New records of gold prices, silver raising above $40 per ounce, Brent oil on the highest level since August 2008 and copper trying to return to the peaks above $10000 – that is a picture of the current situation on the commodities market.

Raising oil prices  can be dangerous

We cannot forget that the high oil prices carries a big risk. In the short term there is nothing to count on the return of prices to the levels from mid-February, when a barrel of Brent crude oil cost less than $ 105. Therefore, there is a fear that the situation on the oil market will in future contribute to higher inflation and lower economic growth in the world.

Markets had already experienced the possibility of such a scenario. It took place in the second half of February, when oil began to rose in response to the political situation in North Africa. Then it  discouraged many investors from buying and prompted profit taking. There is a great possibility that this time the scenario can be similar.

Interest rates in the spotlight

According to the market expectations the ECB increased its interest rates of 25 pb and the BoE did not change its monetary policy. That is why those facts did not influence the sentiment on the markets.  

Jean-Claude Trichet said that monetary policy remains accommodative, and the bank will monitor inflation carefully. He added that the ECB Council has not decided yet, whether yesterday's hike by 25 bps will be the first in the series. Despite that fact, the market believes that the next rate increase is possible during the meeting in July. Those expectations and the good sentiment on global markets, influenced the EURUSD currency, which broke the level of 1.4420 (the highest level in 15 months). Currently from the technical point of view the euro has opened the way to the psychological barrier of $ 1.50.

Events to watch

The calendar is extremely poor: few low impact indices from Canada (employment change, unemployment rate, housing starts) and wholesale inventories in the U.S. None of these reports will have a significant impact on sentiment in the markets.        

Pawel Kordala

Disclaimer, investment risk warning
X-Trade Brokers Dom Maklerski S.A. does not take responsibility for investment decisions made under the influence of the information published on this website. more