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Output of G-8 meeting disappoints traders apparently

10
Jul '09
The US dollar made an attempt to rally this week, but it proved to be short-lived. Traders apparently didn't like what came out of the G-8 meeting, where the US dollar was treated like the proverbial elephant in the living room, with world leaders avoiding the issue altogether. However, in separate meetings by the so-called Group of Five, which includes Brazil, China, India, Mexico and South Africa, it became clear that these nations are increasingly looking to avoid the US dollar and instead want to use their own currencies to settle trade.

Yesterday's report that China's light vehicle sales rose 48% in June was just another reminder of how quickly the global economic landscape is changing. China sold 872'900 cars, SUVs and pick-ups in June, which compares to just 859'847 vehicles sold in the US. Thanks to the sharp increase in developing countries, global car sales are estimated at 51.9 million units this year, which is less than in the last two years, but still over 2 million units more than in 2006 or any year before that.

We mention these car statistics to caution against getting too negative by what is happening in the US and Europe. While consumers in the West are facing severe problems, there is another world out there that is slowly but surely filling the void. And what we are seeing in the case of automobiles may to some extent hold true for textiles as well.

So where do we go from here? Even though we closed at the same level as a week ago, we have learned this week that the market is well supported and able to withstand pressure from outside markets. Although the futures market still appears to be overvalued compared to physical prices, this week's price action leads us to believe that speculators may be able to push the market through nearby resistance over the next few sessions. A friendly USDA report tomorrow could serve as the catalyst to do so. However, even if such a breakout were to occur, we don't think that the market would run very far to the upside and instead it may simply settle into a somewhat higher trading range.

Plexus Cotton Limited


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