Another Red Day

On May 23, 2012 by TradingDesk

Once again, a nice rally in risk assets was snuffed out yesterday, as negative headlines from Europe – this time the former Greek prime minister saying that preparations for leaving the Euro zone were being discussed – threw cold water on what had been a nice 2 day rally. The negative sentiment carried through the Asian and European sessions overnight, and markets in the US are shaping up for another red day as a result. The EUR/USD dropped to its lowest level in 2 years overnight, which could prove the catalyst for the next major move in equity and commodity markets.

Energy prices are selling modestly today, along with stocks, aided by news that Iran is “playing nice” with the IAEA and bureaucrats from several major economic powers who will be meeting with Iranian leaders in Baghdad today. While no actual agreements are expected from the meeting, the lack of sabre rattling has put fears of a supply disruption on the back burner for now. For those keeping score, the supply risk fears had dominated the first 3 months of the year, but now global economic concerns have owned the past 2. In broad terms, these two issues remain the major drivers of energy prices for the foreseeable future.

RBOB, HO, WTI and Brent futures all seem poised to test their lows for the year over the next few weeks, with little fundamentally or technically standing in their way. A break below $2.85 for RB, and $2.82 for HO should signal another dime of losses before finding another resting point.

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