Fundamentals

Stock index futures are lower once again this morning, as the feel-good atmosphere surrounding the US and global economies continues to give way to an aura of uncertainty. News that China's manufacturing grew at a slower pace than expected set the tone for the markets overnight. The downgrade of Spain's government debt has also set a negative tone for the market, despite the expectations of many observers that this likely would happen. Some traders also remain extremely skeptical of the ECB tender because it does not solve the fundamental problem facing Europe, which is rampant government overspending. Some traders are looking at the parallels between the problems facing Europe and our current situation in the States. The government has spent well above its means to stimulate the economy, which has only provided a sugar high, and now the nation is saddled with a mountain of debt not seen since World War II. The public sector has contributed in adding jobs during the recovery from the financial shock of 2008, but it is unlikely to keep creating jobs at its current pace. Consumers could be extremely tight with their pocketbooks in this type of environment, making times difficult for retailers and manufacturers. The first week of the month brings with it the trifecta of employment data.. Yesterday's ADP number showed far fewer jobs created that analysts had expected, setting the bar low for today's initial and continuing claims numbers and tomorrow's non-farm payroll number. Barring a positive surprise, the markets could find it difficult to gain traction.

Trading Ideas

The idea that the economy may not be as healthy as many had hoped has been in the back of traders' minds for quite some time. Now, some fundamental flaws have been pushed to the forefront. Even the President and Vice President have recently conceded that job growth is not at a level that they would like to see. The breakdown on the chart will likely add market technicians to the list of skeptics. Some traders may wish to consider employing a bearish strategy, such as a bear put spread -- for example, buying the August E-mini S&P 1000 puts (ESQ01000P) and selling the August 975 puts (ESQ0975P) for a debit of 6.50, or $325. The trade risks its intial cost for a profit potential of $925 if the underlying September futures contract closes below 975 at expiration.

Technicals

Turning to the chart, we see the September E-mini S&P trading below fairly significant support at the 1050 level. This could be a sign that the market may be ready to test critical support at 1000. The 1000 level is not only a technical support level, but a key psychological mark akin to the Dow 10,000 level. Failure to hold here could be a sign that the market trend could turn down. In order to find some stability, the September contract would likely have to cross the 1050 or even 1100 levels. The downward crossover of the 50 and 100-day moving averages could be seen as a negative sign over the intermediate-term. The 14-day RSI has reached oversold levels. This, coupled with some bullish divergence between momentum and RSI, indicates the market may find some footing in the short-term.

Robert Kurzatkowski, Senior Commodity Analyst

Fundamentals

"The news of my demise has been greatly exaggerated." Borrowing this phrase from Mark Twain appropriately describes the bull market in U.S. Treasury bond futures. Since April of this year, lead month bond futures have rallied over 13 full points, as investors and traders moved into so called "safe haven" investments. The economic recovery seems to have hit a speed bump, as uncertainty over the sustainability of the Euro and weaker than expected U.S. economic data, as well as signs that the Chinese economy is beginning to slow have sparked fears of a potential "double-dip " global recession. Austerity plans involving higher taxes and spending cuts were the biggest announcements out of the recently held G20 meeting in Toronto, as European leaders attempt to rein in large government deficits. However, there are fears that this plan for "fiscal discipline" could be the "medicine that kills the patient," shutting down the economic recovery before it was strong enough to be sustained without the massive government stimulus that has been in place. In addition, the recently released Chinese PMI reading came in worse than expected, signaling to some that the "economic juggernaut" may finally show some signs of slowing economic growth. This report sent commodity prices falling -- especially base metals and energies -- as any signs of weakening demand from China is typically viewed as bearish for commodities in general. With traders' minds starting to drift towards a long holiday weekend in the U.S., focus must be kept for a few more hours, as we still have the release of the monthly Non-Farm Payrolls report for June this morning. Average analyst estimates are for June payrolls to contract by about 100,000 jobs, as temporary workers hired for the U.S. census are let go. However, some traders fear an even higher number of jobs lost may be announced, especially given the weaker than expected private sector jobs figures released by ADP this past Wednesday, as well as a larger than anticipated rise in jobless claims for the final week of June. So unless with get a "positive" surprise in the unemployment report, bond bulls will be reluctant to liquidate their long positions ahead of the Independence Day holiday.

Trading Ideas

With bond futures trading at their highest levels of the year, bulls are definitely in the driver's seat. However, technical traders will note the September futures are starting to look a bit over bought. Some traders who anticipate a large move for bond futures but are unsure as to in which direction the move will occur may choose to explore a trading strategy that would benefit from an increase in volatility or a big move in the underlying futures. One such strategy would be the purchase of a strangle in bond futures options. An example of such a trade would be buying the September bond 130 calls as well as buying the September bond 122 puts. With September bond futures trading at 127-26 as of this writing, this strangle could be purchased for about 3-20 points, or $3,312.50 per spread, not including commissions. The premium paid would be the maximum risk on the trade, with the trade profitable at option expiration in August should September bonds be trading above 133-10 or below 118-22.

Technicals

Looking at the daily continuation chart for bond futures, we notice the market break-out to the upside once prices moved out of the consolidation pattern formed in early June. Prices are now above the 20-day moving average, which looks to have triggered additional momentum buying. If there is one potentially bearish indicator, it is the bearish divergence forming in the 14-day RSI, as this indication has failed to make a new high reading despite September bonds trading at yearly highs. 129-00 looks to be the next resistance point for September bonds, with support found at the 20-day moving average, currently near the 124-24 area.

Mike Zarembski, Senior Commodity Analyst

Fundamentals

Coffee futures may have risen too much, too quickly for many traders' liking, which could make the commodity ripe for profit taking pressure. Whether or not the market will see sustained selling pressure is another matter. The primary force behind the sharp rise in prices has been the extremely tight supply situation and deliverable stocks continue to fall. Another market force behind the rally was panic short covering. This may have caused prices to rally a bit more than they would have otherwise, suggesting some longs may be content taking profits at current levels. The extremely bullish fundamentals may prevent new shorts from entering the market. For this reason, traders may wish to tread lightly if they decide to test the waters on the short side. Higher quality beans have been fetching attractive premiums, indicating the cash market and demand remain very strong.

