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July 2012 Archives

July 2, 2012

Oil Prices Rally on Word of European Bank Bailout Agreement

Monday, July 2, 2012

Oil's sharp rally on Friday may have ended the recent down move in prices, as short-covering and fresh momentum buying has once again shown that the Oil market is unstable at prices below $80 per barrel.

Fundamentals

Oil bulls were back in force to end the 2nd quarter, with the lead month August contract rising by over 9%, as European leaders announced an agreement to aid struggling banks in Spain and Italy. This news sparked a move back into "risk" assets such as commodities, and especially Crude Oil. The U.S. Dollar fell sharply, adding to day's bullish sentiment for commodities. Technical traders note that buy stops may have been triggered once the August contract moved above resistance at 81.20, adding momentum to the buying frenzy. Some additional support may have come from concerns about future Oil supplies, as the European embargo against Oil purchases from Iran is set to begin. An Oil workers strike in Norway is lending additional bullish momentum to Brent futures. Though Friday's rally was impressive, current Oil inventories are more than ample, and we would need to see some sustained increases in global demand to put more credence into the belief that near-term lows are now in place.

Technical Notes

Looking at the daily continuation chart for Crude Oil futures, we notice what appears to be a double-bottom formation, as the recent selloff failed to test the October 2011 lows near 75.00 before Friday's sharp recovery. Prices are now once again trading above the 20-day moving average for the first time since early May and may find further upside momentum as weak bears exit the market. The 14-day RSI has moved from oversold levels to a neutral stance, with a current reading of 48.62. Last Thursday's low of 77.28 looks to be support for August Crude, with resistance now seen at 85.60.

Mike Zarembski, Senior Commodity Analyst


July 3, 2012

Silver to Shine in Q3?

Tuesday, July 3, 2012

Silver futures have been through a rough patch during the past quarter, due to softer economic projections. ETF holdings have fallen, showing lessened retail appetite for Silver, as the metal is less of a defensive play than Gold.

Fundamentals

Silver futures have been weak in recent months, dragged down by Gold prices. Gold suffered its worst quarter in 4 years. The weakness in Silver was also due to poor economic conditions and a stronger US Dollar. Silver is more of an industrial metal than Gold, so the downward revisions in growth forecasts for China, the US, and the EU have all had a negative impact on the metal. Last week, the rally in the equity markets seemed to cool a bit, after investors took a closer look at the implications of the Spanish bailout. The fact that Germany had its wings clipped a bit, which allowed the bailout to happen with much more liberal terms, was eyed with caution. Germany has been a voice of reason, pushing for bailouts with caveats in place to try to prevent subsequent bailouts. If the country has lost its leadership role in the EU financial crisis, the lunatics may, in fact, be running the asylum. Soft Chinese PMI numbers set a negative tone for the beginning of the week, however prices surged yesterday on the back of stronger equity prices.

Technical Notes

Turning to the chart, we see the September Silver contract rallying back above the 27.50 level, which was near-term resistance. For Silver to capture upside momentum, prices must breakout through the 30.00 level. The market has been able to hold the 26.50 support mark thus far. If prices break out below 26.50, there is almost no support until the high teens. Currently, the oscillators are giving neutral readings.

Rob Kurzatkowski, Senior Commodity Analyst


July 5, 2012

Iran's Saber-Rattling Sparks Crude

Thursday, July 5, 2012

Crude Oil futures have caught a bid on Iran's aggressive tactics over recent days. Iran's motives have to be questioned, as the nation recently voiced its displeasure with the current price of Oil. It looks as though world leaders are ready to turn the liquidity back on in China and Europe. Traders may want to keep a close eye on whether Iran is serious about blocking European tankers, as well as Thursday's inventory data.

Fundamentals

Crude Oil futures have surged in recent sessions, driven by posturing from Iran and stimulus activity. The People's Bank of China has indicated that it may be the right time to inject some liquidity into banks, now that economic conditions have deteriorated much more quickly than previously expected. An ECB rate reduction by 25 basis points is expected at any time. Also, the ECB has eased their collateral terms to accept almost any asset at face value, essentially firing-up the printing presses. The saber rattling from Iran also woke bulls from their slumber. The Iranian parliament is expected to pass a bill blocking the Strait of Hormuz to tankers from nations applying the new EU sanctions on the nation. The news coincides with military exercises in the area. The aggressive posturing from Iran is no surprise given recent statements that Oil prices below $100 were "unacceptable."

Technical Notes

Turning to the chart, we see the August Crude Oil contract bouncing back sharply, after spending the better part of a week below the 80.00 mark. Prices took-out psychological resistance at the 85.00 level and technical resistance at 86.50. The next resistance level is the psychological test at 90.00,and the more significant technical test near 95.00. On the downside, the recent low close at 77.69 is the near-term support mark.

