Broker's Notes: US dollar rally comes to an end

US dollar

The US dollar's rally to seven-week highs stalled on Thursday after it failed at chart resistance and after subdued US inflation data reinforced the Federal Reserve's case for easing, making dollar short-covering pause. Uncertainty about Ireland's debt crisis, which also helped support the dollar recently, looked to be loosening its grip on markets after Dublin agreed to work with a European Union-IMF mission on urgent steps to shore up its shattered banking sector. Currencies are see-sawing as year-end book-closing has prompted a lot of short-dollar positions built up over the past couple of months to unwind and as Europe's debt problems have returned to the fore, exacerbating losses in the euro.

Euro

Euro tested resistance around $1.3560-70 pushing up as far as $1.3583, where a sustained break would signal a move up to $1.3650-70. However failure to hold the move above $1.3560-70 could open up a retest of this week's seven-week low at $1.3446. There seems to be quite a lot of bids below $1.3450 but with some stop loss sell orders just below $1.3500. Still the market was subdued with plenty to keep it uncertain, with some analysts noting that even if there was a quick resolution over Ireland, the market would continue to fret about other peripheral euro zone economies and their debt levels. In addition, speculation that China may tighten monetary policy was keeping appetite for risk subdued.

Gold

Gold rose nearly one percent on Thursday, buoyed by a pause in a dollar rally after soft US inflation, while short-covering buying also helped. U.S. core consumer inflation climbed 0.6 percent from a year ago, marking the smallest increase since records started in 1957 and arguing in favour of the Fed delivering all of its $600 billion of quantitative easing, after stronger data had fuelled doubts it would need to follow through on the entire programme. Spot silver rose as much as 2.3 percent to $26.21 an ounce, before easing to $26.17. Silver is likely to rise above $30 and average $28 in 2011, lifted by strong investment buying and recovering fabrication demand, precious metals research and consulting firm GFMS said.

Sterling

Sterling inched up on Wednesday, bolstered by an unexpected fall in UK jobless benefit claims and Bank of England minutes which suggested the central bank remains some way from implementing more quantitative easing. Data showed the number of Britons claiming unemployment benefit fell by 3,700 in October, the first fall since July and confounding expectations of a rise of 5,000. Separately, minutes from the Nov. 3-4 BoE Monetary Policy Committee meeting showed one member wanting more stimulus, another voting for a rate hike and the remaining seven keeping policy on hold and ready to act in either direction. The minutes reflected an improvement in UK fundamentals from the last meeting as well as stubborn inflation risks, and reinforced expectations policy would remain on hold until the outlook for the economy became clearer.

Oil

Oil rebounded from four-week lows on Thursday as a weaker dollar and cautious optimism about Ireland's debt crisis rekindled interest in commodities, while a sharp crude inventory decline in top consumer the United States supported prices. Front month crude on Wednesday touched $80.06 a barrel, the lowest intra-day price since Oct. 20, capping a four-session drop that knocked off about 8 percent from a 25-month high of $88.63 a week ago amid concerns about European sovereign debt and a potential increase in Chinese interest rates. Inventories fell unexpectedly by a sharp 7.29 million barrels to 357.6 million in the week to Nov. 12, while crude imports fell 226,000 barrels per day (bpd) to 7.83 million bpd. Stocks of oil products also fell, although more closely in line with analyst expectations. Gasoline fell by 2.66 million barrels, versus forecasts for an 800,000-barrel draw, while distillate stocks declined 1.11 million compared with a projected 2.2-million drop.

Source: Richcomm Global Services, DMCC, Dubai