Trading Ideas

Given the strong fundamentals and lack of some sort of topping signal, investors may wish to remain long the Coffee market. Traders wishing to be short the Coffee market may wish to employ some sort of put spread strategy. Shorting the futures contract could be haphazard and outright put premiums are a bit expensive at the moment. Even though the market may have rallied too quickly in many traders eyes, markets can remain irrational far longer than traders can remain solvent.

Technicals

Turning to the chart, the September contract shows no signs of topping at the moment. A close below the 160.00 level could change that. A violation of the 160.00 level could shake some freshly established longs out of the market and could stop others out. Despite the early weakness in the Coffee market this morning, the momentum indicator has not dropped to as great of a degree as prices and the RSI indicator, hinting at sustained strength.

Mike Zarembski, Senior Commodity Analyst

Fundamentals

After last week's rally attempt fizzled, lead month September Cocoa futures have once again become range bound, with prices hovering between 2900 and 3100 per ton the past several weeks. This is historically a quiet period for Cocoa, as traders await the fall harvest period in the West African growing regions. Growing conditions in the Ivory Coast, the world's largest Cocoa producing nation, have been good so far, despite recent heavy rains that have introduced some crop diseases, such as black pod disease, to some production areas. However, weather conditions are expected to improve this week, which should aid main-crop production. In addition, improving weather could help mid-crop movement in the Ivory Coast, which saw its exports down over 25% from year ago levels. There remains quite a bit of uncertainly regarding Cocoa demand later this year, especially out of Europe, as the uncertainty regarding the "debt crisis" as well as proposed "austerity" programs to address these issues could lead to curtailed demand for so-called "luxuries". The most recent Commitment of Traders report shows speculators still have a chocolate craving, with non-commercial and non-reportable traders holding a combined net-long position of 31,555 contracts as of June 29th. There is an old saying that "one should never sell a quiet market short," and those traders who follow the "softs" know these markets can move violently should a catalyst come into play. One look at a Coffee futures chart for this year should prove the merits to this old trader's verse. Although the Cocoa market is quiet now, traders should not become complacent, especially if we start to see the market move above or below its recent $200 plus trading range.

Trading Ideas

Some traders who expect cocoa futures prices will not remain in the relatively tight trading range for long may wish to consider exploring trading strategies that could benefit from a large move in either direction or a sharp increase in volatility. One such strategy would be buying strangles in Cocoa futures options. An example of this trade would be buying the December Cocoa 3200 calls and buying the December Cocoa 2800 puts. With December Cocoa futures trading at 2962 as of this writing, this strangle could be purchased for about 270 points, or $2700 per spread. The premium paid would be the maximum risk on the trade, and the position would be profitable at option expiration in November should December Cocoa be trading above 3470 or below 2530.

Technicals

Looking at the daily chart for September Cocoa futures, we notice the market moving into an ever narrower price consolidation starting at the beginning of May. The 20 and 100-day moving averages have converged right at the 3000 price level. The market settled on Tuesday right on the trend line drawn from the recent lows made on May 17th near the 2940 area. A close below this support level could set-up a test of psychological support near the 2900 area. Should this support level hold, the next major resistance area is seen at the top to the downtrend line drawn from the May 4th high near 3130.

Mike Zarembski, Senior Commodity Analyst

Fundamentals

Crude Oil futures rose sharply yesterday, propelled by the rally in stock prices and the API report indicating that inventories have fallen. Traders will now look to today's EIA report to see if the data in this report also shows a drawdown. Equity prices rose sharply on what appears to have been a short squeeze, coupled with optimistic retail sales figures. It looks as though stock and commodity bulls were waiting on some sort of positive data to justify a buying flurry. The IMF also improved their guidance for second half growth, indicating the lackluster demand for petroleum could draw down stocks further in the coming weeks and months. The 4th of July holiday weekend also gave Oil traders a bit of positive news, as demand seems to have been stronger than previously was expected according to Mastercard's SpendingPulse report. This recent data is a sharp contrast to the lackluster data coming in for the past month. Oil traders will now have to decide whether this uptick in demand is a sign of things to come or a temporary phenomenon.

Trading Ideas

The short-term fundamentals have taken a swing in favor of Oil bulls, but cooler heads may wish to see more data before they buy into a longer-term bullish mindset. Likewise, the chart is showing a short-term bullish reversal pattern, but prices may have to cross into the 80's before many are convinced that the market is indeed turning higher. For this reason, some traders may wish to enter a long futures contract on a close above the 80.00 level, with a protective stop at 78.50 and an upside objective of 84.00. The trade risks roughly $1,500 for a potential reward of roughly $4,000.

Technicals

Turning to the chart, we see the August Crude Oil futures formed a doji on Friday, followed by yesterday's large green candle. The can be seen as a short-term bullish reversal. Prices are approaching the 20 and 50-day moving averages. A close above the averages could provide some sustained momentum in the near term, while a failure to cross these averages can be seen as a technical defeat for bulls. The momentum indicator failed to keep pace with both price and RSI, hinting that the market may not be able to hold yesterday's gains.

Robert Kurzatkowski, Trading Specialist

Fundamentals

Wheat futures have awakened out of their slumber the past several sessions and staged a surprise contra-seasonal rally, as traders shifted their focus to the east and the condition of the crops in Europe and the Black Sea region. Parts of the Ukraine have been deluged with heavy rain, which has hampered the wheat harvest for this major grain exporter. Other parts of the region including Russia have suffered under dry conditions. Any signs of significant crop losses in this region could help U.S. Wheat exports, as a major competitor could be taken out of the market. Here in the U.S., traders are gearing-up for the USDA crop production and supply/demand report to be released at 7:30 am this morning. Many traders are looking for a modest increase of nearly 100 million bushels for "All Wheat" production to nearly 2.165 billion bushels. Also of interest to traders will be the USDA's estimate for U.S. Wheat exports, especially given the potential crop problems in Europe and Canada due to heavy rains. A look at the most recent Commitment of Traders report shows both large and small speculative accounts net-short Chicago soft-red winter wheat futures, with a combined net-short position of just over 63,000 contracts as of June 29th. Ironically, this was the day before wheat futures began the bullish run, when short-covering buying may have been the fuel for the steep run-up in prices that we have seen during the past several sessions. If true, the rally may begin to stall unless we start to see fresh buying coming into the market, as well as see speculators move to becoming net-long wheat futures, instead of just exiting out of losing short positions.

