US markets flat, Europe a touch lower, precious metals dipping, ASX futures 14 points higher

Not a great deal happened in global equity markets overnight - the European fears relating to diplomatic talks to end the military escalation with regard to Ukraine continue, while Greece is still in talks presently with the rest of the Eurozone ministers to try and reach agreement on continued funding.

We're seeing a lot of interest in commodity trade at present, so this morning I will highlight two markets that I find interesting. The US dollar strengthening theme that dominated and dictated the direction of commodity markets in the second half of 2014 saw the prices of many energy and metal markets fall, and to a lesser extent agricultural commodities. Today's first two charts look quite similar, as they both suffered at the hands of three factors last year:

  1. A strengthening US dollar (which naturally weakens the price of any commodity priced against it)
  2. Slack in global economic demand (with particular regard to China and Europe)
  3. Oversupply in markets (in the case of copper this came in the form of excess Chinese inventories, in the case of oil it was onshore US production growth and an absence of OPEC intervention)
The first chart shows the continuous copper price (HGc1) in orange, with the strengthening US dollar index in black. The second chart shows the continuous WTI crude price (OILUScont) in orange, again with the strengthening US dollar index in black.

The question on many traders' lips is whether the recent stall in the strengthening trend of the US dollar will prove a catalyst for a broad commodity price recovery, which will no doubt have a significant effect on the price of these two commodities. Copper is certainly often used as a barometer of the global economy, so seeing it drive higher would be a good thing for many reasons. The current pull-back in the copper price comes off some bullish behaviour in late Jan/early Feb and if the price consolidates, it could provide a nice entry point for those wishing to take long positions with strict stops at the recent US$2.45 per pound closing lows.

Oil has far too many mixed dynamics at play presently to try and pick a trend out of, due to the complexities arising from increasing forward sales and inflows into storage, which at some point will be naturally countered by falling US oil rig numbers and production being taken offline in general - but clearly this isn't taking effect yet. In today's third chart, you can see that March WTI crude futures (WBSH5) are trading at a significant discount to September WTI crude futures (WBSU5), and this is creating a dynamic whereby traders are buying spot and front-month oil instruments and storing them for later delivery to take advantage of the price 'spread' between these two ends of the market - presently around US$6.50 per barrel. So you can begin to understand that continuing forward supply will come onto the market and keep pressure on the oil price to remain low for some time - I don't think this is an easy medium-term play to pick. The price may well stick around these levels for some time. This is probably a good thing for the global economy, in that stakeholders will be able to do their homework on relatively static oil prices for some time to come.

****FX and index traders take note: Australian employment report out at 11:30am, Sydney time (6.2% expected)****

Today‚Äôs charts are taken from the Rivkin Trader platform. 30,000 global instruments available to trade including FX, commodities, index, ETFs and international shares. Trade Australian share CFDs from just $8 or 0.10%. Click here or phone 1300 748 546 to get your free $100,000 demo account.

Upcoming economic announcements: AU CPI expectations at 11am, AU employment report at 11:30am, German CPI at 6pm, UK inflation report at 9:30pm, all Sydney time.

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