Rob Kurzatkowski, Senior Commodity Analyst



July 10, 2012

Are Platinum Prices Forming a Long-Term Bottom?

Friday, July 6, 2012

Though current Platinum demand is lackluster, current low prices are starting to have an effect on production, as many South African mining operations have begun to close mines due to poor profit margins. This may set the stage for a rebound in prices once demand picks up, as producers are reluctant to increase production until higher prices are reached.

Fundamentals

Platinum, the most industrial of the precious metals, continues to lag behind the price of Gold, as continued economic struggles out of Europe and a slowdown of economic growth from China has weighed on the demand for industrial commodities such as Platinum. However, lower prices and current weak demand may fuel a curtailment of supplies in the coming months, as miners, particularly in South Africa where 80% of the world's Platinum is produced, have cut capital expenditures and closed some mines due to low profit margins. In addition, Platinum's price discount to Gold has some industry analysts seeing increased demand coming from India, which is normally a huge buyer of Gold, especially for jewelry. Should Indian buyers start to show an interest in Platinum, this could set the stage for increased demand from a relatively new source that can offset some of the weakness seen from the industrial and automotive sector and set the stage for a return to a global Platinum supply deficit once the global economy begins to recover.

Technical Notes

Looking at the daily chart for October Platinum, we notice what appears to be a double-bottom formation, with prices appearing unstable below 1400.00. The recent rally is now testing the 20-day moving average, with a sharp move above this key indicator potentially triggering fresh short-term momentum buying. The 14-day RSI has moved from oversold levels to a more neutral stance, with a current reading of 55.80. Both large and small speculative traders are holding net-long positions in Platinum futures, with the most recent Commitment of Traders report showing a combined speculative long position of just over 21,000 contracts as of June 26th. The recent low of 1385.30 looks to be support for October Platinum, with resistance seen at the June 18th high of 1508.70.

Mike Zarembski, Senior Commodity Analyst



Disappointing Jobs Report Weighs on Commodity and Equity Index Futures

Monday, July 9, 2012

The disappointing employment report may have capped the recent rally in equity index futures, as traders gear up for what may be a continued period of sub-par economic growth prospects.


Fundamentals

After a strong start to begin 2012, the employment picture in the U.S. has turned lackluster, with economic growth prospects beginning to slow. The Labor Department reported on Friday morning that U.S. payrolls grew by an anemic 80,000 in June, below the 100,000 to 120,000 jobs gain most analysts were expecting. The revised figures for the past two months were deemed neutral, with May's payrolls revised higher, with an increase of 77,000 jobs vs. 69,000 previously reported. However, April's totals were revised lower to 68,000 jobs created vs. 77,000 reported originally. All the net gains in employment were in the private sector, which rose by 84,000 jobs, offsetting the 4,000 jobs lost in the public sector, as federal, state and local governments continue to lower payrolls. The unemployment rate remained steady at 8.2%. The signs that economic growth is slowing sent traders fleeing once again from commodities and equities, with energies, metals, grains and the NASDAQ 100 especially weak after the employment report was released. Gains were seen in so called "risk off" assets such as U.S.Treasuries and the U.S. Dollar, but the reaction was more muted, as traders believe that the payrolls data was not dour enough to force the Federal Reserve to become more aggressive in providing further stimulus, such as a third round of quantitative easing. In addition, the Fed may be reluctant to take any further action ahead of the U.S. elections in November, unless the employment and growth picture make a severe turn for the worse.

Technical Notes

Looking at the daily continuation chart for the E-mini NASDAQ 100, we notice prices have been in an upward channel since the recent lows were made back in early June. Prices are currently above both the 20 and 200-day moving averages (MA), though Friday's steep selloff is setting up a test of the 20-day MA. The 14-day RSI has turned neutral, with a current reading of 52.68. 2655.75 looks to be resistance for the September futures, with support seen at 2503.50.

Mike Zarembski, Senior Commodity Analyst



Bond Traders Bracing for 'Perfect Storm?'

Tuesday, July 10, 2012

Bond futures have continued to trade at very high levels with very low yields. Investors have become increasingly concerned with a possible "perfect storm" scenario, where turmoil in Europe reaches a boiling point, the US economy contracts, and China and emerging markets face a hard landing. Investors are hoping for the best and could be preparing for the worst by buying US treasuries. News that China's Crude Oil imports have fallen to the lowest level since December is a sign that the nation could be headed for a rough landing.

