Market review for 21 – 25. 06, 2010

USD: G20 summit has finished and its results did not seem to have any effect on the investors behavior. On the contrary, it may have added to uncertainty about the worlds economic stability. USD: G20 summit has finished and its results did not seem to have any effect on the investors behavior. On the contrary, it may have added to uncertainty about the worlds economic stability. G20 members set deficit-reduction targets and agreed to pursue higher capital requirements for banks ‘once’ economic recoveries take hold. In the real world it may never be achieved. The upcoming US news, including the new employment data later this week are expected to have more effect on the investors and affect the market’s direction.

Considering the dramatic decline in the US housing market in the past few weeks and the depression state of the labor market, the recovery prospects do not seem to be as strong as projected earlier this year. In the overnight session however the dollar was stronger then 11 other major currencies.

EUR: On Friday EC President Barroso said that he wants to see a strong and stable euro. However the markets may have another opinion. The euro finished last week on a low note, weaker against other currencies, which may indicate the crisis setting in. Although there haven’t been any major negative announcement in the past few days, there is an opinion that euro is not far from a catastrophe. This is confirmed for example by such indicators as rising risk premium on credit swaps. The market is still full of fear about the stability of euro and just one news item may trigger a sellout.

AUD: New Australian PM Julia Gillard may offer a compromise to the mining companies on a proposed mining tax. This supported the AUD for a while, however economists indicate that weaker world economy may diminish the demand for such high yield currencies as AUD.

As noted above, the results of G20 did not change the investors’ attitude to risk taking. The attitude towards a weaker global economy continues, therefore many traders may feel pressure to sell AUD in near future. Currently it is trading at around 0.8739 level.

Oil: The Oil was slightly lower in the overnight session, but about 25c at the time of writing. As you may recall, all past week it was under pressure as the weekly EIA inventory release reported an unexpected gain in supplies and US data showed that the purchases of new homes tumbled the most on record m/m. Oil stockpiles rose +2.02m barrels to +365.1m vs. an unexpected fall of -800k barrels. Currently there are too many negative variables that support the bear strategies. The fear that a second round of the crisis is at hand has the speculators wanting to sell. Year-to-date, the commodity has appreciated +11%. Weaker global economic releases have managed to encourage some ‘risk-off’ trading strategies.

Gold: The yellow metal of course is still an attractive safe heaven asset. Last week the Fed indicating this week that they are willing to keep rates low for an extended period of time. This had a negative impact on the USD and investors once again turned their attention to gold as alternative investment. The uncertainty with the European economy continues to be a major factor in the gold’s upward trend in recent weeks. Year-to-date, gold has gained +16%. Gold is currently trading around 1254.85.

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