Broker's Notes: US dollar spikes as does gold

Euro and US dollar

The euro was sold off aggressively driving the US dollar sharply higher in the process.

The financial markets are in risk aversion mode with the dollar rising against every major currency except for the Japanese Yen and as things stand it may be difficult to shake off the pessimistic mood that has engulfed the global financial markets.

Yen

BOJ Governor Masaaki Shirakawa reiterated on Wednesday his reluctance to return to quantitative easing but indicated the central bank was weighing its options on how to deal with economic impact from yen strength. The move has also helped the yen against the dollar, which fell to its lowest since 1995 as traders probed for options barriers at 83.50 and tested Japanese authorities' pain threshold for currency strength. The dollar dipped as far as 83.34 yen down 0.5 percent on the day.

Gold

Gold prices rose towards record highs in Europe on Wednesday as risk aversion continued to weigh on assets seen as higher risk, such as stocks, while increasing flows into perceived havens like bullion. Charts signal that the break above 1254 is an indication that an immediate sell off isn’t envisaged unless and until gold continues to hover above the 1224 levels. The next level of resistance is at 1264-1268 zone.

Oil

Oil fell for a third straight session on Wednesday, with the WTI oil depressed by brimming petroleum stockpiles, as Asian equities declined on investor attempts to reduce risk exposure. The contract pared losses on Tuesday after an explosion at a refinery in northern Mexico raised speculation that fuel imports would increase from the Latin American country, the biggest buyer of US oil products.

Crude stocks at the land-locked benchmark pricing point in Cushing, Oklahoma, have remained high, depressing the value of US crude relative to European Brent which was trading about $3.70 higher than the US benchmark West Texas Intermediate (WTI) on Wednesday, shedding 15 cents to $77.59. Brent's premium to WTI was the biggest since mid-May. Such a reversal in the usual price relationship between the two grades is known as WTI dislocation, a market condition in which the US benchmark gets disconnected from seabourne markets, where prices are largely determined by global fundamentals.

Indian rupee

The Indian rupee edged higher on Wednesday tracking a rise in other Asian peers, but losses in local shares and the euro kept a lid on the gains. The dollar dropped to its latest 15-year low on the yen on Wednesday and was weaker compared to the Asian currencies but most other majors including the euro continued to trade weaker versus the dollar. The market is trying to ascertain how risk-averse it should be after a report reignited concerns about European sovereign debt and banks' exposure on Tuesday, sending stocks down.

Source: Richcomm Global, Dubai; www.richcommglobal.com