As major currencies were almost flat this morning, commodities continued to extend their losses since investors are shifting their investments from the physical resource markets to cash, as their optimism about the global economic recovery was tempered. Volatility was wide on Thursday as investors are avoiding risk since China is believed to tighten its monetary policy even more to dampen inflation, increasing uncertainties across financial markets, which determined investors to react rapidly to any possible fall in demand on commodities. As worries about the rising inflation reignited, commodities continued to slump today. The precious metal is trading as of this writing around the $1490.00 per ounce, while crude oil fell below the $100 level to the lowest today at $96.50 per barrel, especially after the rise in oil inventories in the U.S. yesterday. For a while there is a debate about the commodities prices, which are believed to be overvalued and do not reflect actual demand, yet speculations kept their trend upward, as some investors used them as a hedge against inflation, while others made profits since other assets were flat. The European credit crisis continues to weigh on the euro which fell yesterday below the 1.4200 level, and is trading at those same levels since this morning with additional downside pressures as the economy released a weaker than expected industrial production report. The pound is extending even faster yesterday's losses after the economy released today a weaker than expected industrial production report. Today ECB released its monthly bulletin through which confirmed it will continue to monitor “very closely” the developments and the upside risks to inflation. The dollar index was volatile this week, yet since yesterday it is extending its gains as its momentum continues to be positive because of widening risk aversion and the questions surrounding the euro. The U.S. will release today its weekly jobless claims along with the PPI index and the retails sales for April. China Tightening, Falling Commodities, and Worse than Expected U.S. ... The gloomy picture in global financial markets continued on Thursday, where investors continued to target low yielding assets as commodities, stocks, and major currencies dropped. The pessimism was caused by several factors including China’s decision to raise the reserve requirements for banks, in addition to falling commodity prices amid the dollar’s weakness, worse than expected financial results from Cisco System, and worse than expected data from the United States, all contributed in spreading a huge wave of pessimism that dominated global financial markets. Prices pressures seem to have started to build up in the United States, where the producer price index for the month of April showed that prices pressures continued to rise amid rising food and energy prices. Moreover, retail sales were also weighed down by rising food and energy prices, where retail sales rose in April also below expectations. Stocks in the United States retreated at opening on Thursday, where the Dow Jones Industrial Average was down by nearly 0.60% to trade around 12,550, while the S&P 500 index was also lower by nearly 0.70% to trade around 1,333. European stock indexes were also lower before closing on Thursday, where FTSE 100 was down by nearly 0.85% trading at 5925 and the DAX was also lower by nearly 1.30% to trade around 7395. The U.S. dollar rose against a basket of major currencies on Thursday, where the U.S. dollar index was trading at 75.47, compared with the opening level at 75.23. The Euro dropped slightly against the Dollar, where the EUR/USD pair traded at $1.4197, compared with the opening level at $1.4207, and the British Pound was also lower against the dollar, where the GBP/USD pair traded at $1.6278, up from the opening level at $1.6365. Gold prices dropped for a second day on Thursday, where gold traded around $1495 an ounce, and crude oil prices also extended their drop for a second day, well below $100 a barrel, where the rising value of the U.S. dollar pushed crude oil prices to trade near $96 a barrel.

Source