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May 2008 Archives

May 1, 2008

Credit Crisis Clearing?

Dow – Dow futures are slightly higher in overnight trading on positive credit market comments from Hank Paulson and the Bank of England. The U.S. Treasury Secretary suggested that the credit crisis was “closer to the end” and indicated that the economy is still growing at a very modest pace, backed up by yesterday's 0.6 percent advanced GDP figure. The BOE repeated the assessment that the worst may have passed, noting that appetite for risk and confidence will eventually make their way back into the credit markets. England's central bank also pointed out that balance sheet losses may be overstated due to “large discounts for illiquidity and uncertainty." Stock indexes have made decent progress of late, while fixed income and commodity markets – aside from energies and grains – seem to have faltered, suggesting that capital is returning to the equity market. Yesterday's FOMC statement was fairly neutral for the market. The quarter point rate cut was exactly what the market was expecting and the statement signaled the end of rate cuts, but was not as hawkish as many had expected. The June Mini Dow continues to trade above resistance at 12,770, signaling that the market may be beginning an up-trend. Price action is very sluggish and momentum is relatively flat, hinting that the market may labor in moving higher. Support comes in at 12725, 12642 and 12500, while resistance can be found at 12949, 13090 and 13173.

Crude Oil – The Oil market is trading lower this morning on a stronger U.S. Dollar. Exxon is resuming talks with Petroleum & Natural Gas Senior Staff Association of Nigeria in hopes of ending a weeklong strike that has cut over 800,000 barrels a day in production. Yesterday's EIA data suggests the U.S. is well supplied with Crude Oil, but Gasoline supplies remain uncertain ahead of the busy summer driving season. The FOMC statement was not as bearish for Oil prices as many had expected, with the Fed failing to emphasize inflation. Nonetheless, the central bank looks like it will at least take a break from its rate-cutting cycle, which may hurt demand. June Crude offered further confirmation of a short-term reversal from a spinning top formation. Yesterday's close below the 18-day moving average indicates that a near-term high may be in place. Momentum seems to be rebounding slightly this morning, despite the bearish price action, which can be seen as somewhat positive. Support comes in at 112.27, 111.09 and 108.87, while resistance can be found at 115.67, 117.89 and 119.07.

Dollar Index – The Dollar Index is trading higher this morning, aided by beliefs that the Fed may be done cutting rates. The June Dollar failed to get a lift from the FOMC statement yesterday, as currency traders were looking for a heavier emphasis on inflation. With the recent rebound in the stock market and a credit crisis seemingly nearing its end, the U.S. may receive an infusion of overseas funds to help support prices. The daily June Dollar chart is consolidating after rebounding from contract lows, suggesting prices may have more upside potential. The crossover of the 9- and 18-day moving averages to the upside is a positive development, and the contract is currently trading above the 50-day moving average – solid advances beyond the average may signal a reversal of the downtrend. Aiding the bullish technical sentiment, momentum is showing bullish divergence from RSI and remains above the zero line. Support comes in at 72.49, 72.26 and 71.86, while resistance can be found at 73.12, 73.53 and 73.75.

Rob Kurzatkowski, Commodity Analyst

May 6, 2008

Barreling Upward

Crude Oil – Oil futures jumped to new all-time highs yesterday, closing just below $120 per barrel. The ISM Non-Manufacturing Index grew for the first time this year, registering a 52.0 reading. The surprise jump in the service sector fueled speculation that U.S. petroleum demand will increase, countering previous downbeat demand assessments. Nigerian rebels attacked and damaged a Royal Dutch Shell flow-station, which has cut output to the tune of 170,000 barrels a day. Also on the geopolitical front, Iran rejected possible incentives to halt its nuclear program and has remained defiant in the face of global pressure. Both of these situations will remain on traders' minds in the coming days and weeks, which could continue pushing Oil prices higher. June Crude Oil remains bullish on the daily chart, but the market must keep rallying to new highs to avoid a possible reversal pattern. Momentum is lagging behind price action, suggesting the market may be vulnerable to selling pressure. Support comes in at 117.23, 448.48 and 112.92, while resistance can be found at 121.54, 123.10 and 125.85.

Gold – Gold futures rallied sharply on higher Crude Oil prices and a weaker U.S. Dollar. The ISM report also opens the door for the possibility of higher inflation, given the rosier outlook on the U.S. economy and prolonged weakness in the Dollar. Additional rallies in the stock market may continue to weigh on Gold's appeal as an alternative investment vehicle, but brisker economic growth could make the yellow metal more appealing as a hedge to inflation. June Gold remains in a bearish continuation pattern on the daily chart, but rallies beyond the 890 mark could signal that a reversal may be in the works. Momentum has remained relatively flat despite yesterday's sharp rally and follow-through buying this morning, suggesting ample downside pressures remain. Support comes in at 863.20, 852.30 and 845.90, while resistance can be found at 880.50, 886.90 and 897.80.

Rob Kurzatkowski, Commodity Analyst

May 7, 2008

Greenback Attack

Gold – Gold futures have failed to keep up with the booming energy market, dropping sharply in overnight trading on a stronger U.S. Dollar. Gold bulls were hoping that today's Akshaya Tritiya festival – a day when Hindus traditionally purchase precious metals – would help fuel demand for the yellow metal. Indian imports of the metal have fallen for seven straight months, fueling speculation that the recent downtrend in Gold prices may fuel cash market buying. With little evidence to this point that Indian demand has increased enough to impact prices, traders have once again shifted their focus toward inflation and exchange rates. Kansas City Federal Reserve President Thomas Hoenig suggested that the central bank may be forced to increase interest rates to combat inflation, a statement that promptly sent the Dollar higher and precious metals sharply lower. June Gold rejected resistance at the 890 level yesterday and in early trading, which can be seen as bearish in the near term. Prices may have to cross this technical threshold before the technical bias favors the bull camp. Momentum is showing bearish divergence from the RSI indicator, suggesting the market may have a difficult time gaining upward traction. Support comes in at 872.00, 866.40 and 860.10, while resistance can be found at 883.90, 890.20 and 895.80.

