Jul 21 2008
Crude Oil Continues to Drop
When glancing back at a weekly chart several months from now, one will look at the change in the market last week and consider it a normal one. The greenback ended the trading week last week virtually unchanged against its major rivals from the levels it began the week with. A closer look into last week’s trading however will show a much different picture. The greenback saw record lows against the EUR crossing 1.6035 before regaining nearly 200 pips to close the week. The same was the case for the USD/JPY shooting back up to over 106 after flirting with 103.80, as the GBP also added to the volatile conditions. The market fluctuations seen last week were caused by a host of key events, most notably the sudden drop in Oil prices that occurred mid week. As late as Tuesday afternoon Light Sweet Crude Oil was selling at $146 barrel and the EUR/USD pair had broken record highs above 1.60. By the end of Tuesday, Oil price had dropped by as much as $10/barrel and EUR/USD was back trading near 1.58. Testimony from Federal Reserve Chairman Ben Bernanke in front of the Senate Banking Committee and a simultaneous economic speech by President George W. Bush drove Crude Oil prices down and sent the dollar on a bullish path that carried on until the end of the week. When it was all said and done by Friday’s closing the USD had regained ground from the week before and Crude Oil had shed nearly $20 off of its peak price.
This week should be equally intriguing as investors juggle whether the US is really out of the “recession” it has been suffering lately. As has been the case before, bullish runs by the dollar sometimes extend themselves beyond what fundamental and technical data would allow, mostly on default investor speculation that the dollar will always recover. With news from the housing and credit markets still disappointing it is hard to logically defend the positive movement in the dollar. This week the dollar is absent from any relevant market making news until Thursday and Friday when we can expect the Unemployment Claims, Existing Home Sales, Durable Goods Orders and New Home Sales. These events will almost certainly contribute to volatility in the market as any positive figure should spark even more market wide speculation on the dollar. The dollar will be absent from the news today and won’t appear until tomorrow when we will await the words of Treasury Secretary Henry Paulson and Federal Reserve Bank of Philadelphia President Charles Plosser.
Today, the US will produce a single calendar event, the Leading Index. Expect the markets to be calm today as the soft news day will likely provide little market movement.
My Forex Blog
I see Crude’s continued to fall this week and is now $122 a barrel. Good for filling up my car but not so good for my share portfolio which is biased towards oil companies.