Weekly Market Analysis by Lloyds TSB

The short term market orientation does not seem ready to change. This is hardly surprising given the journey the markets have travelled over the past 18 months.

The short term market orientation does not seem ready to change. This is hardly surprising given the journey the markets have travelled over the past 18 months. However, it is becoming increasingly clear that the price of risk is simply too high and by virtue of this situation, it is discouraging risk appetite. If the market has a heightened expectation of a risky environment, then there is no value in paying for this. The value comes from looking at what the market does
not expect. As FX vols continue to ease, this will actually provide a positive back drop for the next main trend in FX. The downside is that we may still be some weeks away from this.

The default position for now is to look for dollar strength and monitor the signs of a counter trend move. Base metals such as lead have put on a decent rally with copper continuing to build a base. The outlook for gold looks soft short term and a break of $900 would imply a
deeper correction to $850. It is easy to dismiss these signals as the market wants to focus on the bearish angle. However with oil continuing to hold firm and the baltic dry index extending gains, consideration has to be given to a dollar sell off, driven by an oversold bounce in stocks.

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