FX Technical Strategy
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Soft commodities set to firm
Thu, Nov 6 2008, 12:43 GMT
by Lloyds TSB Financial Markets Economic Research Team
Market overview
Anyone who began trading for the first time over the past 12 months will have witnessed an unprecedented period of market volatility with all asset classes having massive swings. Normally traders atune themselves to the market conditions relatively quickly, but if you have cut your teeth in this market environment, then it may be very difficult to adapt to what could be a significant drop in volatility over the coming weeks.
Naturally, flexibility is key. The expression 'never saying never' has never been more apt in respect to current conditions. It is true that a bit of volatility is good for the market. However, you can have too much of a good thing and we could be finally easing towards more usual trading characteristics. This does not mean that there will be a lack of opportunities, because we are not far from the beginings of some new major trends (dollar bearish). However, a consolidation period is long overdue.
In a week of major event risk, the net effect could be to keep particpants on the sidelines. The chart of the VIX index appears to be topping out, even though one would expect the chances for knee-jerk reactions to have increased this week. This does imply further strength for the commodity currencies against the yen and a recovery for sterling. However, the profile for the latter could involve a decline towards 1.5400 against the dollar before the next major rebound.
How low can commodities go? There is some evidence of short term support emerging for soft commodities. How sustainable this is remains to be seen. When the rebound comes, however, it could well be aggressive and now is as good a time as any. Naturally this will underpin the commodity currencies, but also worth considering are the commodity related emerging market currencies such as the Brazilian real and Chilean peso.
Published on Thu, Nov 6 2008, 12:46 GMT
Archive
- Green shoots' roots in commodities
Published On Wed, May 13 2009, 07:17 GMT - Top and tail outlook for majors
Published On Wed, Apr 29 2009, 06:13 GMT - Base case for sterling
Published On Thu, Apr 23 2009, 06:07 GMT - Risk appetite is reduced
Published On Wed, Apr 8 2009, 06:39 GMT - Dollar weakness is a long term story
Published On Wed, Mar 25 2009, 12:30 GMT
Lloyds TSB
| Faryners House, 25 Monument, London EC3R8BQ
http://www.lloydstsbfinancialmarkets.com/doc/fms/financial_markets.htm | Sarah.Pedder@LLOYDSTSB.co.uk
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