Trading Ideas

Chicago wheat futures have rallied nearly 90 cents per bushel since the end of June, as speculators got caught net-short the market when fears of lower than expected wheat production in Europe and Canada hit the market. The rush to cover short positions may have caused wheat prices to become inflated. Some traders expecting wheat prices to correct lower but who wish to limit the potential risk on the trade if the rally continues may wish to explore the purchase of put options on wheat futures. An example of this trade would be buying the September wheat 540 puts. With September wheat futures trading at 548.50 as of this writing, the September 540 puts could be purchased for about 23 cents, or $1,150, not including commissions. The premium paid would be the maximum risk on the trade, and the trade would be profitable at expiration in August if September wheat is trading below 517.00.

Technicals

Looking at the daily chart for September wheat, we notice that the upside breakout that began on June 30th occurred on very heavy volume. The up-move sent prices well above the 20-day moving average, which triggered not only buy stops by those caught short the market, but also fresh buying by momentum traders. The following day's surge above major resistance at 500.00, the 100-day moving average, and the downtrend line formed from the January 11th yearly highs confirmed the price breakout. The 14-day RSI has moved well into overbought territory, with a current reading of 78.14. The February 16th high of 552.00 looks to be the next resistance level for September wheat, with support seen at the 100-day moving average, currently near the 500.00 level.

Mike Zarembski Senior Commodity Analyst

Fundamentals

The "help wanted" signs were out in force in Canada last month, as June's employment report came in much better than had been forecast. Canadian employment rose by 93,200 jobs in June, which is nearly 5 times the pre-report estimate of approximately 20,000 jobs created. The large jobs increase followed a gain of 24,700 jobs in May and a record 108,700 jobs increase in April. The unemployment fell by 0.2% to 7.9%. The continued strong domestic employment picture has analysts looking for the Bank of Canada (BOC) to once again begin to raise interest rates. The previous rate hike occurred on June 1st when the BOC hiked its key lending rate by 0.25%. Traders now expect rates to move as high as 1.5 percent by the end of 2010, unless the shaky global economic recovery completely stalls out. The jobs report overshadowed a weaker than anticipated Canadian housing starts report for June, which came in at a seasonally adjusted annual pace of 189,300 units, down from the revised 195,300 units in May. The Canadian Dollar moved sharply higher vs. the U.S. Dollar after the employment report was released, as the expectation for higher interest rates in the near future put a bid into the "loonie". Also supportive to the Canadian Dollar was IMF's upward estimate for global GDP on Thursday, which came in 4.6% this year, vs. its previous estimate of 4.2%. The IMF expects Canada to be one of the leaders in economic growth among established nations, and recent economic data looks to confirm the IMF's beliefs. Since touching its yearly lows on May 25th at 0.9222, September Canadian Dollar futures have rallied over 600 pips before a recent test of the lows was halted near the 0.9360 level last week. Now that the up-trend once again appears in place, a test of the June highs near 0.9860 is not out of the question -- and neither is a potential move towards "par".

Trading Ideas

With the economic outlook looking bright for "our neighbors to the north", some traders looking to take a long position in the Canadian Dollar may want to explore bullish trading strategies using Canadian Dollar futures options. An example of such a trade would be purchasing a bull call spread. For example, a trader could buy a September Canadian Dollar 0.97 call and sell a September Canadian Dollar 1.01 call. With the September futures trading at 0.9679 as of this writing, this spread could be purchased for about 1.40 points, or $1,400 per spread, not including commissions. The premium paid would be the maximum potential risk on the trade, with a potential profit of $4,000 minus the premium paid which would be realized should the September Canadian Dollar futures be trading above 1.0100 at option expiration in September.

Technicals

Looking at the daily chart for September Canadian Dollar futures, we notice that since the middle of April, the market has made a series of higher lows and lower highs. We have what may turn out to be a head and shoulders bottom forming, with the right shoulder formed from the July 6 lows. Prices are now above the 20-day moving average, but bulls have run into resistance at the 100-day moving average, currently near the 0.9706 area. The next major resistance level is seen at the June 21st high of 0.9857, with major support found at the July 6th low of 0.9360.

Mike Zarembski Senior Commodity Analyst

Fundamentals

Cotton futures have been trapped in a period of consolidation for the past week, resulting in a tug of war between bulls focused on demand and bears focused on acreage and ending stocks. Last week's USDA report gave traders a bit more insight into crop conditions. Ideal growing conditions have led to a sharp jump in crop yields from 815 pounds per acre to 845 pounds per acre. Carryout is now expected to be 3.5 million bales, versus an estimated 2.8 million bales a month ago. Demand has, at times, overshadowed the large supplies. Export demand is expected to be 14.3 million bales, up from the 13.5 million June estimate. The large supplies could pressure prices, as there are signs that demand may begin to taper off. There have been some rumors out of China indicating that textile mills have built-up inventories over recent months. This could offset some of the negative crop news in China's North Plain growing region. With the large supply forecast, some traders may be focused on the demand side of the equation. Considering the large jump in yields, the 700,000 bale increase in ending stocks is not as large as one may expect.

Trading Ideas

The fundamental outlook for the Cotton market is a bit unclear at the moment, given the increase in both supply and demand. Considering the seemingly huge pile of Cotton the US will be sitting on, demand will likely be the key driving force going forward. The chart seems to favor the downside; however, there has been no confirmation of a downside breakout. Some traders may wish to enter into a bear put spread by buying the November 71 puts (CTX071P) and selling the November 68 puts (CTX068P) for a debit of 0.70, or $350. The trade risks the initial debit for a potential reward of 2.30, or $1,150.

