Crude Lingering Around 110, Gold Hits 1,000
Crude Oil – Crude Oil jumped to $110 a barrel yesterday despite the weekly EIA inventory report showing a much larger build than expected. The Oil market has been driven primarily by the freefall in the greenback, which is now trading at 12-year lows against the Yen and all-time lows against the Euro. Fresh overseas money seems to be coming in daily to take advantage of the battered currency, with the bulk of overseas traders establishing long positions. This is the driving factor behind Crude's recent detachment from supply and demand fundamentals. The market does appear to be a bit top heavy, which could make it vulnerable to profit-taking, especially if the dollar manages to find some near-term footing. The April Crude chart remains bullish, but the angle of the up move has steepened sharply, which could be a harbinger of a near-term correction. The RSI is overbought, as are the stochastics, suggesting near-term vulnerability remains. The question for the market now is whether new shorts will attempt to test the waters after getting burned so many times before. Support comes in at 107.94, 105.96 and 104.83, while resistance can be found at 111.05, 112.18 and 114.16.
Gold – The sharp decline in the U.S. Dollar relative to the major currencies has sparked a fresh wave of buying in Gold. The April contract traded at $1,000 an ounce, which remains the high of the session to this point. The historic levels in Crude and now Gold have offered strong outside support to other commodity markets, which could spark a new round of margin calls among shorts. This may force shorts out of the market, further fueling the solid buying the market has seen. If the April contract is able to hold current levels, it would signal a new breakout on the chart, which could be especially strong if we are able to close above the key psychological $1,000 mark. Momentum is outpacing the RSI indicator, suggesting further strengthening. Support comes in at 966.30, 952.20 and 934.80, while resistance can be found at 1015.10 and 1029.30.
Cocoa – Warehouse workers in the Ivory Coast extended a strike for increased pay and better working conditions, sparking a wave of buying. A weakening Dollar, along with the short squeeze, has exacerbated the buying situation. Shorts now appear to be moving to the sidelines for the time being, leaving no resistance for buyers. Commercial short hedges in the softs markets have been discouraged by the wild price action since the ICE’s move to electronic trading. Many short hedgers have either moved into the options market to avoid margin calls or simply left themselves un-hedged for the time being, leaving futures trading to the speculators. The May contract may be signaling a breakout if we are able to sustain current levels. Today’s early move has driven prices beyond the 2845 resistance area. Support comes in at 2714, 2656 and 2561, while resistance can be found at 2961 and 3020.
Rob Kurzatkowski, Commodity Analyst
