currency markets Euro traders seem to be keying off the Oil /Dollar relationship rather than today’s today’s U.S. economic data where Wall Street expects to see weakening in Durable Goods. Durable Goods are the more expensive items we purchase; such as furniture, appliances, and autos. Since they are expensive consumers’ willingness to buy them is closely correlated to their economic outlook and confidence. Wall Street expects to see a .6% decline compared to May’s surprising rise of 1.8%. As for the Euro, it is currently trading down another 35/100ths of U.S cent at $1.4134.

In the stock market the Dow ended with only a marginal decline of 11 points yesterday. The insignificant decline was surprising given the pronounced drop in consumer confidence. This morning the Dow is being called to open 24 points lower on anxiety in advance of this morning’s Durable Goods report. Traders are all but ignoring the freshly announced long term alliance between Microsoft and Yahoo.

In other matters; at 2pm eastern the Fed will release it’s monthly Fed Beige Book which is an anecdotal compilation of business conditions within the 12 Federal Reserve districts. This may cause some added volatility in the final hours of stock trading today.

Greenback Rebounds from Earlier Lows

USD/SEK:

After the recent drop in value, the price of this pair appears to now be floating in the over-sold territory on the RSI of both the hourly and daily charts, signaling a bullish correction may occur in the nearest future. As the Bollinger Bands on the hourly chart begin to tighten, a volatile upward correction may be occurring in today’s early trading hours. Forex traders can take advantage of this imminent volatile movement by setting an early long position with tight stops.

More…

Yen Carry Trade Defined

Yen carry trade is a form of currency carry trade involving the Japanese yen. Carry trade is an investment strategy in which an investor borrows (buys) a currency with a low interest rate and lends (sells) a currency with a high interest rate. In this way they can make money on the difference between the interest rates.

This type of investment is popular with banks, governments and other large lending institutions, especially at times when the the global currency markets are relatively stable and the global stock markets are broadly bullish. In other words, it can be a good investment strategy at times of world economic stability and growth.

The Japanese yen is a the currency most frequently involved in carry trade. This is because over the past years it has consistently been the major currency with the lowest interest rate. The Bank of Japan, which controls Japanese interest rates, has set them at a very low level since the late 1980s. Often this is under 0.5%.

Theoretically you would not expect carry trade to be profitable because the currency values would change to reflect the difference in interest rates and this would balance out the possible profits. However, in practice there is a profit potential because carry trades have the effect of weakening the borrowed currency. So yen carry trade keeps the yen artificially weakened.

Of course there is a risk that the tide will turn but due to the level of control exerted by the Bank of Japan, international confidence is generally quite buoyant. However, in the case of a major financial crisis in the USA and the other main economic powers the yield of carry trade is bound to fall.

Indeed where there is a big change in currency values such that the yen rises in value against the lent currencies, it is possible for the investors to lose money when it comes to reversing the investment. Since there is a huge amount of money invested in yen carry trade it can have a significant destabilizing effect on the currency markets if institutions suddenly turn away from this form of investment.

This effect is known as the unwinding of yen carry trade. It happens when investors become averse to risk which is likely to happen when the yen is strengthening against the lent currencies. This can have a significant effect on the value of yen currency pairs. As we saw, yen carry trade weakens the yen so the effect of the unwinding will be to strengthen the yen side of the pair even further.

Yen carry trade is for the big players in the international money markets. It is not something that a home based forex trader would usually expect to get involved in directly. However, any forex trader involved in a yen pair needs to understand yen carry trade and its effect on yen prices.

« Previous Page — Next Page »