Hot Chocolate
Cocoa – Cocoa prices jumped sharply on news that black pod disease is spreading, and many farmers may not be able to contain the outbreak because the government agency that would normally provide financial assistance has had its funds frozen. World Cocoa output is expected to easily surpass demand by around 100,000 metric tons, provided the outbreak does not worsen beyond expectations. If the fungus problem becomes more widespread, the chances of a smaller crop of low quality increase significantly. It will be interesting to see if large Cocoa users such as chocolate makers react by purchasing current stocks to offset the possibility of higher prices in the future. December Cocoa confirmed a double bottom on the daily chart on Friday, which measures an upside move to 1980. The market is a bit overbought at the moment and is heading toward resistance at 2000, which could slow down further advances. Momentum remains strong, but is starting to lag behind both price and RSI. Support comes in at 1915 and 1890, while resistance can be found at 1980 and 2000.
Wheat – Wheat finished close to limit-up in the front month December contract on expectations that exports will remain strong. There is also a consensus building among traders that Australia will once again downsize its crop due to the severe drought there. Wheat is sharply lower this morning on a broad sell-off in commodities, with traders now thinking that yesterday’s rally was overdone. The recent run-up in energy prices has driven freight prices to new highs, which may curtail imports. The current winter Wheat crop is sprouting well ahead of schedule, but reports from southern Kansas and parts of Texas suggest planting may be behind in these states due to heavy and no rains, respectively. December Wheat remains bearish on the daily chart, and a close above 855 may be needed to swing short-term technicals higher. Momentum is showing some bullish divergence from RSI, suggesting some short-term firming or even strength. Support comes in at 790.25 and 760.50, while resistance can be found at 855 and 880.
Australian Dollar – The Aussie rallied to 23-year highs on overall Dollar weakness and strong commodity prices. The USD finished weaker against all of the majors except the Yen on expectations that the Fed will lower rates on Wednesday. Australia’s economy relies heavily on exports of raw materials – namely industrial metals – so the broad commodity rally was certainly a driving force for the Aussie. The December Aussie did give back a good chunk of early gains on the late-day Copper sell-off. High interest rates may keep the Aussie attractive going forward, but commodity liquidations and technically overbought levels may make hamper further advances. The December contract had a weak close, forming a bearish gravestone doji pattern on the daily chart. Momentum is showing bearish divergence from the RSI and price action which, in addition to the bearish chart pattern and overbought levels, suggests a negative short-term bias. Support comes in at .9050 and .8800, while resistance can be found at yesterday’s intraday highs of .9246.
Rob Kurzatkowski, Commodity Analyst
