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Forex Trading, Market News & Technical Analysis

Commodity Shorts

Posted by Joseph Trevisani on Nov 18, 2016 5:05:01 PM

 

Background

 

  • Commodity prices have been generally range bound for a year following a four year decline
  • The January/February bottom was due to the equity panic from the cumulative (Aug and Dec) rout in the Yuan
  • Commodities are tied to perception of world economic growth
  • Resource development has brought many commodities to the brink of oversupply
  • Global growth seems to be ebbing and after seven years of weak expansion a recession is probably due
  • There is no obvious national  engine for world economic growth
  • China is opaque and the devaluing yuan is a bad portent
  • Europe and Japan are stagnant with no new policy initiatives in hand
  • The incoming U.S. administration will try to spur growth but policy and then economic success is uncertain
  • The December 4th Italian  referendum is an immediate risk, a failure will exacerbate political and economic concerns about the EU and the EMU

 

Prospect

 

  • With commodity prices at multi-year lows the technical potential for price increases is high
  • But with global political and economic concerns very lively the downside price risk is also high though probably more limited in absolute range
  • Volatility and event risk is on the downside, trend risk is on the upside
  • In order for commodity prices to rise they need the prospect of  improving global economic growth
  • Individual commodities could still rise, crude oil for example,  due to specific conditions, here supply constraints
  • Until there is sustained improvement in global economic conditions or the credible anticipation of such in the U.S., China, the EU or Japan, commodity prices are unlikely to break out of their current range.
  • When prices do move the long period of  relative stasis makes rapid movement through technical levels likely

Joseph Trevisani

Chief Market Strategist

WorldWideMarkets Online Trading

Charts: Bloomberg

 

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