Monday, January 25, 2010

USD recovery & the impact on commodities

In my last post, I touched on the subject of a recovery in USD. Nothing shows more clearly the recent weakness in the USD as the strength of the precious metal, gold or, vice versa. To illustrate the slow turnaround in USD, I have presented below (see Chart 1) the weekly charts of USD & GLD (the latter as a proxy to gold prices). We can see clearly that GLD has been weakening over the past 2 months, while USD has been strengthening. The same inverse relationship was played out in the period from March to August 2008, just prior to the strong rally in USD during the period of the Global Financial Crisis. Could a rally in USD be due to purely technical reasons (such as, deeply oversold position) or the onset of financial turmoil ahead? We will have to wait & see...


Chart 1: USD & GLD's weekly chart as at 22/1/2010 (Source: Stockcharts.com)

Another area where one can look for clue as to the strength or weakness of the USD is in the prices of commodities. After the global financial system has returned to normalcy in April-June 2009, we noticed a retracement in the value of USD as well as a recovery in crude oil prices (represented by WTIC) as well as the prices of commodities in general (represented by CRB index) [see Chart 2 & 3 below]. While commodities in general are still rising in an uptrend line ('SS'), crude oil prices appear to be tracing out a trend fan. As noted before, crude oil prices should be turning bearish after it had broken below the third fan line (now, re-designated as the fourth fan line). While the principle behind a trend fan comprising of 3 fan-lines could potentially accommodate an additional fan-line (or two), it is very likely that the latest violation of the fifth fan-line would be the last. We may see WTIC testing its 200-day SMA line at USD69.73-70.00 shortly. A break below the 200-day SMA line could coincide with a sharp rise in USD. Watch out for this development!


Chart 2: WTIC's daily chart as at 22/1/2010 (Source: Stockcharts.com)


Chart 3: CRB's daily chart as at 22/1/2010 (Source: Stockcharts.com)

For those who like to read up on the USD carry trades & the possible unwinding of these trades, go here & here.
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4 comments:

  1. cheerMonday, January 25, 2010 5:29:00 PM

    Hi Alex,

    Pls advise for the Camres from the Financial Analysis and Technical Analysis perceptive.

    Thanks

    ReplyDelete
  2. Alex LuTuesday, January 26, 2010 10:35:00 AM

    Hi Cheer,

    Camres has broken above a strong horizontal resistance at RM0.24. Its next resistance is at RM0.35 & thereafter at RM0.40.

    Its financial performance is nothing to shout about. It recorded a net profit of RM2.1 million on the back of a turnover of RM46.4 million. 9-month EPS was about 1.2 sen- giving it a full-year EPS of 1.6 sen. Based on its closing price of 0.255 yesterday, Camres is now trading at a PER of 16 times. At that PER, Camres is fully-valued.

    ReplyDelete
  3. cheerTuesday, January 26, 2010 11:08:00 AM

    Pls comment PPHB. TQ

    ReplyDelete
  4. Alex LuTuesday, January 26, 2010 12:30:00 PM

    Hi Cheers,

    PPHB stands for Public Packages Holdings Bhd. The rally in this stock could be the result of investors simply jumping into any stocks that have something to do with packaging. After all, Daiboci & Tomypack are rallying, why not PPHB? For that matter, why not Advance Packaging (ADVPKG) or Bright Packaging (BRIGHT). This type of catching-up is normally witnessed at the tail end of a theme play when investors are unwittingly drawn into the play because it looks so 'easy' & rewarding. My advice is to give it a miss.

    ReplyDelete