Dec 11


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  • December, 11th, 2015 19:54 +00:00

Good evening,

Crude Oil reached a seven years low after it broke the weak support that was its 2015 low.  The commodity, trading at 36.65 $/barrel (-3.02%) is oversold on the weekly chart (with a 14 days stochastic indicator at 29.3), and going long on the commodity would be quite risky because it is like catching a falling knife. The oversupply on the market offset geopolitical tensions, and the forced deleveraging of portfolio managers can trigger another bearish wave, with target 32 $/barrel. This price level is the multiple price spike traded in 2008-2009, where margin calls and panic selling halted.  In 12 months energy commodities had the worst performance among commodities and Natural Gas (-51.99% 1-year), Brent (-47.94% 1-year) and Heating Oil (-46.77%) did worse than Crude Oil (-44.22%).  This negative trend developed thanks to the slowdown of China and the decreased need to hedge inflation.  The mix of both industrial and monetary reasons punished precious metals as well, with Silver (-19.08% 1-year) and Gold (-12.18% 1-year) trading below the most relevant moving averages on the weekly chart.  A reversal on both energies and precious metals needs a catalyst and a technical pattern that will let traders to estimate a change in polarity of the trend.

Volatility in US jumped as the VIX is up 39% (weekly), and the DJIA (-2.72% weekly) is doing better than European indices like the EuroStoxx50 (-4.05% weekly).

In the FX market the UsdZar made today another all time high, reflecting also the weakness of the mining sector. In South Africa exports may increase but at current market prices Gold extraction is not very profitable with an average breakeven price of 900$/oz. The country was the biggest  Gold producer in the world 8 years ago, but now is just at the 6th place, with the podium for China, Australia and Russia.  The Euro is going up today thanks to reversal carry trade: EurUsd is up 47 pips at 1.0988 (+0.44%) and it may continue its rally in case global equities will make a retracement.  UsdJpy is below its 200SMA, down 77 pips at 120.76 (-0.63%) and this level will make the work of BOJ Kuroda quite difficult. In the worst macro short term scenario Japan will have a decreased wealth effect (the Nikkei  is down 5.21% in 1 month), a recession and a CPI well above its long term trend (but below the target).

In case the FED will rise rates the 16th of December it will keep its credibility, but there is a risk, that even a 25bp increase will trigger margin calls on derivatives and that inflation expectations (thanks to panic selling on commodities) may decrease, validating the theory that the Federal Reserve action may be premature and with negative effect on global growth.

(19:45 GMT)