Crude oil edges further lower Monday morning, extending the reversal last Friday, as USD's strength remains. Last week, WTI crude oil price rose to 7-month high at 70.32 after the release of encouraging US payrolls data but the gauge, as well as other commodities retreated abruptly as triggered by strong rebound in USD.

Today, USD continues to hover around 1-month high against Japanese yen. Against the pound, the currency rises to 1.5939 after closing 1% at 1.598 Friday. The fight-back in dollar has been driven by speculations that the Federal Reserve will start increase interest rates later this year as economy recovers. According to trades of CBOT Fed fund futures, traders have priced in a 70% chance that the Fed will raise its policy rate in November, compared with a 24% chance projected a week ago. CFTC reports also showed that net long positions on euro and Japanese yen against the dollar also reduced last week. Although speculations that a rate high will be seen in late 2009 will boost USD and it cannot be ruled out that dollar will recovers further in coming week, we remain the view that USD will be long-term bearish due to it high budget deficit.

In Asian morning, Japan's Nikkei 225 Stock Average gains 0.87% as the yen falls. However, other regional indices weaken as led by commodity stocks. China's largest oil producer PetroChina opened 2.6% lower at its Hong Kong bourse and is still down 0.4% from Friday's close.

Over the weekend, IMF said that it possible to replace USD's status as the reserve using the special drawing right. However, this 'revolutionary' step will take long to be achieved as over 60% of the world's currency reserves are held in dollars currently. IMF's comment should further increase investors' worry about USD's dominance and the seriousness of US' budget deficit problem. We deem there should be more central banks increasing their holding on gold so as to diversify their USD reserves.

Gold price plunged to as low as 953.2 before recovering to 960 Monday morning as USD's rebound halts the precious metal's rally. Silver also trades in similar trade as it shares similar characteristics with gold.

Commitments of Traders
  • Crude Oil: Net speculative long positions remained robust despite mild decline from the prior week
  • Natural Gas: Net short positions increased last week
  • Gold: Net long position in gold futures increased further, approaching the 200K level. Beware of price volatility
  • Silver: Net long positions also reached 10-month high, price volatility increased
  • Platinum: Net long positions dropped over the reporting week. However, we believe it will rebound in the coming week as stabilization in US auto market should spur interest in PGM group metals