Technicals

Turning to the chart, the December Cotton chart shows prices in a consolidation pattern. Since the preceding trend was lower, the consolidation can be seen as a bear flag, which if confirmed, could result in prices tumbling below the 70.00 level. The immanent downward crossover of the 20 and 50-day moving averages can be seen as bearish in the intermediate term. The momentum indicator has moved lower at a very steep angle, outpacing both price and RSI. This hints at further weakness ahead.

Robert Kurzatkowski, Trading Specialist

Fundamentals

Neither a political shake-up nor weak economic fundamentals can stop the surging Japanese Yen, as the currency has gained nearly 1000 pips since recent lows were made back in early May. This past weekend, the ruling Democratic Party of Japan (DPJ) and its coalition parties failed to gain the 56 seats needed to continue to control the Upper House, putting into jeopardy any attempts from the ruling government to pass legislation. The election defeats were an especially big blow to Prime Minister Naoto Kan and his attempts to raise the county's consumption tax from the current 5% in order to help pay down the country's massive deficit. Normally traders and investors would move away from a country's currency during times of political uncertainty, however after a minor sell-off last week, the Yen has once again found some support -- especially vs. the Eurocurrency. A stronger Yen is the last thing Japanese businesses want to see, as its economy is highly export driven, and a stronger Yen hurts the competitive advantage of the nation's businesses. The recent loosing of the Yuan "peg" from the U.S. Dollar by China seems to have triggered buying in other Asian currencies, such as the Korean Won and the Japanese Yen. The popularity of the Yen as the "funding " currency for so called "carry trades" might be the biggest reason behind the Yen's strength, especially as traders cover these short Yen positions in a move to liquidity, given the recent volatility seen in the global equity and commodity markets. However, once the majority of the speculative short positions have been bought back in, It would not be a surprise to see the Bank of Japan (BOJ) attempt to jawbone the Yen lower, with "talk" of potential interbank intervention once the speculative short-covering catalyst is out of the picture.

Trading Ideas

Here is the current dilemma for Yen futures traders -- the short-term technical trend is bullish for the Yen, but the long-term fundamentals are favoring a weaker Yen. Given this scenario, a trader may choose to explore positions using options on Yen futures that could benefit from the above scenario. An example of such a trade would be the purchase of a put calendar spread, such as selling a September Yen 1.10 put and buying a December Yen 1.10 put. With September Yen futures trading at 1.1300 as of this writing, the Dec/Sep calendar could be purchased for about 1.31 points, or $1,637.50 per spread, not including commissions. A trader purchasing this spread hopes that the shorter-term option expires worthless and the credit received will help offset some of the premium paid for the longer-term option.

Technicals

Looking at the daily continuation chart for Japanese Yen futures, we notice prices holding well above both the 20 and 200-day moving averages. This confirms that, based on chart analysis, bulls are currently in control of the market. The Yen market is a good example of where it is important to not just rely on fundamental factors when making trading decisions! The 14-day RSI is still positive, with a current reading of 61.43. The recent low of 1.1225 made on July 12th looks to be support for front-month September Yen futures, with resistance found at the recent high of 1.1502.

Mike Zarembski, Senior Commodity Analyst

Fundamentals

The Chinese economy expanded at a robust 10.3 percent, sending the US Dollar Index lower in overnight trading. The US currency has been a defensive play for many investors concerned with the European debt crisis and possible weakness in the Chinese economy. Although the growth rate in China was 1.6 percent lower than the first quarter of the year, the results were still much better than many had expected. This could open the door for more aggressive investments and lead to further declines in the value of the US Dollar. China's trade partners -- namely Australia and Japan -- could see new life for the value of their currencies. The recent gains in equity prices have also hurt the greenback, as some traders have flocked to riskier investments in the form of stocks and commodities, while defensive players have favored Gold over greenbacks. Unless equities hit a major bump in the road, the US Dollar could continue to tumble.

Trading Ideas

Things have turned sour rather quickly for the US Dollar. The US currency was riding the panic wave higher, and investors couldn't have enough greenbacks. But with European panic settling down and the renewed optimism in the US and Chinese economies, investors have dumped the currency. As the chart shows, the market has hit a major reversal after the head and shoulders top formation and is heading toward major support levels. For these reasons, some traders may wish to consider taking a bearish position by entering into a bear put spread. For example, possibly buying the Sep Dollar Index 82 puts (DXU082P) and selling the Sep 80 puts (DXU080P) for a debit of 0.40. The trade risks the initial cost of $400 for a potential profit of $1,600 at expiration.

Technicals

Turning to the chart, we see the September Dollar Index trading below the 100-day moving average for the second consecutive session. This can be viewed as a major long-term setback, unless prices are able to cross back above the average in the near-term. Prices are quickly approaching a fairly significant support level between 83.00 and 82.50. This may be the last stand for Dollar bulls. If the market is unable to hold support here, prices could possibly test 80.00 on the downside, which is a major technical and psychological support level. The RSI is now giving oversold readings, which could provide some short-term relief for the index.

Robert Kurzatkowski, Trading Specialist

Fundamentals

This phrase can best describe the Crude Oil futures market during the past several weeks, as lead month prices appear to be firmly trapped between $70 and $80 per barrel. The current supply of Oil remains adequate -- especially given the relatively weak demand seen from western nations, as the economic recovery has been lackluster. However, refinery operation rates have improved during the past few weeks, with the most recent Energy Information Administration (EIA) Energy Stock report showing U.S, refiners were operating at 90.5%, which is the highest weekly operating rate since January of 2008. Ironically, as the output of refined products has been increasing, demand for both gasoline and distillates has not kept pace. This past week, the EIA reported that gasoline demand last week fell by 369,000 barrels per day (B/D) to 9.08 million B/D, and distillate demand fell by 422,000 B/D to 3.527 million B/D. The lackluster demand for refined products could hurt Oil prices, especially if refinery profit margins contract, causing end users (refineries) to begin to curtail operations and lessening physical Oil demand. The Oil production story is also a mixed bag, with U.S. Oil production in the Gulf of Mexico on hold, but production out of OPEC producing countries higher than stated quota levels. So until we see a major catalyst influence the oil market -- either bullish or bearish -- we could see prices remain range-bound in the near-term.

