April 11, 2011 - Second week of April

Forex

The end of last week with the Euro hike have really fueled inflation expectations higher and higher.

• AUD/USD reaching all time highs in the 1.05 range
• NZD/USD at its ultimate resistance, about to break into new territory
• EUR/USD approaching 1.45
• GBP/USD breaking steady above 1.63

All my short term expectations were wrong. I should have stuck to my longer term thesis, USD index is now 74.86 on the rolling contracts. Either way it was expectations and not actual trades, better to loose face than real money. 

EUR and AUD correlation seems to have come back strong since the end of March. I believe prices will be able to consolidate in these high ranges throughout April and possibly even into May before seeing any give back. 

Like I mentioned in one of my tweets, this feels like when the EUR hit 1.42 for the first time last year in 2010. Took months before we saw a significant correction. 

Crude

Looking at crude numbers is like looking at a long lost friend. Moving more than 3 dollars on WTI and Brent front months within two days from when I last looked of the Wednesday during the first week of April. 

With warm weather approaching there seems to be no slowing down of demand. It would seem that WTI is still well supplied as more risk goes into crude and we see new contango developing for April. Brent back months are no longer in line and the risk is really pushing Brent to its limits as it goes further into backwardization. 

Historical front month spreads of $14 between Brent/WTI 

Risks to the bull moves:

• It is unlikely that Saudi Oil can sustain continued substantial increases of daily crude output. 
• WTI contano will have to be unleashed sooner or later. When supplies start coming back into the market prices should drop rather dramatically.
•  I believe Cushing is definitely has been at critical mass for some time already. 
• Resolutions to MENA conflicts

The last point (resolutions to MENA conflicts) seems unlikely to happen anytime and may be enough for it to float brent prices in the 120+ range comfortably. 

SPX

Seems that I was a bit thrown off with the SPX touching 1335. It seems from Wednesday last week there are two fails at 1335 on the hourly front month SPX contracts, and going into the second week of April SPX is opening lower. To me in these ranges the SPX correction is not over. 

Conclusions:

• Continued dollar weakness this week
• Crude maintain highs
• SPX continues to correct

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