Fundamentals

Bond prices have been trading sideways over the past month, after the futures took a sharp turn higher. Lack of faith in the financial markets by investors as well as fears of a European meltdown have kept yields at ultra low levels. Yesterday's short-term bond sale in France was a reassuring sign, as it marked the first time that financials from the nation were able to fetch negative rates. Unlike the troubled nations of Europe, investors have kept their faith in France and Germany, which could give the two nations more resources to bailout the rest of the continent. Although the negative yield sale can be seen as a sign that investors have not completely given up on Europe, there is plenty of uncertainty ahead. US Bonds could continue to find buyers from investors not buying into a European recovery. There has been increased talk of a potential economic firestorm in the not so distant future, which could happen if the US faces a double-dip recession, while Europe flounders and BRIC and emerging market economies are unable to halt their recent slide.

Technical Notes

Turning to the chart, we see the September Bond contract has been trading in the 147-16 to 152-16 range. Lately, prices have been concentrated in the 147-16 to 150-00 range. Yesterday's close above the 150-00 level suggests the 152-16 level could be tested. Currently the oscillators are giving neutral readings.

Rob Kurzatkowski, Senior Commodity Analyst


July 11, 2012

Corn Traders Turn Cautious Ahead of USDA Report

Wednesday, July 11, 2012

Near record high Corn prices and continued global economic woes have started to weigh on demand, with U.S. exports plunging and ethanol demand falling due to high prices. Some bullish traders are starting to lighten up their positions ahead of the USDA report as fears that the USDA may be "cautious" in revising yields lower, which if true, may spark selling by weak longs after a "disappointing" USDA report.

Fundamentals

Corn futures have been on a tear the past 4 weeks with prices of new-crop December futures surging over $2 per bushel from the June lows. A severe drought throughout most of the Corn Belt has been the catalyst for the price surge, as crop conditions continue to deteriorate at a rapid pace. The USDA in its weekly crop progress report announced that only 40% of the nations Corn crop was rated good to excellent, down 8 percent from one week ago and down 29% from this time last year. 30% of the crop was rated poor to very poor up 8% for the week. Among the biggest surprises was the data out of Iowa, where the good to excellent rating fell sharply to 46% down 16% in only 1 week. Iowa has fared better than its eastern neighbors with Illinois reporting that only 19% of its corn was rated good to excellent and Indiana only 12%. More importantly, pollination is now taking place throughout the heart of the Midwest and hot and dry conditions during this important phase in crop development will hamper final yields come the fall harvest. Traders will be keenly watching the revisions in yield estimates when the USDA releases its data for the July crop report, with many expecting a decline between 10 to 15 bushels per acre from the 166 bushel per acre estimate in the June report. Even this sharp drop may not be near enough to account for the damage already done and some analysts expect the true yield may be closer to 140 to 145 bushels per acre when the harvest is completed. Yields this low may not be sufficient to meet demand unless prices move higher to ration demand even further then we are currently seeing with Corn trading over $7 per bushel as we write.

Technical Notes

Looking at the daily chart for December Corn, we notice that prices have rallied sharply with only minor corrections as growing conditions are the most challenging since the historic drought of 1988. A $2 plus rally has sent the 14-day RSI into overbought territory with a current reading of 77.42. Non-commercial traders have added over 55,000 new net-long positions for the week ending July 3rd according to the most recent Commitment of Traders report which may set the stage for a much needed price correction, especially if the USDA report does not live up to bullish expectations. 750.00 is seen as the next major psychological resistance level for December Corn with support seen at the chart "gap" made on July 3rd at 676.00.

Mike Zarembski, Senior Commodity Analyst


July 12, 2012

Drought Continues to Whittle Down Bean Crop

Thursday, July 12th

Soybean fundamentals remain extremely strong, as the hot, dry weather continues to take a toll on crops. Despite the extremely bullish fundamentals, some traders may be a bit cautious at these high price levels. Higher prices could eat into demand, as increased costs could cause crushers to curb their output. China continues to be the 800 pound gorilla in the room. If their economy suffers a hard landing, export demand could suffer.

Fundamentals

Soybean prices are lower for the third consecutive session after rising to record yields. There is rain in the forecast for parts of the Soybean Belt, which could help some of the parched crop. What had started out as a banner year for the oil seed, with plantings starting well ahead of schedule, has turned into a nightmare for farmers. Extreme heat and dry conditions across the growing region has resulted in stunted crops and large reductions in yields. The USDA slashed yield expectations from 43.9 to 40.5 bushels per acre, which was much greater than the analyst estimate of 42.3 bushels per acre. The US Bean production forecast was trimmed to 3.05 billion bushels from 3.205 billion bushels, a 5% reduction.