Trading Ideas

With the Crude Oil market remaining range-bound, some traders may wish to investigate trading strategies that could benefit from a sideways market. An example of such a trade would be selling strangles (selling an out of the money call as well as selling an out of the money put in the same contract month). For example, a trader could sell a September Crude Oil 88.00 call and at the same time sell a September crude oil 65.00 put. With September Crude Oil trading at 78.00 as of this writing, this strangle could be sold for about 0.52, or $520 per spread, not including commissions. The premium received would be the maximum potential profit on the trade, which would be realized should September Crude be trading above 65.00 and below 88.00 at option expiration in August. Given the potential risk involved in selling naked options, traders should have an exit strategy in place should the trade move against them. One such strategy might be closing out the trade before expiration should September Crude Oil trade above 88.00 or below 65.00.

Technicals

Looking at the daily chart for September Crude Oil, we notice mixed technical signals, with prices holding above the short-term 20-day moving average, but remaining below the widely watched 200-day moving average. Since the end of the $20-plus selloff in late May, prices have moved in a relatively narrow $11 price range, bounded by major support at the May 25th low of 69.62, and major resistance at the June 21st high of 80.82. The 14-day RSI has moved back into neutral territory, with a current reading of 54.16.

Mike Zarembski, Senior Commodity Analyst

Fundamentals

Traders’ interest in the nature gas futures market is starting to heat up, as most of the U.S. is experiencing hotter than normal temperatures as we enter the heart of summer. Warm weather usually triggers increased Natural Gas usage by utilities for the generation of electricity used for air conditioning. This past Thursday’s release of the weekly Energy Information Administration’s gas storage report showed that U.S. gas injections into storage totaled 78 billion cubic feet (bcf), which was 10 bcf below last year’s total and 11 bcf below the 5-year average for this time of year. Despite the lower than average storage build, U.S. gas in storage totals 2.84 trillion cubic feet (tcf,) or nearly 11% above the 5-year average. Long-term weather forecasts are calling for above normal temperatures during the next 3 months in the eastern half of the U.S., with The National Oceanic and Atmospheric Administration (NOAA) forecasting warmer than normal temperatures in the Northeast and throughout the Great Lakes region -- mostly due to the development of a La Nina weather condition. These are some of the highest Natural Gas usage areas of the country for the generation of electricity, which if forecasts hold true, could send Natural Gas demand upward. As the calendar moves into August and September, many energy traders will turn their focus towards the Gulf of Mexico when we move into the heart of the Atlantic hurricane season. Any forecast of a severe storm reaching the oil and gas producing regions of the Gulf can spur a rally in Natural Gas futures, as traders become concerned of possible disruptions in production should the oil and gas rigs suffer major storm damage. Although industrial demand for Natural Gas still remains lackluster due to the slow pace of the economic recovery, potential production disruptions due to the weather could introduce increased volatility in the short-term into the Natural Gas market, as both bulls and bears digest long and short-term fundamentals that may be direct opposites in determining the near-term direction of the Natural Gas futures market.

Trading Ideas

The longer-term trend for Natural Gas prices continues to favor the bears, as increased production and slow growth in industrial production have resulted in U.S. gas storage levels that are more than ample. However, the Natural Gas market has a reputation of becoming volatile should a hurricane strike the production areas of the Gulf of Mexico. Traders who are long-term bearish towards Natural Gas prices but who wish to have some protection against a huge move higher should a major storm shut-down production could explore trading strategies using Natural Gas futures options. An example of such a strategy would be selling an out-of-the-money call option and also buying multiple further out-of-the-money call options, with the entire trade being done for a net-credit. An example of such a trade would be selling an October Natural Gas 5.000 call and buying 2 October Natural Gas 6.100 calls. With October Natural Gas trading at 4.575 as of this writing, this spread could be sold for about a 0.100 credit, or $1,000, not including commissions. A trader initiating this spread would want to see October Natural Gas trading below 5.000 or above 7.100 at option expiration in September.

Technicals

Looking at the daily chart for September Natural Gas, we notice prices trading in a downward channel since the recent highs were made back in late June. The late June rally was stopped in its traces, as prices failed to penetrate the 200-day moving average, which many traders view as they attempt to determinate whether a market is bullish or bearish. Last week’s rally attempt also failed to take out the 20-day moving average and prevented follow-through buying from short-term momentum traders. The 14-day RSI is neutral, with a current reading of 46.02. Support is seen at last week’s lows of 4.290, with resistance found at the 20-day moving average currently near the 4.680 area.

Mike Zarembski, Senior Commodity Analyst

Fundamentals

It appears that the demise of the Eurocurrency predicted by many pundits might be postponed for a spell, as the beleaguered currency has shown new life, rallying over 1100 ticks since the lows were made back in early June. Much of the "strength" in the Euro has been due to short-covering buying by speculators, as the worst fears of sovereign debt default by Greece or any of the other EU nations has not materialized. In addition, less then positive economic data out of the U.S. lately took some of the steam out of the U.S. Dollar, which has benefitted the Euro. Now, however, many traders will once again turn their focus back to the "Continent," and all eyes will be on the results of the European bank stress tests expected to be released on Friday. The upcoming stress test results along with the recent downgrade of Irish bank debt may stall the Euro's recent ascent, as traders holding long Euro positions book profits ahead of the stress test announcements. The most recent Commitment of Traders report shows both large and small speculators holding a net-short position of 37,961contracts as of July 13th. If we compare this to the 115,149 net-short position being held for the week ending May 11th of this year, we can see the huge covering of the short position the past 2 months and how this buying propelled the Euro to its recent highs. Now that the "rocket fuel" has been nearly exhausted, it will be interesting to see if fresh buying will emerge to support the Euro, or if eager bears will use the recent strength in the EC to sell the currency at price levels unexpected just a few short weeks ago.

