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Theory about USD and Commodities

  • #1
  • First Post: May 15, 2006 4:31pm May 15, 2006 4:31pm
The USD won in all fields against other currencys today. On the first place,
against the AUD. But why?


On Friday, the us trade deficit was published and had actually been quite
well. But, as Ashraf Laidi wrote,

Quote
But it was not all about oil. Worthy of notice, is the 7% decline in imports of industrial supplies to a 5-month low of $46.6 bln-making up 25% of total imports. This extended downtrend reflects an overall slowdown in aggeragate demand, rather than simply be blamed on falling oil prices.

So, to make long things short, my theorey is:

It took a while to analyse this news for the market movers, especially as the
weekend was to come (or already started at some places) at least in Europe
at that time.

So, if you take that slowdown in demand into focus, because the growth of
the economy has slowed down in the us, that would mean people will buy or
could afford (or just need) less comodities in the near future.

That would explain why currencys like the aud or the cad have lost so much
against the previous trend and maybe even why gold has lost so much.

So, that much to the Trade Balance that should have given the usd support.
If you go into details, in mainly gave aud / cad a kick.

If you look at the aud/usd chart, you'll notice that the aussi started fallin'
about an hour after the Trade Balance has been published (year, it made
kind of a table before, but at least didn't get much higher).

just2cents

Tony
  • #2
  • May 16, 2006 2:46am May 16, 2006 2:46am
interesting theory certainly! In my opinion this dollar rally that started yesterday morning London opening , and contynues this morning really is nothing but profit taking, consolidation of all those weeks of constant loss of dollar and it might continue today and tommorow, BUT the sentiment is still bearish for the dollar, situation hasnt changed drastically in Iran, we shall see what PPI and CPI will bring, but as Fed maybe done with hikes and ECB just getting started there will be for sure a test again in 1.30 and then maybe even higher for the euro....trend is still up for euro in the big picture and I reckon market players are getting ready to reach euro lows these days so they can bid again .....

as for commodities , gold silver, oil there were due a consolidation as there were getting overbought and maybe oil will test 65$ in the very near future for it to climb up over 75 during the course of next months.....
  • #3
  • Edited 5:10am May 16, 2006 2:54am | Edited 5:10am
All consolidations are the direct or indirect effect of profit taking or position setting.

Goldman Sachs stated yesterday that they had liquidated a good portion of their dollar shorts, but they were still dollar bearish and have a price target of 1.25 for EUR/USD.

Which means, in a nutshell, that the will lquidate the proper amounts till the profit range is met. Many small speculators with little market influence will use the dips to buy in at a more strategic price, but overall, when the large specualtors move, the market responds.

If you look at the 240 minute GBP/USD chart, you will see four clearly defined consolidation levels that "tier" the price on the way up....all of these are a result of liquidating positions and others filling the gap.
Capital Preservation is key to long term wealth accumulation
  • #4
  • May 16, 2006 4:41am May 16, 2006 4:41am
Quoting MuddBuddha
Goldman Sachs stated yesterday that they had liquidated a good portion of their dollar shorts, but they were still dollar bearish and had a price target of 1.25 for EUR/USD.
I don't understand. If they are dollar-bearish, shouldn't they have a price target of 1.30, at least highr than 1.28, the present price?
  • #5
  • May 16, 2006 5:15am May 16, 2006 5:15am
Well, to clarify, their 1.25 price target is for the next three months.

That's where they expect the EUR/USD to be range wise. Their targets and liquidation levels obviously are internal information and would not be disclosed to the public other than the weekly COT data which is realeased today (yay!).

But it would be a good assumption that as the price tops and the trend revereses, they, and other dollar bears, will unload their positions before the price ranges excessively which produces little to no profit for them.
Capital Preservation is key to long term wealth accumulation
  • #6
  • May 16, 2006 5:38am May 16, 2006 5:38am
ok, but how does this translate into price action ? all i can see is audusd might be breaking 07600 (i have a lmt sell order at 07600) and usdcad 1h is still in an uptrend, trying to make new highs (i have an lmt buy order at 80)...so, im betting on more to come on the usd rally (keeping tight stops)..
  • #7
  • May 16, 2006 5:47am May 16, 2006 5:47am
It's not as if Goldman Sachs can reverse the uptrend by itself.

It does equate to price action as the movement of one currency affects all others; but it doesn't necessarily cause a trend reversal. There are still plenty of others that are still in a bearish attitude as will most likely be evident when the COT data is released.

Obviously, others will use pull backs to purchase EUR's against the dollar thus causing the price to attempt to reach equilibrium.

AUD and CAD may be affected a lot or very little in the process; but the fct remains that they are indeed affected.

The market is more or less like many weighted scales all interlinked. When one moves in response to global economics, the others respond in direct proportion to their relevance. So all the scales respond, but in differing degrees.
Capital Preservation is key to long term wealth accumulation
  • #8
  • May 16, 2006 5:57am May 16, 2006 5:57am
Quoting peter100
ok, but how does this translate into price action ? all i can see is audusd might be breaking 07600 (i have a lmt sell order at 07600) and usdcad 1h is still in an uptrend, trying to make new highs (i have an lmt buy order at 80)...so, im betting on more to come on the usd rally (keeping tight stops)..
dont forget though that oil and gold (mostly oil) reflects a lot more to usd/cad and due to geopolitical risks and possibly higher oil again in the coming days, the usd/cad wont be able to follow the dollar rally.....i have noticed so many times that usd/cad moves accordingly to oil and commodities in general and not according to eur/usd..... so although usd/cad is oversold and many speculate the end of the fall and the beginning of the correction, we still have to acknlwledge global risks and mostly situation with Iran...I will give u an example last week(i think it was anyway) when we saw a deep correction in usd/cad due to lower oil and letter that was sent to Bush admin from Iran... usd/cad wa at 1.1165 that day (from low of 1.1060) ...the minute there was news about letter ignored or not accepted by US gov oil rose again 2 dollars that day, and usd/cad went all the way down to 1.1022!!!!!!

so usd/cad does play a differ game ...but have to admit i like to see this uptrend in the following days and usd/cad to reach 1.15 at some point....
  • #9
  • May 16, 2006 6:45am May 16, 2006 6:45am
yes, thanks folks...PPI is coming soon...my brain is kind of running dry..will take a little nap now... )
  • #10
  • Last Post: May 16, 2006 7:19am May 16, 2006 7:19am
Quoting MuddBuddha
Well, to clarify, their 1.25 price target is for the next three months.

That's where they expect the EUR/USD to be range wise. Their targets and liquidation levels obviously are internal information and would not be disclosed to the public other than the weekly COT data which is realeased today (yay!).

But it would be a good assumption that as the price tops and the trend revereses, they, and other dollar bears, will unload their positions before the price ranges excessively which produces little to no profit for them.
So if I understand it correctly, they say roughly something like:
if EURUSD is around 1.29 sell until it reached 1.25.
if EURUSD is around 1.21 buy until it reached 1.25..

BTW: the COT-reports are only available friday? You suggest that you can see them earlier.
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