Commodities rally offers trading opportunity

Monday 16th May 2011
Mike McCudden, Head of Derivatives at Interactive Investor (www.iii.co.uk), gives his thoughts on the last week of trading and looks ahead to what we can expect this week...

"It has been an interesting week in the markets for traders. The highlight was the Bank's report that suggested inflation will remain around 5% in the short term, propelled by higher fuel prices, although a sustained fall in commodities may stem this risk in the medium term. Market participants now expect a rate rise brought forward to August.

"Today we have seen a commodity-led bounce on the back of higher than expected GDP figures from the Eurozone causing a strengthening in the currency against the dollar.

"The easing of Greek default fears has also supported the euro. We are seeing 'interactive markets' Forex volumes increasing considerably on the back of the news as traders take some short Euro positions off the table. But we expect it to tail off as we go in to the weekend as the underlying lack of confidence in a sustained movement ensues.

"Dollar weakness has again been the driver for higher commodity prices, which has pushed the FTSE higher this morning.

"Next week we will no doubt see Greece in focus again as the Eurogroup Finance Ministers meet to discuss ways in which the country can raise finance in the coming years.

"With company reporting largely done for the time being economic data will be the driver with Empire State and Philly Fed numbers hopefully showing signs of a sustained economic recovery and Housing data throughout the week perhaps revealing the market is emerging from dire straits.

"FTSE currently trading mid range around the 6000 level and we are seeing 'interactive markets' traders looking more towards commodities and Forex for the volatility they thrive on and trading the see-saw of commodity prices and the dollar."

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Mike Jones