There was some recovery in the commodity index values yesterday, but this is after a sell-off of over 20% in the last four months has tamed some of the adventuresome animal spirits in the commodity markets.
And, if traders are going to conclude the US inflation is going to perk up, weakening the USD, this might result in a healthy bout of USD long liquidation.
Markets traditionally are supposed to look forward and discount future prices, but today the market action seems subdued. It is interesting to note that in Bernanke’s testimony yesterday, he says risk from the European bank and debt crises presents a severe threat to the US economy, and must be monitored closely.
The immediate threats to economic disruptions come from Europe, and not the US.
European solutions do not seem to be forthcoming. Spain did peddle €2.07B bonds yesterday, but at higher rates. It is amusing (if that’s the word I’m looking for) to see the ECB holding the bank rate at 1%, but maybe they think this will help contain the inflationary price of Brent crude.
In the EURUSD I feel more comfortable when I am short. The trouble is that trade is overloaded. Looking at the weekly chart, there is a double weekly high at the 1.2625 area. Should the market take this level out today, remaining above the 1.2625 high, we are inclined to go home long the EURUSD.
Chances are there will be a continuation of the rally next week.
