Posts Tagged ‘USD’

Commodity versus Dollar Index: The Myths and Facts

Dollar index has noticed terrific movements. The perfect time to sell commodities! Does this thumb rule always works?  Well, let’s find out the myths and facts …

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The USDX is a trade-weighted basket of the US dollar versus other major currencies. Sometime volatility in dollar index can be attributed to the major movements in other currencies. Here lets go with an example.

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USDX has seen around 23% rise in just over 4 months. It was the biggest move the USDX has ever made over such a short span in this index in entire history! For this the strength of USD is not counted rather the weakness of other major currencies amid some improvement in US data’s are taken into consideration. At the same time, commodities could not see steep fall in the prices due to seasonality. It happens many times. Yes, I agree that dollar index give impact on the prices, sooner or later, but, remember, as a secondary driver not as primary.

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Return Of Various Commodities and Dollar Index From 2000-2010(In %age)


Chart 1 reveals the secondary nature of the dollar’s role in commodities prices. During the secular bull run between 2000 to 2010, commodities gave incredible performance. It gained between the wide ranges of 64% to 410%. On the contrary, dollar index lost around 23%. It is showing that supply and demand far outweighed the dollar.

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Let’s find another answer to the question. Why to watch dollar index while trading in commodities?  What psychological impact does dollar index have on commodity?

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It is in fact very complicated to synthesize fundamentals into tradable whole as in many commodities credibility of data is questionable and data comes on wide intervals. Other factors that give impact on the prices are not easily reachable to all traders. It is also true that commodities fundamentals develop gradually and cannot change overnight and thus it is unable to give massive moves in a short span of time. Many times  price movements in commodities is sentiment  news driven.

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Here dollar index gain importance, as transaction of many commodities are done in terms of USD worldwide, hence any fluctuation in USD gives significant impact on the commodity prices. Moreover, the dollar’s levels are always available in real-time and consequently it is uncomplicated watching the movements of USD to game commodities rather than exploring into their fundamentals. However, we also cannot deny that in a particular period dollar index becomes the primary driver of commodity.

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Price movements of CRB and Dollar index (2000-2010)


Source: SMC                                                          Chart 2

Chart 2 is showing negative correlation between USDX and CRB but percentage of volatility is more in CRB. Even in 2009, CRB recovered by whopping 20% whereas dollar index only fell by 5%.

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As on whole USDX has proportionately negative correlation with commodities but it is not the main driver. Nevertheless, sometime relationship between dollar index and commodities are positive. For example; in the time period of December 1998 to September 2000 relationship between crude oil and USDX was positive for a long period. Many times commodities and USDX move in similar direction in perception of the health of the global economy. Fear and uncertainty surrounding the global economy stimulate safe haven buying in both.

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Concluding with the view that each commodity has its own fundamentals, demand and supply profile, which drive its prices. Though, the secondary driver, dollar index often give impact on the commodity prices significantly. Hence, it is advisable that take it as a significant indicator, but rely on seasonality and own fundamentals of commodity before the investment of your money.

Economic Indicators – Leading the World Part 2

Hello Friends here we come up with an extension of our previous blog, ECONOMIC INDICATORS… “Leading the World” Part 1.

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Economic Indicators - Leading the World Part 2

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In previous Blog, we had touched upon the aspect like

what are Economic Events & Indicators and important sources of data provider for calculating & determining economic indicators.

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However in this Blog, we would try to know about the classified categories of Economic indicators in details and what is Time Era.

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Classified Categories:

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1. Leading indicators:

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These indicators are to forecast trends of the overall economy.

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The indicators included in the figure are:

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interest rate spread, M2 money supply, average manufacturing work week,

manufacturers’ new orders, S&P 500, average weekly unemployment claims,

vendor performance, housing permits, consumer expectations and

manufacturer’s new orders for non-defense capital goods.

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2. Lagging indicators:

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An indicator to generate transaction signals or to confirm the strength of a given trend.

It is a measurable economic factor, for example, corporate profits or unemployment that changes after the economy has already moved to a new trend.

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3. Coincident indicators:

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It provides information on the current state of the economy.

For example, coincident indicators move up when GDP is growing and down when GDP is shrinking.

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This indicator varies directly with, and at the same time as, the related economic trend.

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The four economic statistics comprising the Index of Coincident Economic indicators are

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– Number of employees on non-agricultural payrolls,

– Personal income less transfer payments,

– Industrial production,

– Manufacturing and

Trade sales.

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Time Era:

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Knowing when each piece of information will be released is important to successful trading.

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The economic calendars are found on many websites.

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These figures helps to decide how to trade using these events, it can help explain unanticipated price actions during those periods.

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These indicators play a vital role in determining the trend or movement of the stock market & the commodities futures.

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It has been seen many times that when a positive data of these indicators like GDP or Industrial Production comes into picture & looks promising,

the trade of currencies like Euro, USD, INR; precious metals like Gold, Silver, base metals of Copper, Zinc, Lead show a positive move & short-term rally immediately.

