Year’s end and volumes are low.

Daily Analysis - 29/12/2017

Copper, Crude, the EURUSD and the DAX offer good trading opportunities short and longer term.


The DAX broke through the significant support level of 13000 yesterday. Crude oil inventory above ground in the US printed nearly exactly at the expected level, a reduction in inventory of 4.609 million barrels (bbl) deviating slightly from the expected decline in inventory of 3.97 M bbl. The Euro gained strength against the US dollar in a continuation of a trend now around two weeks in length. Copper looks set to keep ascending its heights, taking small and short-lived corrections on the way.

Dax breaks significant support level of 13000

The Deutscher Aktien Index (aka the DAX, German Stock Index) fell below the 13000 price level for the first time in the three months since it had first breached the level three months ago. Remember, like almost all of the worlds’ major stock market indices these days, the DAX is at an all-time high. We have discussed the reasons for this but it is always important to review the fundamentals. Ask any exceptional professional. (Remember the 10,000 hours of rehearsal hypothesis.) The stock markets are as high as they are for two essential reasons. First, corporate earnings are very high. With the fruits of globalization in full bloom, (Yes there too are victims of globalization. They elected Trump and decided to take Britain out of the Eurozone.) Namely extremely cheap marine freight costs and ruthlessly competitive labor costs: More stuff is being supplied and consumed at lower costs than at any time in the history of recorded economic activity. Second, as interest rates worldwide are at extremely low levels, remember that the long term average for interest rates, even taking into consideration that for the last 10 years they have been at or next to zero, is still 5.5 percent. We are quite some way from that level today, though climbing back VERY slowly and cautiously. And so, with interest rates returning practically no real profit, and almost as little nominal profit, where are you going to invest any spare change you have acquired? Most probably the stock markets. Hence the rises. These circumstances will change as all circumstances in economics always do. But for now that the deal.


Crude oil is a t a 30 month high

West Texas Intermediate, an unwieldy name for the US crude traded on the NYMEX Exchange in New York City, broached $60 per bbl yesterday. Even before the psychologically significant level breech, the stuff was still at heights not seen since June of 2015. BTW, why are these round numbers psychologically significant? Because these markets, contrary to what some would have you believe, are run by and for the benefit of humans. Humans who are superstitious, greedy , fearful and far less sophisticated and evolved than classical economics teaches. So we get our little humanoid brains enamored of round numbers, like apes do of shiny objects. Elegant? Hardly. True? You bet. The question of course is why and how to trade the development. We that is the august and skilled analysts, number crunchers and experienced market traders here in the Alvexo skunk works are of the opinion that price made this breach for two reasons, neither of which are likely to persist. Both have to do with supply disruption that occurred in the last week. First and by far the more significant of the two was the “Forties” pipeline closure that lands south of Aberdeen in Scotland. It was found to have developed a crack requiring about two weeks to repair. That was one week ago. That disruption of course bumped Brent price up just like it did to WTI. They almost always move in lockstep. The second that occurred about 36 hours ago was a pipeline disruption In Libya. While the cause is as yet unknown, speculation asserts that militant political elements bombed the line, after all there are at least three contending governments in Libya so there potential for insurgent behavior is rife. The fact remains that between 70 and 100 thousand bbl of Libya’s premium crude have fell off the market. Remember too that Libya’s crude oil is the extra virgin, cold pressed equivalent of liquid hydrocarbon fuel. Easy to refine and process. Like quality olive oil is to digest. These circumstances together are temporary and so we fell that the price of crude will revert to its decline after the markets shale off the holiday fog and get back to business.


US Dollar weakest against Euro in three months, but before that, for exactly three years

Three months ago the US dollar was the weakest it had been against the European currency that it had been for about three years, it strengthened about three months back but gave that gain back to the people of Europe and their currency and is as weak as it was there years ago. Very hard to explain why this is so. But read the press, no doubt they will dream up loads of reasons for the gesticulations of this most complex of trade, economic and financial relationships. Always remember, as traders, we do not have be academics. While it is always satisfying to trade assets about which enough is known or understood to be more certain of our trading strategy and positions, like crude above, it is not necessary. Have a look at the chart for the pair. Do you need to know all or any of the nuances of the drivers of the relationship between the two largest trading block in the history of recorded economics to be able to profit from them? We believe you know the answer to that as well as we here do. Enough said.


Copper rises relentlessly.

Leave us not forget our school days physics. Nothing, on earth anyway, rises forever. So too with High Grade copper referred to by the shorthand “HG”. Two, if not more, but two fundamental facts need to be kept in mind at this stage. First, trading is awfully thin at this time of year. Meaning: Price does not have much sentiment, or to borrow again from physics, much momentum behind it. Second, we always need to be mindful as price reaches highs, to avoid being caught in a bull trap. In other words, not buying at the top. However, huge speculative funds are piling into the asset and this, often referred to as the “smart money”, though not always profiting so smartly, as they lose pretty smartly too, just like you and me. Still such large positons don’t exit so quickly and so prices are likely to remain in this neighborhood for a while yet. Demand in the world’s largest market for the crucial industrial metal, virtually everything that uses or has anything to do with electricity relies on copper, China, has seen its buying increase in the last quarter. Look carefully but be ready to buy.


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