Technical Notes

Turning to the November Soybean chart, we see prices falling for two sessions after settling just under the 1550 mark on Monday. Traders may be tempted to look at Tuesday's candle as a possible spinning top, however, the upper and lower shadows are not significant and the body of the candle was inside of the prior day's body. The RSI indicator is giving overbought readings, which may have contributed to the choppy trading over the past two sessions.


Rob Kurzatkowski, Senior Commodity Analyst


July 13, 2012

Bottom May Have Formed in Natural Gas

Friday, July 13, 2012

The tightening of the bull spreads in Natural Gas futures for the first time in months may be a sign that traders believe the worst of the bear market sell-off may have already occurred. However, we still need to see prices close above 3.000, and more importantly, above the 200-day moving average to help confirm the end of the 4-year-old bear market.

Fundamentals

The nearly 4-year-long bear market in Natural Gas futures may be near an end, or at least historic lows may now be in place. First, we continue to see Gas usage for power production increasing, as utilities continue to switch to using Natural Gas from coal for fuel. In addition the above average temperatures seen throughout most of the U.S. are decreasing the amount of Gas placed into storage, as utilities have to add electrical capacity to meet increasing cooling needs. Recent low prices in the cash markets have led to a reduction in Gas rig counts, with the number of rigs dedicated to Gas production falling to 13-year lows. So, with Gas demand beginning to increase and production stating to level off, we may start to see signs that the huge surplus of Gas in storage may not be at record levels come winter. Futures prices are also starting to show signs of improvement, with front month August futures now trading at a premium to the September futures. Throughout most of the past 2 years, Natural Gas futures have been trading in a contango market, where front month futures trade at a discount to more deferred contracts, as weak near-term demand and huge supplies encouraged Gas placements into storage. Now that the spreads are starting to tighten, we may see additional short-covering buying emerge, as momentum begins to favor the bulls after a 4-year-long bearish stampede.

Technical Notes

Looking at the daily chart for August Natural Gas, we notice what may be a double-bottom technical formation, as the mid-June lows failed to take-out the contract lows made back in late April of this year. Prices are now holding above the 20-day moving average and are within striking distance of the 200-day moving average, currently near the 3.090 level. Momentum as measured by the 14-day RSI is neutral, with a current reading of 54.01. The next resistance level is seen at the July 6th high of 3.060, with support found at the 20-day moving average, currently near 2.705.

Mike Zarembski, Senior Commodity Analyst



July 16, 2012

Wheat Futures Riding the Wave of Higher Corn Prices

Monday, July 16, 2012

Wheat prices have started to move parabolic, but are really just following the Corn and Soybean markets which are being supported by a potentially devastating drought in the Midwest. Overbought technical indicators appear to signal that a price correction is overdue with a closing of the chart gap, located just above the 800.00 level in the September futures, a potential downside target.

Fundamentals

Wheat futures have not garnered the attention that both Corn and Soybeans have received lately, as a lingering drought has sent prices to near record highs. The fundamentals for Wheat, on the surface, are not nearly as bullish as those for Corn and Soybeans, as the U.S. stocks to usage ratio of 27% is adequate to meet current demand. The USDA estimated the 2012-13 U.S. fall Wheat production at 2.224 billion bushels, which is up 225 million bushels from last year's harvest. However, globally there are some signs that inventories may start to become tight. First, the USDA cut its estimate for Russian Wheat production by 4 million metric tons, as dry conditions threaten yields in the Black Sea region. South American Wheat production is expected to decline, as growers in Argentina dedicated more acres to other crops such as Corn and Soybeans which held greater profit potential. World wheat carryover for the 2012-13 season is expected to total 182.4 million metric tons, down 3.4 million tons from the June estimate. High Corn prices may force some livestock producers to switch to Wheat for feed usage, especially if U.S. Corn production totals continue to decline. However, as Wheat prices seem to be a follower in the grain complex of late, any price correction in the leaders, such as Corn, may send Wheat prices falling even further, as traders start to value Wheat prices based on their fundamentals.

Technical Notes

Looking at the daily chart for September Wheat, we notice prices breaking out to the upside after a period of consolidation between 800.00 and 850.00. The 14-day RSI remains at overbought levels, with a current reading of 75.81. If we look back to the continuation chart for last year, we see some chart resistance near 865.00, with major resistance around 893.25. Support is found at the chart gap made on July 3rd at 800.75.

Mike Zarembski, Senior Commodity Analyst


July 17, 2012

Too Expensive to Feed

Tuesday, July 17, 2012

The drought plaguing the US has taken its toll on the entire agricultural market and has resulted in skyrocketing food prices. Feedlot operations, who feed skinny cattle, have been some of the worst hit during the drought. Not only has their cost of feed risen to unsustainable levels, but beef demand has plummeted due to the high cost. The August Feeder Cattle chart shows prices in a virtual free-fall, resulting in a parabolic move lower. Typically, this would have many traders looking for some sort of reversal indication. However, sometimes the technicians have to stay out of the way of news.