Trading Ideas

The Euro may be at a turning point now, as prices are hovering right around the 100-day moving average. Some traders who are expecting a big move in the Euro but who are unsure as to in which direction it may occur may wish to explore trading strategies that will benefit from a big move in the currency. One such strategy would be buying a straddle in Eurocurrency options. An example of this strategy would be buying the September Euro 1.2900 call and buying the September Euro 1.2900 put. With the September Euro trading at 1.2882 as of this writing, this straddle could be purchased for about 0.0460 points, or $5750 per trade, not including commissions. The premium paid would be the maximum risk on the trade, with the trade profitable at option expiration in September should the September Euro be trading above 1.3360 or below 1.2440.

Technicals

Looking at the daily chart for September Euro futures, we notice the recent rally beginning to stall as prices approach psychological resistance around the 1.3000 level. Volume has started to ease the past couple of weeks, which may be a sign that recent gains were caused by little more than short-covering and not by new longs entering the market. The 14-day RSI briefly moved into overbought territory, but has now started to turn lower, with a current reading of 65.71. 1.3100 is seen as the next major resistance point in the September futures, with support found near the recent low just above the 1.2500 area.

Mike Zarembski, Senior Commodity Analyst

Fundamentals

The Aussie Dollar has held up fairly well recently, but the currency now faces several tests. The Royal Bank of Australian (RBA) has not hinted toward a bias as far as tightening goes, but, will analyze the results of the European bank stress tests and domestic inflation data to determine whether to continue tightening or take a pause. The upcoming stress test results figure to have a fairly significant impact on growth currencies, like the Aussie. Positive results could lead to further risk taking, bolstering growth currencies, while negative results could result in traders flocking toward the relative safety of Yen and US Dollars. Given the commentary from Fed Chairman Bernanke yesterday, in which he stated that the outlook for the US economy was "unusually uncertain", negative stress test results may have an even larger impact on the Aussie than they would otherwise. Domestically, traders will be focused on next week's consumer price report. If the report shows tamer inflation, the RBA may be less inclined to raise interest rates, which could have a negative impact on the exchange rate of the Aussie. Positive stress test results and higher inflation could benefit the Aussie in the near-term, but gains in the currency could be limited by the uncertainty surrounding the global economy. Traders would like more clarity, good or bad, but it does not appear that clarity will be coming any time soon.

Trading Ideas

Traders are faced with uncertainty facing the Aussie, both fundamentally and technically. However there do seem to be some bullish undertones. The European bank stress tests were done to restore investor confidence, so the ECB may put a more favorable twist on the data. Technically, the Aussie has not signaled a new breakout, but prices are approaching resistance with a bit of momentum. The more conservative trader may wish to sit this one out until the market gives a clearer picture on direction. The more aggressive trader may wish to enter into a bull call spread, buying the September 88 call (ADU00.88C) and selling the September 90 calls (ADU00.9C) for a debit of 0.0100, or $1,000. The trade risks the premium paid for a potential profit of $1,000.

Technicals

The September Australian Dollar chart shows prices testing recent highs near the 0.8800 level. A breakout above this level could be the start of a new upswing in the Aussie, but the market may face more stout resistance at the 0.9000 level. Prices may also come up to test the 100 day moving average. Several solid closes above the average could be seen as bullish in the intermediate term. The RSI is approaching overbought levels, which could help act as a barrier for prices.

Rob Kurzatkowski, Trading Specialist

Fundamentals

Sugar futures are once again a sweet treat for bulls, as the nearly 5-month long bear market appears to have ended. Since recent lows were made back in early May, lead month October Sugar has rallied over 4 cents per pound, mainly due to increased buying out of Asia to help replenish Sugar inventories. In addition, heavy rainfall in Brazil, who is the world's largest Sugar exporter, has hampered the loading of Sugar to waiting vessels in Brazilian ports, with reports of a large backlog of ships waiting to dock. While current fundamentals are favoring higher Sugar prices in the near-term, the longer-term outlook appears less positive. Once the weather begins to improve and ships can get into port, Brazil should be able to supply an ample amount of Sugar to the market, helping to elevate current tight supplies. India, who is the world's largest Sugar buyer, is expected to see its Sugar production rise to nearly 25 million tons, which is up over 6 million tons from last year's disappointing harvest, as weather conditions have been improving for this season's production. Speculators have maintained their overall net-long position in Sugar futures, even through the down swing, and the recent breakout should help attract fresh momentum buying. However, the rally could also attract hedge selling pressure, especially now that prices have moved above 18 cents per pound. It will be interesting to see if speculators can successfully move prices even higher, especially once the Brazilian shipping gridlock gets resolved and fresh supplies hit the world market.

Trading Ideas

October Sugar has broken through strong resistance at 18 cents; however, many analysts expect to see significant hedge selling materialize if prices move close to 20 cents per pound. Traders taking a contrarian view who believe that the fundamentals do not justify Sugar prices above 20 cents may wish to explore the sale of out-of-the-money calls in Sugar futures options. An example of such a trade would be selling the October Sugar 22 cent calls. With October Sugar trading at 18.37 as of this writing, the October 22 calls could be sold for about 0.30, or $336.00, not including commissions. The premium received is the maximum potential gain on the trade and would be realized if October Sugar is trading below 22.00 at option expiration in September. Given the risk involved in selling naked options, traders should have an exit strategy in place should the market go against them. One such exit strategy would be buying back the option sold before expiration should October Sugar close above 20.00.

Technicals

Looking at the daily chart for October Sugar, we notice prices broke-out above resistance at the April 15th highs of 18.10. This is a positive sign for bulls, especially now that prices are approaching the 200-day moving average, currently near the 18.70 area. Should prices continue to move higher, there is significant upside resistance between 19.00 and 21.50. The 14-day RSI is strong, with a current reading of 67.83. Near-term resistance is found at 18.10, with support found at the 20-day moving average, currently near the 16.85 area.

