US Dollar Strength Sees Silver Spread Betting Market Drop
Spread Betting 1 March 2012
There was a huge amount of excitement in the afternoon of yesterday’s session as the markets were hit by a triple whammy from heads of central banks who indicated that the stimulus party is over.
The Governor of the Bank of England admitted to the treasury select committee that his asset buying program would not be renewed when it comes to an end in May.
The markets understand that the ECB’s LTRO II that was rolled out yesterday is unlikely to be met by a LTRO III and then the bombshell from Ben Bernanke sent markets in a tailspin.
He was far more positive about the US economy than was expected, painting rather a rosy picture of the recovery and falling unemployment, but at the same time not being complacent.
This was a clear message to say that QE3 was unlikely in the near term and the markets got hit as a result, in particular gold which slumped 5%.
Gold’s rally has been built on the devaluation of the US dollar and, since it has shown signs of life in the last few months, gold’s remarkable multi-year rally has been called into question.
Yesterday’s flood of sellers caused a bit of panic in precious metals markets and quite a few bulls were shaken out of the silver spread betting market too.
A lot of things happened yesterday including the Nasdaq Composite index hitting the 3,000 level which hasn’t been seen since the massive internet bubble popped back in 2000.
Such highs are enough for anyone to bank a little profit and as Bernanke’s upbeat comments reverberated around the markets sellers came out in force.
It’s a strange reaction from investors who should be happy to hear such optimistic language, however we all know that much of this rally in equity markets has been built on the sustained stimulus from central banks.
The dollar has got considerably weaker over the years as the US attempts to inflate its way out of its debt hole and this has fuelled the bull run on the commodities spread betting markets.
When there’s a hint that the good times of stimulus are over, then spread trading investors will check their exposure and readjust somewhat.
The other major event of the day was the ECB’s LTRO II which not only was slightly larger than LTRO I in December, but saw more banks taking up the loans.
This gave a little warning shot across the bows of the European banking sector as it indicated that they are still hungry for cash in order to repair their balance sheets and recapitalise.
So despite all the assistance from central banks to try and prevent another banking crisis, their job is not complete yet.
So as February ended with a bit of a bang March commences cautiously as the FTSE is trading a tad higher at 5870.
So far this year all the declines have been met by buying and we’re still yet to see a proper shake out with a big move to the downside.
March is historically a bullish month for the FTSE 100 with eighteen gains over the past twenty eight years, but the declines when they have happened have tended to be quite large.
With the month favouring the bulls in the past, yesterday’s decline might present yet another buying opportunity as they attempt to once and for all take on the 6000 level.
The risk aversion naturally translated into a sell off for the euro and other risky currency pairs making the dollar the outright winner during the session.
EUR/USD saw a decline of over one percent and is testing new lows around the $1.3310 area.
Sterling was also a beneficiary yesterday as GBP/EUR got itself back above the €1.1900 mark and is at €1.1950 this morning.
Gold as mentioned was where the real action was as it plunged to $1700. Here it has found some support and already this morning has recovered back to $1717 at the time of writing.
Crude oil prices were not immune to the wider sell off either but they have recovered much better than other markets. Brent dipped to just above $121.00 before reversing its losses and this morning it is back at $122.85 at the time of writing.
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'US Dollar Strength Sees Silver Spread Betting Market Drop' edited by SD, updated 01-Mar-12
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