Fundamentals

Feeder Cattle futures have dropped almost $30 a hundredweight since early June, as the drought has taken a toll on feedlots. The rising cost of Corn has caused many feedlot operators to sell their Cattle rather than buy more expensive feed. As long as the price of Corn is rallying, there will be strong downward pressure on the Feeder Cattle market. The rising cost of beef could also severely curb demand for the meat, forcing the hand of feedlot operators who have not sold off their skinny Cattle to do so. Food prices are at record highs, as this year's drought has taken its toll on virtually all produce and meat. Farmers, feedlot operators, and consumers alike are hoping for some sustained moisture to ease prices. Unfortunately, the weather outlook is not cooperating.

Technical Notes

Turning to the chart, we see the August Feeder Cattle contract in a virtual free fall since early June. Prices have made a parabolic downward move. The result of the extreme move lower has been new contract lows. Traders may look for some sort of short-term reversal pattern, given the fact that extreme moves are typically followed by periods of reversal, albeit usually short-term reversals. The RSI is showing oversold readings as a result of the heavy selling.

Rob Kurzatkowski, Senior Commodity Analyst



July 18, 2012

Bears Going Hog Wild!

Wednesday, July 18, 2012

Lean Hog futures continue to see price pressures, as weak pork demand and high feed costs are hurting both production and packer profit margins. Increasing discounts in deferred futures to the CME 2-day Lean Hog Index may spur some buying interest by bargain hunters, lending some support if prices continue to fall.

Fundamentals

The relentless heat affecting a large portion of the U.S. is starting to take its toll on hog producers, as soaring feed costs and weak pork demand have sent Hog futures prices plummeting. The sell-off is especially severe in the fall and early winter month contracts, as many traders fear that more producers will be forced to liquidate their herds because the high cost of feed makes raising Hogs unprofitable. In addition, record heat has curtailed consumers' interest in grilling, which has cut the demand for both beef and pork lately. The USDA reported that pork carcass composite prices continue to fall, with values now down over 9% from year ago levels. Cash market traders report packer bids are flat to $1 per hundredweight lower, as most processors are current with supplies and recent weak pork demand has many processors running operations at a loss. Large speculators are currently net-long Lean Hog futures, according to the most recent Commitment of Traders Report, and further price weakness may be in the cards should this long position be liquidated on continuing bearish fundamentals.

Technical Notes

Looking at the daily chart for August Lean Hogs, we notice a nearly $6 price decline since the start of July, as the severe drought has sent Corn prices soaring. Prices are now trading below both the 20 and 200-day moving averages, and momentum as measured by the 14-day RSI is neutral to weak, with a current reading of 42.95. The next support point for the August contract is seen at the June 26th low of 88.100, with resistance seen at the 200-day moving average, currently near the 94.150 area.

Mike Zarembski, Senior Commodity Analyst


July 19, 2012

Gasoline Demand Surprising

Thursday, July 19th

Crude Oil futures have moved higher at a brisk pace and are possibly heading toward substantial resistance at 95.00 and 100.00. Fundamentally, supplies have tightened and many traders may have previously underestimated consumer demand. The Iranian embargo, which initially caused the tension that sparked the rally, is still a very touchy subject. All other factors being equal, the Iranian conflict may be enough to sway the market in favor of the bulls.

Fundamentals

Crude Oil futures are up for the seventh consecutive session on surprisingly resilient gasoline demand from consumers. Economic data has been anything but spectacular in recent weeks, but housing numbers have been the exception to the rule. Not surprisingly, some traders have focused on housing as a positive force. Gasoline demand has been robust, rising to 18.6 million barrels a day, which is up 0.3% week over week and 0.4% year over year. It looks as though the US is finally working down that glut of supply. Crude Oil also has seen outside market support coming from grains. The rally in grains has had a positive effect on commodity markets as a whole, except of course, for commodities that an inverse relationship with grain prices, such as Feeder Cattle. Iran's saber rattling has cooled, but rhetoric or actions could trigger fear buying.

Technical Notes

Turning to the chart, we see the September Crude Oil contract trading through the 90.00 level in early trading. Breaking through this minor resistance level suggests the contract may be on the path to testing more substantial resistance near the 95.00 level. Failure to hold 90.00 could result in prices trading between 85.00 and 90.00. The recent rise in prices has resulted in overbought readings on the RSI indicator.

