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Since opening December at $682, palladium prices have made a nice run closing last week at $738. Part of this was due to a massive increase in speculative long positions in the futures market on the Fed's announcement of additional stimulus measures last month.

Following the U.S. "fiscal cliff" deal, palladium rebounded strongly at the start of 2013 (along with platinum), rising to $711 on 2nd January, a level last seen in March of 2012. However, it has since consolidated and spiked to over $750 only to pull back to the $730 level on some recent weakness. Much of this weakness was attributed to falling platinum prices (pulled back along with gold), after the Federal Reserve suggested that its quantitative easing program could end sooner than expected.

Palladium's fundamentals can be quite attractive even when its price is on a downward track. Though palladium is a precious metal, it tends to trade differently than its peers, which include gold and silver. Those metals are commonly targeted and monitored for their safe haven appeal and may perform well even in bleak economic conditions. Palladium, which is considered a cyclical commodity, is not generally sought for protection. It tends to perform best when there is a prevalent appetite for risk. During times of economic turmoil or uncertainty, when investors are de-risking, it is common to find palladium prices caught up in the same negative sentiment - thus prices fall and ETF holdings decline.

With regard to the forecast, many (including myself) expect palladium prices to move steadily higher over the next few months and beyond. Given the metal's recent strength, I believe palladium is set to gain some momentum and traction-- mainly due to rising demand and a continued supply deficit. Furthermore, palladium was overlooked for much of 2012 but many believe investors will find the metal more attractive this year and investment demand is therefore expected to be an additional source of support for the market.

Subject to any further developments on the platinum supply side, I would not be surprised to see palladium challenging the $765 level over the next 60 days. Despite the usual profit-taking and the potential of lower platinum prices in March, I still expect palladium prices to maintain an upward trend. Strong support should come from the metal's positive fundamentals due to the expected substantial underlying deficit for the seventh consecutive.

Furthermore, palladium should be able to take advantage of the growth in global auto sales as global car sales exceeded 80 million for the first time ever in 2012 and are expected to surpass that number in 2013. With a robust recovery in the North American auto sector and a continuation of a solid increase in the auto sector in China, prospects for automotive demand for palladium remain favorable. According to the China Association of Automobile Manufacturers (CAAM)，China's auto production was 1,964,500 units in January, an increase of 10.06% compared with December, and up 51.17% compared with the same period of last year.

One company that may benefit from the anticipated increased demand for palladium is U.S.-based Stillwater Mining (SWC). As stated earlier, gold and silver get all the attention in the precious-metals world, yet platinum and palladium are far scarcer, and SWC is the only U.S. source for platinum-group metals. Stillwater Mining claims to be largest palladium producer outside of Russia and South Africa. One of the key factors of Stillwater's success may be tied directly to the strong demand for its metals. That, in turn, relies largely on the health of the global auto industry, which uses platinum and palladium in catalytic converters.

Furthermore, Stillwater Mining should benefit from mine shutdowns in South Africa by Anglo American Platinum (AAUKY) as the company stated in January that it will cut output by 400,000 ounces, and since then platinum and palladium prices have soared so far in 2013.

Currently trading at just below $13, Stillwater offers some great upside potential as the company hit almost $24 just 18 months ago and has been on a steady upward climb from the $8 level last September. A 50% retracement would offer a $16 price from a technical perspective.

The FT’s Alphaville has an interesting article entitled A dollar bully. It’s about UBS analyst George Magnus, who sees a burgeoning US dollar bull market, slowing emerging market growth and warns about the end of the commodity cycle.

He also draws an interesting parallel between times of USD strength and financial instability.

USDCAD is at the highest since June and AUDUSD at the lowest since October.

Strong AUDUSD bids ahead of 1.0200 and stops below. The correlations have clearly changed. Strength in the US economy is attracting investment and hurting commodities.

Some substantial technical damage on the NZDUSD chart today, breaking both a minor and major uptrend.

The kiwi is easily the worst performer today.

It seems every time there is a jump or a fall, there is a monster on the other side of the the market waiting to jump in. Gold up $14 now to $1607 after falling to a session low of $1585 thirty minutes ago.

Bernanke is taking questions now but his answers can’t be interpreted one way or the other.

Goldman cut its 2013 and 2014 gold forecasts earlier today. They see gold at $1600 in 2013 vs $1810 previously.

USD/JPY fell through bids at 91.20 as Bernanke offers no hint that he’s in any hurry to taper asset purchases.

There is strong demand at 90.05/00 with stops below. More demand, albeit smaller, is seen ahead of yesterday’s low of 90.86 and extending down to 90.75.

Looking at the entirety of the USD/JPY move since mid-November, it has been long overdue for a correction. It appears to be breaking out to the upside after the appointment of Kuroda but there has been a massive reversal. From a purely technical perspective, you have to be wary of correction toward 90.00/88.00.

