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