Rob Kurzatkowski, Senior Commodity Analyst


July 20, 2012

Cocoa Prices Still Weak as European Woes Curtails Demand

Friday, July 20, 2012

Cocoa prices look range bound, as weak European demand is being offset somewhat by fears that an El Nino weather event will affect production going into the end of 2012. Liquidation selling by weak longs may occur unless near-term demand fundamentals begin to improve.

Fundamentals

Continued economic struggles out of Europe are affecting the price outlook for many commodities, even those like Cocoa, which on the surface have rather bullish supply fundamentals. The market is still reeling from data released from the European Cocoa Association last week that showed second-quarter Cocoa grindings falling by 18% to 292,551 metric tons from year ago levels. The decrease in Cocoa grindings begets slower demand for chocolate from the E.U., which is the largest market for chocolate consumption. Cocoa prices broke sharply after the grinding data was released, putting an end to the two-week-long up move off yearly lows. Though weak demand is currently suppressing prices, the longer-term price outlook is more positive, as weather forecasters calling for an increased probability of an "El Nino" weather event in which a warming of water temperatures in the Pacific Ocean has, in the past, led to dry or even possibly drought conditions in western Africa, which is home to the world's largest Cocoa growing regions. Current forecasts are calling for the likelihood of an El Nino beginning in the 3rd quarter of this year, which if it materializes has the potential to sharply lower Cocoa production totals in the hardest hit areas.

Technical Notes

Looking at the daily chart for September Cocoa, we notice what may be a double-bottom formation as prices rallied off the June 2012 lows, which looks like a failed test of the previous major lows made back in December of last year. Short-term price activity is mixed, but the long-term trend is favoring Cocoa bears given that prices are under the 200-day moving average. Momentum as measured by the 14-day RSI is neutral, with a current reading of 50.90. The June 25th lows of 2102 looks to be near-term support for September Cocoa, with resistance found at the 200-day moving average, currently near 2346.

Mike Zarembski, Senior Commodity Analyst


July 23, 2012

Sugar Rally Continues But Chart Resistance Ahead

Monday, July 23, 2012

Sugar's upside breakout from its recent 2-week long consolidation phase is lending technical support to the market, in addition to fundamentally supportive factors such as record high Corn prices, slow movement of Sugar in Brazil, and weak monsoon rains in India.

Fundamentals

After falling to near 19 cents per pound in June, lead month October Sugar futures have rallied over 4 cents, as traders are becoming concerned over Brazilian supplies and a potential export halt of white Sugar from India. Rainy weather has slowed Brazilian sugar cane crushing, leading to slower movement of supplies to ports for exports. In addition, a sharp rally in the Ethanol futures market has some traders expecting more Brazilian producers will divert cane towards fuel production instead of for food usage. In addition, disappointing monsoon rains in India are expected to cut the country's production totals for the 2012-13 season. A strong front month premium in White Sugar futures traded in London has sparked speculation that India may put a halt to White Sugar exports in the near future. Though current fundamentals are starting to turn bullish, we still look for Sugar supplies to be in a surplus this season, and unless we start to see global demand improve, Sugar prices may run into some strong resistance should prices move towards 25 cent per pound.

Technical Notes

Looking at the daily chart for October Sugar, we notice what looks to be a large "V" bottom in place, which has now changed Sugar's near-term status from bearish to a more neutral stance. Prices have once again moved above the 200-day moving average, and the 14-day RSI has moved into overbought levels, with a current reading of 73.88. Though current momentum is positive, there appears to be strong overhead resistance just above current levels, with chart resistance seen at 24.69. Near-term support is seen at the July 12th low of 22.16.

Mike Zarembski, Senior Commodity Analyst



July 24, 2012

Slow Grind for Gold

Tuesday, July 24, 2012

Gold futures have been playing tug-o-war, unable to find a market direction. The result has been the Gold market missing the boat on the current commodity rally. There has been sufficient long-term safe haven buying to stave-off demand from bears concerned over economic growth to result in a stalemate. Technically, it seems as though the market is coming close to breaking out of a wedge formation, which could offer traders some clarity as to the intermediate direction of the market.

Fundamentals

Gold futures have missed out on the commodity rally, as prices have stagnated over the past several months. This can at least partially be attributed to the hangover the market has seen since making all-time highs almost one year ago. While many would view the financial crisis of Europe as a reason to buy Gold, many traders concerned with longer-term growth are focused on tame inflation. There are also many who believe the Euro may not be able to weather the storm longer-term, and thus are unwilling to bet against the US Dollar.

