If QE3 Is Really Imminent, Why Are Commodity Prices Trading So Poorly?

Fear that the global economies are about to contract further has sent the central bankers scrambling for a solution.  To no one’s surprise, the central banks are going to figure out a way to loosen the money supply, thereby giving the economies a boost – they hope.

Support for the Bernanke plan is being organized by Janet Yellen, the Fed Vice Chair lady, and currently the San Francisco Fed President.  Though now employed in California, Yellen is part of the MIT, Harvard, Yale, Brown and Columbia trained elites who have been at the center of US economic grouping for years. 

At the confirmation hearing for Yellen, Senator Shelby of Alabama voted against her confirmation claiming he felt she had an “inflationary bias.”

If Yellen is about to be the co-pilot in Helicopter Ben’s money machine, the market is so far unconcerned.  Memories, though, are short, and accusations that Bernanke’s expansion of the Fed’s balance sheet was a primary cause in inflation following the 2008 financial collapse have faded. 

There was some recovery in the commodity index values yesterday, but this is after a sell-off of over 20% in the last four months has tamed some of the adventuresome animal spirits in the commodity markets.  And, if traders are going to conclude the US inflation is going to perk up, weakening the USD, this might result in a healthy bout of USD long liquidation.

Markets traditionally are supposed to look forward and discount future prices, but yesterday the market action seems subdued.  It is interesting to note that in Bernanke’s testimony yesterday, he said risk from the European bank and debt crises presents a severe threat to the US economy, and must be monitored closely. 

The immediate threats to economic disruptions come from Europe, and not the US. 

European solutions do not seem to be forthcoming.  Spain did peddle €2.07B bonds yesterday, but at higher rates.  It is amusing to see the ECB holding the bank rate at 1%, but maybe they think this will help contain the inflationary price of Brent crude.

In the EURUSD I feel more comfortable when I am short.  The trouble is that trade is overloaded.  Looking at the weekly chart, there is a double weekly high at the 1.2625 area.  Should the market take this level out today, remaining above the 1.2625 high, we are inclined to go home long the EURUSD. 

Chances are there will be a continuation of the rally next week.

EUR USD Weekly 7th June 2012, Cash Back Forex Brokers Online

Written by CashBackForex.com