Mike Zarembski, Senior Commodity Analyst

Fundamentals

Bullish traders have taken a liking to the Copper market lately, as prices in the lead month September futures have reached highs not seen since the middle of May. The Copper market has a reputation for being a leading indicator as to the strength or weakness of the global economy. Better than expected 2nd qtr GDP figures out of the U.K. as well as business confidence reading out of Germany gave further support to Copper in early trade on Friday. However, traders fixated on the results of the European Union's bank stress tests released late Friday morning. The results of the stress test showed that only 7 out of the 91 banks tested failed, with the majority of the banks located in Spain. In addition, one German and one Greek bank also failed the test. The results were about what most traders were expecting, allowing Copper to maintain its early gains. The red metal also received some support from steel futures, traded at the London Metal Exchange (LME), which reached 10-week highs as iron ore imports to China rose. The most recent Commitment of Traders report shows large non-commercial traders nearly doubling their net-long position in Copper futures as of July 13th, and this was before the recent price rise. It is believed that these large speculators may have increased their net-long position during the past several sessions. Further upward momentum may come from technical traders, as prices are hovering right around the 200-day moving average, which longer-term traders tend to watch as a determinant as to whether a market is in a bullish or bearish mode.

Trading Ideas

September Copper prices appear at a crossroads when viewed from a longer-term chart perspective. Either copper bulls will propel prices above the 200-day moving average and trigger momentum-based buying, or bears will exert pressure and the recent up-move will be relegated as a false breakout. Those bullish on Copper may wish to consider purchasing a September Copper futures contract, with a protective sell stop at the June 28th highs of 3.1060, as a close below this support level will likely send prices back into the recent trading range.

Technicals

Looking at the daily chart for September Copper, we notice the market trading above the downtrend line formed from the April highs. If we compare a daily chart to that of the September E-mini S&P 500 chart, we notice the similarity in the recent price movement. However, September Copper hit its interim bottom almost 1 month earlier than the S&P futures did! This lends some credence to the belief that the Copper market is a leading indicator of the economic health of the economy, and it will be interesting to see if the recent price breakout in Copper translates to an up-move in the S&P futures as well. The next resistance point for September Copper is seen at 3.2455, with support found at 3.1060.

Mike Zarembski, Senior Commodity Analyst

Fundamentals

The British Pound rose to the 1.55 level after last Friday's report showed that UK banks had passed the EU's stress tests. The Pound continues the rally that began because of the comparative health of the UK economy versus mainland Europe. The sigh of relief over the results of the stress tests has given traders even more incentive to take on riskier investments, benefiting the sterling. UK Treasury Minister Hoban did unveil a new plan which would give the Bank of England more oversight over banks and would be focused on consumer protection. Despite the positive developments, there was also some negative news from Hometrack Ltd. which reported the average home price dropped by 0.1 percent in June. This marks the first decline in 15 months. Also, according to a private estimate, the UK's economy is slated to rise 2.2% next year, versus the prior estimate of 2.7% by the Item Club. The British Pound is expected to benefit from the slumping greenback as long as the financial markets avoid panics like the Greek crisis. The degree to which the currency may rise versus the Euro is also a topic of debate. Investors may no longer be expecting the worst for the EU, and the Pound has performed well -- almost too well -- against the US Dollar. One could make the argument that the Euro could play catch up to the Pound and move higher at a quicker pace. On the other hand, investors could point to the comparative strength in economies and the fact that some investors could be skeptical of the stress tests, which many have been completed with the intention of restoring investor confidence, rather than trying to tests banks' solvency to the maximum degree.

Trading Ideas

The British Pound has been on a quite a roll since mid-May because of the problems facing the EU and investors' renewed confidence in the UK. The stress test results, while positive for the Pound on the surface, could give the Eurozone a boost at the expense of the sterling. The chart shows the currency at a critical level, where a breakout could breathe new life in the market and a failure to breakout could completely take the wind out of the markets' sails. For these reasons, some traders may choose to look for a solid breakout above the 1.5500 level before entering a long September futures contract, with a 1.5900 objective and protective stop at 1.5325. The trade risks roughly $1,093.75 for a potential reward of roughly $2,500.

Technicals

Turning to the chart, we see the September British Pound future testing, but failing to break the 1.55 level. This is a fairly significant resistance area for the Pound, coinciding with relative highs in April and a low from February. The 1.55 level could provide a good test and help decide the intermediate direction for the Pound. Failure to break through could result in profit-taking and cause the rally to stall or reverse, while a breakout could provide a second wind. The RSI indicator is edging toward overbought levels, which could result in subdued buying pressure.

Robert Kurzatkowski, Trading Specialist

Fundamentals

Gold bugs may not want to hear this, but Gold futures appear to be losing their longer-term bullish momentum, with the lead month August futures falling to 12-week lows. Some traders' views that the global economy is improving can be partly to blame for Gold's recent weakness, especially as concerns over the European debt situation have lessened in recent days. Ironically, the recent recovery in the value of the Euro vs. the U.S. Dollar may have also played a part in Gold's decline, as traders begin to unwind long Gold and short Euro positions that gained speculators favor during the height of the European economic turmoil. Even the recent recovery in the U.S. equity markets has had a negative effect on Gold, as investors move back into equities and away from precious metals. The most recent Commitment of Traders report shows that speculators have lightened-up on their long Gold positions, with the combined non-commercial (large speculators) and non-reportable (small speculators) net-long position totaling 238,128 contracts as of July 20th. Although this long position is well off the record 328,344 net-long contracts being held for the week ending October 20, 2009, it is still a formidable one-sided position. Should near-term chart support points come under pressure, we may start to see further long liquidation selling as protective sell-stop orders are triggered.