Technical Notes

Turning to the chart, we see the continuous Gold chart tightening slightly below the 1600 level. This has led to the development of the wedge pattern on the daily chart. The pattern continues to tighten, suggesting that we may be nearing a breakout. The direction of the potential breakout is unknown, though there could be a slight bias to the bears, given the preceding down move. The sluggish activity has resulted in neutral oscillator readings.

Rob Kurzatkowski, Senior Commodity Analyst


July 25, 2012

How Low Will the Euro Go?

Wednesday, July 25, 2012

Euro futures continue to tumble, as investors have little confidence in European leaders to make meaningful progress in dealing with the economic issues plaguing the continent. However, the large speculative short position may spark potentially potent short-covering rallies to shake-out weak shorts prior to resuming its downward trend.

Fundamentals

Concerns over the economic fate of Europe heated up this week, as fears that Spain will need bailout funds and Greece may be cut-off from further funding sent the Euro to lows not seen in over 2 years. In Spain, six regional governments are reported to be requesting aid from the central government, which in itself is experiencing soaring yields on its sovereign debt. Spanish 10-year bond yields climbed to 7.40%, as Spanish government officials lowered their estimate of 1st quarter GDP to -0.4%. The news out of Greece was also negative, with an article in a German publication stating that the IMF may not send additional funds to Greece -- though this was denied later by both the IMF and German government officials. Front month Euro futures fell below 1.2100 for the first time in over 2 years, as many traders once again moved out of "risk" assets. Though the fundamentals for the Euro continue to look dire, speculators are already holding a very large net-short position, totaling over 205,000 net short positions as of July 17th according to the Commitment of Traders report. This huge net-short position leaves the market vulnerable to potentially sharp price rallies on any positive news as weak bears are forced out of their positions, which makes holding short positions for the long run difficult for traders who are not well-capitalized.

Technical Notes

Looking at the daily continuation chart for the Eurocurrency futures, we notice prices trading at levels not seen since the last major low was made way back in June of 2010, when the Euro bottomed at 1.1874 in the front month futures. Prices are now well below both the 20 and 200-day moving averages, with the 14-day RSI just moving into oversold territory, with a current reading of 29.57. 1.2000 looks to be psychological support for the September Euro, with resistance found at the 20-day moving average, currently near the 1.2338 area.

Mike Zarembski, Senior Commodity Analyst



July 27, 2012

Dollar Safe Haven

Thursday, July 26, 2012

The US Dollar continues to have its detractors, but the flight to quality effect is undeniable. Simply said, when the going gets tough, traders and governments alike flock to the greenback. Outside of flight to quality buying, the Dollar has also moved higher on its own merit. Some traders may wish to focus on the technicals in the near-term. It is imperative that the Dollar hold its recent breakout to keep momentum. Failure to do so could result in a correction or consolidation.

Fundamentals

The US Dollar Index has been on the move higher, lifted by safe haven buyers fearing the worst in Europe. The greenback has been gaining momentum during the commodity rally, which is a rare occurrence. This can be attributed to the lack of faith in the European Union and their ability to keep the debt crisis from completely going out of control. It is not just EU doomsayers shedding the Euro for the US Dollar, but also traders with more conservative outlooks that believe Europe will simply lag behind the US in growth. The severe slowdown in the BRIC countries has also been a concern.

Technical Notes

Turning to the chart, we see the most recent upswing in the Sep Dollar Index beginning a little more than a month ago. This has resulted in prices taking out the relative highs near 83.50 made in late May. In order for the market to keep its upward momentum, prices need to hold above the 83.50 level. Otherwise, a pullback or stagnation may be on the horizon. The 20 and 50-day moving averages have acted as support lately, so traders may want to keep an eye on these indicators.

Rob Kurzatkowski, Senior Commodity Analyst



U.S. Treasury Futures Fly to All-time Highs!

Friday, July 27, 2012

The rally in Treasury Bond futures prices has been rather orderly, making new all-time highs without prices moving parabolic. This technical indication may be signaling that prices have further room on the upside being fueled by short-covering buying by traders trying to pick a top in this historic bull market.

Fundamentals

Investors cannot seem to get enough U.S. Government debt, as the U.S. Treasury auctioned off 35 billion of 2-year notes at a record low yield of 0.22% on Tuesday, and another 35 billion of 5-year notes at a yield of 0.584%, also a record low for this maturity. Continued uncertainty in Europe and signs of slowing economic growth in both the U.S. and China have investors looking for "safe haven" investments until the global economic environment begins to stabilize. Though U.S. yields are at record lows, Bond prices could go even higher, like in Germany, where yields are negative going out on the curve up to the 3-year note. The latest surge back into Treasuries can be attributed to concerns about Spain, where rising borrowing costs have many analysts speculating that the government will request a bailout from the ECB. In addition, U.S. economic data has not swayed the belief that the economy continues to slow, and a return to a recessionary environment is not out of the picture. On Wednesday, it was reported that U.S. new-home sales fell by 8.4% in June to an annual rate of 350,000. This news was particularly supportive of Treasuries, as housing trends have started to show some signs of a recovery, but June's data may have signaled that any housing recovery will be slow going, along with any improvement in the U.S. economic growth rate.