Corn – Corn prices are higher in overnight trading on higher energy prices. The rising cost of Crude Oil and improved outlook for gasoline demand has fueled speculation the demand for ethanol will rise. The delayed plantings in the U.S. have also supported prices, as only 27 percent of the U.S. crop has made its way into the ground versus 45 percent a year earlier. The low seedings figure may impact yields and trim output even more than previously thought. Nonetheless, longer-term risks to price remain, with the EU expected to increase production of Corn, Wheat and Barley and the Fed suddenly shifting to a hawkish policy. If the U.S. currency's exchange rate appreciates, it could impact export demand. The December Corn chart remains in an uptrend, but failure to establish new contract highs on bullish news may cause some traders to become disenchanted. Momentum is showing bullish divergence from the RSI, underscoring the fact that the market is still technically vulnerable. Support comes in at 612.25, 601.25 and 588.25, while resistance can be found at 636.25, 649.25 and 660.25.

Dollar Index – KC Fed President Hoenig's remarks about inflation and Fed policy helped drive the greenback's rally. His talking points reflect a similar outlook to many private sector economists, suggesting that inflation is not a temporary risk to the economy. Emerging giants China, Russia and India are building infrastructure at a rapid pace and people's food tastes in these nations has shifted to include more meat, which requires higher grain usage. At the same time, fuel costs are rising at the quickest pace in some time. This trend is not likely to shift and in all likelihood will only get stronger, leaving the Fed with only one option – strengthening the U.S. Dollar. Simply raising interest rates is not the answer, as it would only bolster the greenback to a certain degree. Current U.S. account deficits show that the economy is still consuming far more than it is producing, an issue which must be addressed if we are going to return to a “strong Dollar” policy, similar to that of the Clinton administration. The speech by Hoenig is a step in the right direction, but the Fed will need to take steps to shore up confidence in the battered currency. The June Dollar's close above resistance at 73.105 can be viewed in a positive light, but the market may need to rally beyond the relative high of 73.90 before stronger buying pressure steps in. Momentum continues to show bullish divergence from the RSI, suggesting the market may test the 73.90 high. Support comes in at 72.88, 72.59 and 72.28, while resistance can be found at 73.48, 73.79 and 74.08.

Rob Kurzatkowski, Commodity Analyst

May 14, 2008

Under Pressure

Crude Oil – Oil futures have given back some of yesterday's gains on expectations that today's EIA number will show builds across the board. Crude Oil inventories are expected to climb by 2.5 million barrels, while gasoline and distillate inventories are expected to show builds of 1 million barrels each. Geopolitical events have been the wild card of late, sparking rallies despite the fact that the U.S. has been stockpiling petroleum. Traders are also concerned that global diesel demand may outstrip supplies due to high demand from Asia and South America. The U.S. Dollar has not been much of a factor in recent trading sessions, holding relatively steady against the majors, but a sharp move either way could bring it into play once again. June Crude Oil remains technically positive, forming a bullish consolidation pattern on the chart. Sell-offs below the $120 a barrel mark may be needed to spark heavy selling. Momentum is sharply lower despite yesterday's rally, suggesting the market may be vulnerable the selling pressure. Support comes in at 123.61, 121.41 and 119.73, while resistance can be found at 127.49, 129.17 and 131.37.

Gold – Precious metal prices have not been able to benefit from the rise in energy prices to mount sustained rallies. The Dollar has made strong gains against the Euro in recent weeks, diminishing the value of Gold as a hedge against the weak greenback. The Fed, ECB and BOE have been talking up inflation in recent weeks, suggesting they may soon be taking steps to curb rising prices in their respective jurisdictions. Today's CPI report is expected to show inflation holding steady, with an upside surprise likely to be negative for precious metal prices, as it would hint toward further action by the Fed. June Gold remains technically weak on the chart, failing to rally above the $900 mark. Yesterday's slide triggered a downside breakout from a pennant on the chart, suggesting more downside may be in the cards. Momentum has dropped at an even faster pace than price and RSI, seemingly backing up the bearish chart pattern. Support comes in at 858.30, 846.90 and 832.50, while resistance can be found at 884.10, 898.50 and 909.90.

Euro – The Euro continues to lose ground on the U.S. Dollar, much to the liking of many EU officials. Financial ministers in several member states have viewed the strong Euro as a barrier to growth, sparking inflation and making the union's exports less competitive. While the ECB held rates steady at their last meeting, many analysts are still somewhat biased toward a rate cut in the future, while the Fed is expected, at the very least, to keep rates steady. Technically, the June Euro chart has been eerily similar to the Gold chart in recent weeks, with the market forming a bearish consolidation pattern. Unlike Gold, this pattern has not been validated, but momentum has taken a sharp turn lower, suggesting a larger breakdown may be in the works. Support comes in at 1.5392, 1.5330 and 1.5255, while resistance can be found at 1.5529, 1.5604 and 1.5666.

Rob Kurzatkowski, Commodity Analyst