The variations in commodity and currency prices, and the news behind them, underline the importance of studying current events in line with following the market prices. None can be taken alone; they affect each other, and sometimes in unpredictable ways. A smart investor learns that there are three basic knowledge sets to master in order to trade profitably: the forex market basics, the technical analyses, and the current events. Lets take a look at this week's current events.
Starting off the week, we're seeing the US dollar markets at three week lows against most of its major peers. The US dollar index, a broad measure of the greenback measured against a basket of currencies, has fallen to 94.82, a small improvement from this past Friday's low of 94.75. Looking at individual currency pairs, the EUR/USD is trading at 1.1383 right now, while the USD/JPY stands at 120.13. Commodity currencies, such as that Australian and Canadian dollars, are also doing well at the dollar's expense, with the AUS/USD at 0.7358 and the USD/CAD at 1.2932. The Aussie is strongly linked to mining and metals, while the loonie is strongly correlated to oil and gold.
The pressure on the dollar is originating from the US Federal Reserve, which continues to refuse to raise interest rates. It's no longer a matter of keeping rates low, as the Fed acknowledges that rates have been too low for too long, but rather it's a matter of them not being able to raise rates in the current global economic climate. With rates low, investors are looking for profits elsewhere than the dollar.
The biggest beneficiaries have been precious metals. Gold and silver are both well up, as is platinum. Gold is currently trading for $1,165.58 per ounce, a level it hasn't seen since the end of August, while silver is trading for $15.97 per ounce, just below its June price. Platinum, a precious metal frequently used in jewelry and industry, is currently trading at $987.26 per ounce, a one-month high price.
The precious metals usually trade inversely to the US dollar. They are priced in dollars, which makes them more affordable when the dollar depreciates. While this is a separate issue from the interest rates, they are related as they concern the value of gold when compared to the US dollar.
In other commodities, oil prices are somewhat volatile. Brent crude, the global benchmark price, is now at $52.77 per barrel, while West Texas Intermediate, the US price, stands at $49.73 per barrel. For both prices, this is well up from recent lows, although a small drop from the end of last week when both were above the $50 mark.
The oil prices are heavily influenced by production, and right now, the indicators are for modestly higher prices. US production is showing a slight decline, as the summer's drop in active drilling rigs is finally being felt; OPEC countries have refused to cut production, preferring to retain market share in a price war with US shale producers; and with the winter months approaching, lower demand is likely to keep the global oil supply relatively high.
Risk Statement: Trading Foreign Exchange on margin carries a high level of risk and may not be suitable for all investors. The possibility exists that you could lose more than your initial deposit. The high degree of leverage can work against you as well as for you.