The dollar closed out an astounding week, but can the currency transition its impressive rally into a lasting bull trend? This coming week may very well determine the medium-term ambitions of the world’s most liquid currency. Before looking ahead, it is important to tally the currency’s score up until this point. Through Friday’s close, the Dow Jones FXCM Dollar Index (ticker = USDollar) actualy suffered its worst one-day tumble in a month. However, the cumulative strength for the currency would still offer the highest weekly close for the benchmark since September of 2010. Furthermore, a greater legitimacy was given to the dollar’s underlying strength as EURUSD finally capitulated in its biggest drop (2.0 percent through the past week) since before current bull phase began back in late July.

Yet, as important a pair as EURUSD is, it cannot be the sole source of sustained dollar strength. In fact, the two largest individual contributors to its impressive performance over the past week and months are at considerable risk of withdrawing their self-sacrificing support. For the most liquid of currency pairs, the euro has suffered a significant setback this past week as the market fretted the European Central Bank (ECB) would join the movement to devalue its currency in order to remain competitive in a manipulated world. Central Bank President Draghi did mention the currency, but he is far from reversing the trend of a shrinking balance sheet. If FX traders recognize this, it could quickly revive the euro’s relative appeal – as the Federal Reserve has no intention of easing back from its $85 billion-per-month stimulus effort.

Far more crucial to the dollar’s performance over the past months, though, is the contribution made by USDJPY. Here too, the appeal is a competitive devaluation of the yen that bolsters the dollar’s appeal. We know Japanese officials’ intentions are resolute, but the currency has dropped substantially without tangible movement on easing – only threats. Should carry traders (who short the yen for the yield advantage in counterparts) recognize this, the USDJPY carries a considerable proportion of the dollar’s strength.

So, looking ahead, it seems that the dollar’s future is in the hands of its largest counterparts. Yet, there is a way that it can define its own fundamental fate and genuinely advance against most major counterparts: a meaningful drop in risk trends. Whether the catalyst is European GDP figures, the G30 growth forecasts, sequester fears or G20 currency war threats; it wouldn’t take much to ignite such dry tinder.

Euro Bull Trend May Survive Draghi, Heavy Event Risk Ahead

There was little mistaking the euro’s weakness this past week. Through the final trading session, the shared currency dropped against most counterparts; and the losses on the week ranged between 1.0 and 2.8 percent against its various pairings. That said, this wide-spread selling may prove temporary if the currency can keep its head above fundamental water. Critical is the market’s assumption of where the euro stands in the spectrum of the currency war. ECB President Draghi’s remark that a high currency can spill over to the central bank’s inflation and growth mandates, he didn’t spell out a threat to cut rates or link it to fresh stimulus. For tangible efforts, this is a very bullish-euro factor.

The more unpredictable risk to the euro moving forward is the short and medium-term impact that the scheduled docket holds. It seems the market conveniently ignores the fact that the Eurozone is in a recession, but we will certainly be reminded of this reality with the release of 4Q GDP figures from the Eurozone, Greece, German, et al. Another dredged up threat to the currency may come in the form of fear of a returning financial crisis. Finance Ministers are set to discuss Cyprus’ bailout, Greece’s progress and bank bailouts at the start of the week.

Japanese Yen: USDJPY Ends Longest Rally on Record, Now for a Turn?It had to end eventually. USDJPY’s epic 12-week long rally – the longest advance for the pair on record since the Gold Standard was dropped – finally came to an end with Friday’s close. That said, the 9-pip decline week-over-week is hardly an ambitious reversal. Momentum can build with the right encouragement however. At the center of the yen’s weakness is the fear of massive devaluation. This is certainly reasonable concern, but it has also moved well before the effort is realized. With Japan easing back before the G20, we may see traders follow suit.

British Pound Rally this Past Week a Relief Move, Not Permanent

The sterling put in for a monster performance through the end of this past week. In fact, the two-day rally for the pound against the dollar was the biggest this year; and versus the euro and loonie, the sharpest since November 1, 2011. This move began with an unwinding of stimulus expectations and then was parlayed into Prime Minister Cameron’s win at the EU budget. The problem: these aren’t lasting drivers…

Canadian Dollar Plunges after Employment Data

Between a significant miss in the labor data and an unexpected plunge in the housing sector, the Canadian dollar was hammered through Friday. January housing starts posted the biggest drop since April 2009 to the slowest pace since July of the same year. As for jobs, the 21,900-position drop in employment was the biggest in six months; and the downtick in unemployment comes from a drop in participation.

Australian Dollar Eying 1.0200 as Risk Trends Flutter

It’s telling of underlying risk trends when benchmark US equity indexes are closing at five-year highs, but the high-yield Australian dollar fades lower against most counterparts. AUDUSD is down 2.6 percent on the month, and a more serious break lower is dangerously close. Some of this may be due to repatriated ‘safe haven flows’ but if the traditional risk measures (shares) break lower, we will have a new driver: risk.