Koop Mandooks and the Oil saga

Yesterday, the US House of Representatives approved a bill aimed at curbing “excessive energy-market speculation”. The bill, which passed 402-19, would require the Commodity Futures Trading Commission to consider using position limits, or constraints on the size of the stake each speculative investor can own, and raising margin requirements, the money required to trade (Our Finmin has scored a point here. For more on that read my post on http://themarketstoday.blogspot.com/2008/06/happy-beariness-where-is-bottom.html). The vote came after the record market rate of 140.39 to a barrel was set.

While it helped in easing the steam off oil by around a dollar, that it will not rise again and rise up to 150-170 as the OPEC President said, is a scenario only with the “Koop Mandooks ” or the frogs in the well as we say. The demand for oil has been on a rise ever since man can remember. That the speed of price hike may slow down by a mere 10% or odds is a given. But the impact this oil business is having on the world economy is devastating especially when it comes on the back of a back breaking Sub Prime crisis. While we were all watching the markets world over stabilizing post the Sub Prime crisis, the oil bomb hit us all hard and now it seems has taken over the stage from the Sub Prime in eating all the economic growth the world over.

The Dow yesterday fell a whopping 358.41 points, indicating that it is poised to remain sub 12,000 unless and until a wholesome recovery occurs in the economy (p.s. rephrase and read it as oil too). The S&P 500 fell by 2.93% (a higher than DOW fall in a long long while) while the NASDAQ fell by 3.33%.

Expect the greenback to weaken against both the Euro and the Yen. Though the Yen remains range bound in 105-108, I would bet on the strengthening of the yen to the narrower 105-106.50 range. The Euro as I have been saying, is difficult to beat below 1.55. The trends now indicate a reigniting of the 1.59 and 1.60 resistance levels. But wait……..If the whole world is in turmoil, how is the greenback suffering the most?? More on that later.

The near future

The markets went in a tizzy in the last couple of months. The Euro was so near( breaching 1.60) and so far. Ossicilations were the rule for stated period. The US lawmakers and the market stats did all they could to make situations normal. Euro broke the 1.55 convincingly for a brief period but retraced back on the back of some bad cues from the US. Expect the currency to rule in the 1.5450 to 1.5700 range with a bias on 1.57. The expanding oil output and the receeding demand should hold it in the range for a while. Though what intrigues me is .....if oil is christinised petro dollar and if its demand increases, then correspondingly, the demand for USD should also increase. Then why should the greenback weaken in such a scenario. I still dont have an answer. Will search for one.

As for the Yen, after a lot of sress test at 105, it has now gone in the region of 107-108 which I had long ago said is a comfortable range (105-108) for Japan. Expect it to test the 105 again before settling in the near 105 area in the next couple of months.

Till my next .......