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Stay Tuned for more and more on this 🙂

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However For More latest Industry,Stock Market and Economy News Updates, Click Here

India To Press For Stimulus Package Continuance at G-20 Summit !

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India will seek continuance of the stimulus package that was devised to get the global economy out of the worst crisis since the Great Depression of the 1930s at the G-20 Summit in Pittsburgh .

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Prime Minister Manmohan Singh, who leads the Indian delegation at the summit being hosted by President Barack Obama, will voice developing countries views that the developed countries should return to the trend growth and stabilization of the banking and financial sectors.

Such measures affects exports, capital flows and investment of the developing economies.

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Indian PM is going to pitch strongly against any attempts at protectionism and advocating reforms of the international financial institutions in this G 20 Summit .

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Planning Commission Deputy Chairman Montek Singh Ahluwalia, National Security Adviser M K Narayanan, Finance Secretary Ashok Chawla are among the members of the Indian delegation which attending the summit.

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This Summit will also be attended by world leaders including British Prime Minister, German Chancellor, French President  among others.

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The summit represents 90 per cent of the world’s GDP, 80 per cent of the world trade and two-thirds of humanity.

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The summit is important for emerging economies like India, which have been affected by the global economic crisis not of its making, to tell the world that there was need to continue the stimulus package that was agreed at the Washington summit last November and a decision to pump in USD 1.1 trillion was decided at the London Summit in April last.

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Indian delegation are of view that the continuance of the stimulus package was in the interest of the poor countries and the emerging economies and developed economies should not adopt any strategy to exit from it.

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India will voice strongly the need for avoiding the temptation to resort to protectionism by the developed countries under the present crisis.

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Foreign Investors Poured $9 Billion in Indian Stock Market :)

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Foreign investors have poured Rs 43,837 crore (USD 9.05 billion) into the country’s stock markets so far this year, reflecting confidence of foreign funds in the Indian equity markets.

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At the close on Wednesday, overseas investors were gross buyer of shares worth 4,17,121 crore and gross sellers of stocks valued at Rs 3,73,283 crore, resulting in a net flow of Rs 43,837 crore into the stock markets so far this year.

This latest data has been announced by the market regulator Securities and Exchange Board of India (SEBI).

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Significantly, the Bombay Stock Exchange benchmark Sensex has gained nearly 73 per cent so far this year.

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The National Stock Exchange barometer Nifty – composed of 50 shares — has also advanced fairly and for the first time in more than a year it touched 5,000 level on Thursday.

(Read more about that on previous blog).

Global fund houses have made a total net investment of Rs 3,564 crore so far in September, according to the SEBI data.

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After pulling out a huge sum of Rs 52,986 crore (USD 11.9 billion) from the local stock markets, foreign investors are now moving their money towards emerging economies like India.

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However in debt market segment, overseas investors have not turned net investor so far this year.

FIIs were net sellers of debt instruments worth Rs 527 crore (USD 49 million) in 2009 so far according to the latest data received from the market regulatory body,SEBI.

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ECONOMIC INDICATORS – A Key Factor in Currency Trading : Part 1

Economic Indicators – A Key Factor In Currency Trading

Economic indicators are the most concerning part of the currency trading which are released by various agencies of the government or private sectors.

These are published on a regularly scheduled basis which helps market observers to track the pulses of an economy.

They are hardly ignored by anyone who is the participant of the financial markets.

Economic indicators are procyclic and their movement, are directly proportional to the trend of economic performances.

With so many people poised to react to the same information, economic indicators in general have tremendous potential to generate volume and push the sentiments of the people to move prices in the markets.

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Tracking the calendar of economic indicators will also help the market followers to make sense out of otherwise unanticipated price action in the market.

Let’s talk what exactly an investor can derive from these indicators:

Suppose USD has been in a tailspin for three weeks and the trading day is beginning of the week i.e. Monday.

Now it is easily predictable that many traders are holding large short USD positions.

However on Friday the employment data is yet to be released.

It is very obvious that with this key piece of economic information as it is made public, the USD could experience a short-term rally leading up to the data on Friday as traders pare down their short positions.

This shows that these small but vital informative indicators directly or indirectly rules the trading terminal and affects the prices vigorously.

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These economic indicators are mainly helpful in top down approach followed by any investor.:)

They start their analysis with global economies including both national and international economic indicators as GDP growth rates, inflation, interest rates, exchange rates, productivity and energy prices as well.

The availability of good economic data is the major attention of international markets as they are the indicator of the countries economy which is the promising destination for foreign investors.

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Not only this the other releases like personal income, unemployment rate, housing starts, retail sales etc. which are also known as coincident indicators give an overview on future performance of the related country and its economic conditions.

These indicators are changing at the same time and in same direction as the whole economy moves, so they represent directly the current state of the economy. 🙂