Inflationary pressures increase, Housing data disappoints

It was the commodity market that took center stage yesterday as the Dollar dropped due to disappointing economic data from the U.S. Already during Asian hours the Dollar had lost its ground against counterparts, allowing Gold and Silver to climb to new levels. Gold the current leading commodity hit a new high for 2009, closing the session just under $1150. Silver, a commodity that has recently been lagging, soared higher throughout the session, but lost its steam as it ran into trend line resistance.

From a technical point of view, silver is now at the top of its trend line within its major uptrend. Even though indicators are still showing relative strength, current levels could act as resistance, especially if the broader market fails to continue higher.


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Economic data helped to spark buying on the commodity market yesterday, as inflation numbers from the U.S showed that despite the slow recovery, prices are starting to increase. One must note that even though higher prices are often thought of as a good thing, especially when they rise due to healthy consumer consumption, rising prices along with low consumer consumption can often result in market fear, sending investors into safe-haven assets such as Gold, to hedge against inflation.

Consumer prices rose 0.3% in October with prices excluding food and energy rising 0.2%. In addition, the housing market continued to disappoint, releasing weaker than expected housing start and building permits. The numbers came out at 0.53M and 0.55M, respectively.

On the different currency pairs, Dollar counterparts managed to gain ground throughout the session, but failed to present any major moves. The GBP/USD presented an interesting session as the BOE released its minutes, showing that even though the members voted to leave rates at a low of 0.5%, not all the MPC members were in sync regarding future monetary actions. The minutes showed that policy makers are still debating whether the U.K’s economy will require further stimulus or not. Following the release, the markets took the news more than lightly and presented extreme volatility. The GBP/USD bounced back and forth by over 60 pips, before settling down to close with a minor loss.

The EUR/USD finished the session with a mild gain, while the Australian Dollar finished the session unchanged.

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Low interest rates and the prospect that they will not be going higher anytime soon is still weighing the Dollar down. Speculation by analysts suggests that it could be the middle of 2010 before the US in a position to raise their interest rates, a scenario that spells a long and painful winter for Dollar traders.