Trading Ideas

Traders who believe that the Gold bull-run is at least temporarily over but who want to minimize the potential risk of a bearish position should prices reverse to the upside may wish to explore trading strategies utilizing options on Gold futures. One such strategy would be selling a bear call spread, where a trader would sell a call option at a particular strike price and trading month and at the same time buy a call option at a higher strike price than the option sold in the same trading month. An example of such a trade would be selling the September Gold 1190 calls and buying the September Gold 1220 calls. With October Gold trading at 1060.50 (September Gold options go against the October Gold futures) as of this writing, this spread could be done for about a 6.0 credit, or $600 per spread, not including commissions. The premium received would be the maximum potential gain on the trade and would be realized if October Gold is trading below 1190.00 at option expiration in late August. The potential risk on the trade is 30.00, or $3000 minus the premium received, and would be realized at expiration should October Gold be trading above 1220.00.

Technicals

Looking at the daily chart for October Gold, we notice a potential double-top formation made in late June, as the test of the contract high of 1267.10 that occurred on June 28th failed to make a new high. In fact, prices closed near the lows of the session and set the stage for the over $100 per ounce decline in prices we are currently seeing. The sell-off really accelerated to the downside once prices closed below the 20-day moving average. The 14-day RSI is approaching oversold territory, with a current reading of 32.50. The widely-watched 200-day moving average is now in play and offers near-term support around the 1150.00 area. Should this support level fail to hold, a test of the April 19th lows near the 1128.00 area is possible. Should support hold, the next resistance point is seen at the 20-day moving average near the 1200.00 area.

Mike Zarembski, Senior Commodity Analyst

Fundamentals

Indecision about the state of the global economy has caused Crude Oil futures to get stuck in a rut. Economic data that has been trickling in from the US and abroad has been mixed, making it difficult for traders to gauge where the economy is heading in the intermediate term. Adding to the confusion, inventory data has been equally skittish lately, clouding the supply and demand outlook. Yesterday's EIA inventory report was a prime example. The report showed an unexpected rise of 7.31 million barrels, versus consensus estimates of a 1.73 million barrel drawdown. The price of Oil has flirted with the $80/barrel level for the third time in a little over a month, but negative news seems to foil Oil bulls just when the market appears to be gaining traction. The recent declines in the exchange rate of the greenback show that many traders are willing to take on more risk, but there is still a large contingent that is continuing to just dunk their toes into the pool to test the water and then quickly back away. The Fed's beige book was loaded with typical Fed-speak and hedged statements. The central bank did concede that the economy is growing at a more modest rate, which could lead to continued choppy trading. The release of the beige book comes on the heels of disappointing new homes sales, falling consumer confidence and an unexpected drop in durable goods orders, which does little to instill confidence among traders. Unless tomorrow's jobless claims and GDP data inspire Crude Oil bulls, prices could drift back into the low 70's or beyond.

Trading Ideas

Neither fundamentals nor technicals give a clear path for Crude Oil prices. It seems as though direction is less and less clear with the release of economic data. Barring a bombshell, this pattern could very well continue for the foreseeable future. For this reason, some traders may wish to enter into a neutral strategy like a strangle, selling the September Crude Oil 83 calls (CLU083C) and selling the 67.5 puts (CLU067.5P) for a credit of 0.55, or $550. Traders may wish to manage their risk by exiting the trade when the price of the underlying approaches either of the strike prices.

Technicals

The September Crude Oil chart shows prices hitting a brick wall when approaching the $80 resistance level. The overbought readings on the RSI also contributed to the pullback when prices were on the verge of testing $80. A breakout above $80 could be met with resistance at 82.50 and 85.00. Prices did manage to hold above the 20-day moving average yesterday. A close below the 20-day average could suggest that a near-term high is in place. Prices could pull back to test support near the 71.50 level or additional support just below $70. Momentum is showing bullish divergence from the RSI indicator and prices, suggesting the market may be able to hold its ground in the short-term.

Robert Kurzatkowski, Trading Specialist

Fundamentals

Not even yields of less than 3% are keeping investors away from 10-year treasury notes, as lead month September futures are trading at price levels not seen since the "dark days" of the global recession back in the spring of 2009. The recent buying interest seems to be tied to traders' concerns that the economic recovery is beginning to slow. U.S. economic data released this week has done little to alter this view, as reports on durable goods, consumer confidence and home sales failed to provide investors with a reason to be optimistic that economic conditions will improve. In addition, the release of the Federal Reserve's Beige Book this week showed that Fed officials believe that any economic improvements will be slower than hoped for, as the labor market remains difficult. Comments from Fed governors seems to confirm traders' beliefs that interest rates will remain low for some time to come, which is making even relatively low yields for Treasuries attractive, especially given the choppy market seen in U.S. equities. This morning traders will be awaiting reports on 2nd qtr GDP and the Chicago PMI. Both reports are expected to show slower growth has occurred, and if true, will cap a week where even the most optimistic traders looking for economic improvements may start to see that their glass is actually half empty.

Trading Ideas

Few traders can argue that the 10-year note futures market is currently in a bullish phase. However, sub 3 percent yields can make one a bit nervous that prices may be somewhat overextended, especially given the size of the U.S. debt. Some traders who wish to position themselves for a continued up-move in 10-year note futures but who wish to limit their risk should the market reverse, may wish to investigate trading strategies using options on ten-year note futures. An example of such a trade would be buying a bull call spread. With September 10-year note futures trading at 123-19 as of this writing, one can buy a September 10-year note 124 call and sell a 126 call for about 30/64th, or $468.75, not including commissions. The premium paid would be the maximum risk on the trade, with a potential gain of $2,000 minus the premium paid which would be realized if September 10-year notes are trading above 126-00 at option expiration in late August.

Technicals

Looking at the daily chart for September 10-year note futures, we notice that since April of this year, prices have moved steadily upward, with few major corrections along the way. Prices are well above the 200-day moving average and recently broke out above the 20-day moving average, which triggered "buy" signals for many short-term momentum trading systems. The 14-day RSI is positive, with a current reading of 63.46. The recent high of 123-24 looks to be the next resistance point, with support seen at 122-065.

Mike Zarembski, Senior Commodity Analyst