The increase in silver margin requirements by the CME exchange has had a knock effect across other metals and commodities as many traders either hit the big red sell button or have shorted the market to cover themselves.  This has caused a mild bit of panic selling across the indices and as mentioned there’s nothing that one can really pin the blame on for the falls, such as a major geopolitical catastrophe or financial crisis. Ok so the data out this week so far hasn’t exactly covered itself in glory with disappointing PMI numbers across the board, but again this is hardly enough to warrant such a retracement.

So this morning equity markets are seeing little interest from the bargain hunters as they commence the day on a flat footing with the FTSE around 5910.  Clients have been tentatively buying into the FTSE but not to the same extent that we’ve seen in the past following similar falls, so maybe this time round they think things have further to go.

Today’s major focus is the non farm payroll data from the US.  The big figure is expected to come in at around 185-95k so it would seem that to stop the rot of this little sell off investors will want to see a much better than expected number.  There’s no question now that the recovery in the US labour market is well established, but now the test is whether it can be maintained.  The robust manufacturing sector, assisted by an ever falling dollar is one of the main contributors to the strength in job creation and the more the dollar falls, the more US manufactures will rub their hands.  The overall unemployment rate is expected to remain below the 9% mark at 8.8%.

The US dollar benefited once again for the risk aversion across currency markets.  The Aussie dollar in particular has had it tough in the last three trading sessions feeling the brunt of the commodity sell off.  Often falling such falls the Aussie has subsequently drifted sideways for some time so we could well see a consolidation with the major resistance level of 1.1000 remaining in tact.  This morning AUD/USD is seeing a decent bounce taking it back to 1.0700.  The pair is still capped by a downward trend line so needs to get back above 1.0750 to break the recent weakness and in the near term resistance and support levels are 1.0795/830 and 1.0600/525 respectively.

The euro also saw significant weakness following Trichet’s more dovish comments following the ECB rate decision.  This is the problem with laying your cards on the table as they did yesterday and before when they hiked last month.  Trichet’s openness can lead to the sort of volatility we saw in the moves by the euro yesterday, whereas the cloak and dagger approach from the BOE always keeps the markets second guessing and hence the moves have been less pronounced in particular for cable.  EUR/USD shed nearly 2% yesterday and is at 1.4550 this morning.  Near term resistance and support are seen at 1.4715/60 and 1.4455/15 respectively.

As the greenback made hay the dollar index jumped over one percent from its lows, back above the 74.000 level.  The last time we saw a similar jump was in the middle of April and it was followed by another sharp sell off for the dollar, but this time round people are wondering whether it’s actually time to get back into the greenback.  With QE2 set to end next month there could be a severe squeeze on the dollar bears and may be quite a prolonged bout of strength, but for now the trend is still very much down.

Gold suffered big losses taking the precious metal back below 1500 but the story of the day has once again been silver which recorded another double digit percentage decline.  Selling was rife across all commodities and Brent crude too saw unprecedented weakness.

This morning the commodity markets are mixed with Brent continuing to head lower but gold is a bit higher.  Silver is just lower so far after suffering its biggest one day loss since 1980.  This indicates that silver is stuffed full of more speculative cash than gold so for many gold is seen as the safer option.