Heating Oil Cools Down
Heating Oil – Heating Oil futures followed Crude Oil lower on the strengthening U.S. Dollar and economic uncertainty after a disappointing U.S. housing report. Turkey withdrew troops from northern Iraq after a brief incursion, which also helped spark the late sell-off. Weather models are forecasting warmer-than-average temperatures over the next month, which should keep demand for Heating Oil soft, but inventories at the lower range of seasonal averages have been more than enough to offset the weak demand. Today's inventory figures are expected to show a drawdown of 400,000 barrels of distillates. January Heating Oil has found support at the 2.54 mark in early trading, but the market has fallen below both the 9- and 18-day moving averages, which suggests a negative near-term bias. The close below the 18-day may be more significant, as it could indicate that a near-term high is in place. Momentum is beginning to fall at a brisker pace than the RSI, offering further evidence of a negative predisposition. Support comes in at 2.5100 and 2.4450, while resistance can be found at 2.5915 and 2.6700.
Wheat – Wheat futures dropped a day after climbing to record highs on a rebounding greenback and falling energy prices. Global stocks remain at the lowest levels in over thirty years, but recent rains across the winter Wheat-growing regions may improve crop conditions, a possibility which helped trigger a late sell-off. The rebound in the U.S. Dollar also adversely affected the grain markets, as did the drop in the petroleum sector, which led to widespread weakness in commodity prices. Early weather models are suggesting another dry year across much of the summer growing region in 2008, which may offset some the high planting projections. Much of the selling pressure seen over the past two days can be attributed to profit-taking and the generally overbought conditions in the market. March Wheat failed to establish support at 960, leading to a short-term negative technical bias. Momentum has moved lower over the last two trading sessions, but remains robust. Support comes in at 940 and 911, while resistance can be found at 980 and contract highs of 1009.50.
Ten-Year Notes – Fixed income futures got a boost from the weak housing figures, as traders hoped the data would force the Fed's hand in lowering rates. The rebound the market has seen over the past three trading sessions may be a bit of an aberration, as further rate cuts would be needed to support higher prices. The treasury markets have not experienced the “flight to quality” effect that we have seen in the past due to overseas investors' reluctance to acquire debt instruments until the Dollar shows more stability. There is also no indication that the Fed will abandon its new plan to inject liquidity into the banking sector directly, instead of via the broader market. Steep declines in the equity markets and commodity weakness may bring buyers back to the market. March Notes saw a reversal pattern develop as a result of Monday's trade, but what remains to be seen is whether this is a longer-term recovery. Despite the market trading higher for the third straight day, momentum is falling, suggesting a negative near-term outlook. Support comes in at 112-04.50 and 111-23.50, while resistance can be found at 113-05.50 and 113-29.
Rob Kurzatkowski, Commodity Analyst
