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Tuesday, October 25, 2011

Shiny & Slick...for how long?

Further to my post last night, I will be watching commodities closely on a longer term basis over the next days/weeks in light of the Bank of Canada Announcement today:

Bank of Canada Announcement

Released on 10/25/2011 9:00:00 AM
PriorConsensusActual
Change0 bp0 bp0 bp
Level1.0 %1.0 %1.0 %
Highlights
As expected the BoC left key interest rates on hold at today's policy setting meeting. The target overnight rate thus remains at 1.0 percent while the Bank Rate stays at 1.25 percent and the deposit Rate at 0.75 percent.

However, the central bank has clearly become much more cautious about the economic outlook, especially prospective developments overseas. In particular, the Eurozone is seen as a major risk to growth. The U.S. market is anticipated to be soft over the first half of next year while a construction-led rebound in Japan is seen constrained by the impact of a strong yen.

Activity rates in the Canadian economy are seen supported by relatively robust domestic demand as net exports continue to suffer in the wake of an uncompetitive C$. Real GDP growth is now put at 2.1 percent this year before slowing to 1.9 percent in 2012 and then rebounding to 2.9 percent in 2013.

The softer GDP profile means that excess capacity is more than previously expected and a return to full capacity is not anticipated before the end of 2013. As a direct consequence, the underlying inflation forecast has been revised down and now shows the annual core CPI rate declining through 2012 before returning to 2 percent by the end of 2013.

More complete details of the new economic projections will be released in the Monetary Policy Report tomorrow but today's announcement is likely to be viewed as supportive of a possible interest rate cut at some point.
Definition
The central bank of Canada periodically announces its monetary policy with regard to interest rates. The announcement conveys to the financial markets and investors if and what change in policy might be. Why Investors Care
[Chart]The Bank of Canada has an inflation target: a 1 to 3 percent range with a specific focus at the 2-percent midpoint. To better track the core rate of inflation, the Bank uses a consumer price index that excludes eight volatile components: fruits, vegetables, gasoline, fuel oil, natural gas, mortgage interest, intercity transportation, and tobacco products (as well as the effect of changes in indirect taxes on the remaining components.) The Bank of Canada has renewed its inflation target agreement with the government for another five years to December 31, 2011.
Data Source: Haver Analytics

Of particular interest are Gold, Oil, Copper and the Commodities ETF, DBC...

The Daily chart below of Gold shows price bouncing in between several Fibonacci confluence levels of 1590, 1660 and 1700...a break and hold below 1590 could confirm the resumption of a bear market move in equities.


The Daily chart below of Oil shows price re-testing the falling 200 sma (pink) today...it could be forming the right shoulder of a very large H&S pattern that began in mid-2009 at around 95.00...a drop and hold below 80.00 could tie in with a bearish scenario in Gold and equities.


The Daily chart below of Copper shows that price re-tested a resistance level of 3.53 overnight...I'd be looking for a drop and hold below 3.15 to confirm the bearish scenario above.


Each candle on the chart below of the Commodities ETF, DBC represents 3 days...the current candle began yesterday...price is re-testing resistance confluence of the 100 sma (yellow) and price at 28.00...a break and hold below 25.50 would also tie in with the resumption of a bear move in Gold, Oil, Copper and equities.