Technical Notes

Looking at the daily continuation chart for Treasury Bond futures, we notice prices breaking out to the upside from the recent 5-point trading range the market has been in since early June. Despite the upside breakout, the 14-day RSI has not yet reached overbought levels, with current readings near 61.20 The most recent commitment of traders report shows speculators shedding net-long positions, which does leave room for fresh buying to materialize by trend-following traders should new highs continue to be made. Near-term support for September bonds is seen at the July 19th low of 150-11, with resistance found at the contract high of 153-11.

Mike Zarembski, Senior Commodity Analyst



July 30, 2012

Too Early to Call a Top for Corn Futures Prices?

Monday, July 30, 2012

Increasing rainfall in the northern sections of the Corn Belt has caused bullish traders to pause their aggressive buying in Corn futures as prices reached $8 per bushel. Concerns that demand will be sharply curtailed at these lofty price levels may weigh on further gains, but sharply lower production this season should still keep prices elevated going into the South American growing season.

Fundamentals

After falling over 50 cents per bushel in just two trading days, new-crop December Corn is once again threatening to test contract highs of 800.00 per bushel. Prices rebounded from a limit-down move on Tuesday of last week, as traders continued to focus on weather forecasts calling for dry conditions in the west and central Corn Belt through early August. With the pollination period having already occurred for most of the Midwest, any additional moisture may not benefit the crop significantly, as damage has already occurred due to the record heat and drought conditions. Many analysts expect the true average yield may be near the 130 bushel range, which is well below the latest USDA estimate of 146 bushels per acre. Yields this low could drop production well below 12 billion bushels and potentially lead to a Corn deficit if prices don't rise further to curtail demand. Some traders are looking for the EPA to temporarily suspend the Ethanol mandate for gasoline due to potential Corn supply issues, but this may be a longshot, as it could result in sharply higher gasoline prices because demand would likely increase for the refined fuel. Livestock producers, especially hog producers, are already in the process of liquidating herds, as high feed costs have made raising hogs an unprofitable proposition. This will help to decrease feed demand for many months, but it still may not be enough to keep Corn prices from making new historic highs.

Technical Notes

Looking at the daily chart for December Corn, we notice prices beginning to consolidate between 750.00 and 800.00. This was a much needed pause in the bull move, especially after prices rallied nearly $3 per bushel in about 1 month's time. The 14-day RSI remains at overbought levels, with a current reading of 72.13. Support for December Corn is seen at the July 24th low of 745.50, with resistance remaining at 800.00.

Mike Zarembski, Senior Commodity Analyst


July 31, 2012

Gold Traders Waiting for Dollar/Commodity Divergence

Tuesday, July 31, 2012

The price of Gold has been in a state of flux, without the bulls or bears able to gain the upper hand. The fact that the Dollar and broad commodity markets have moved in tandem for several weeks has resulted in Gold missing out on the commodity rally. If we see some divergence with commodities and the Dollar, Gold may begin to move out of this tight range.

Fundamentals

Gold futures have been firmer over the past several sessions, boosted by the rally in equity prices. Grain prices have been a major driving force behind the commodity rally, which Gold has not taken part in for the most part. However, the pullback only seems temporary, as drought conditions continue to expand, which could easily reignite the rally. The strength of the US Dollar has been a major reason Gold has not participated in the bull run in commodities. The rally, however, could be coming to a close, at least temporarily. Gold has the potential to have the stars line up for the bull camp if equities and commodities rally while the greenback corrects. This happening, however, is not a given. The negative impact of Europe's toxic debt situation on the rest of the globe has brought the world's economy to a grinding halt. Without brisk economic growth, inflation is expected to be tame. The market is expecting this and, as a result, a certain amount of quantitative easing has been priced into the market.

Technical Notes

Turning to the chart, we see the continuous Gold chart forming a wedge pattern over several months. It now appears that the price of Gold is breaking out of the wedge to the upside. Prices are now trading over the 100-day moving average. The combination of the wedge breakout and moving average breakout could be further validated by Gold trading over the relative high at 1632.80. The overbought levels on the RSI indicator could put a damper on things. However, a breakout while the market is overbought could be explosive, making the next few sessions especially important.

Rob Kurzatkowski, Senior Commodity Analyst