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May 2014 Archives

May 1, 2014

Crude Pressured from All Sides

Thursday, May 1, 2014

Crude Oil futures are trading south of the $100 level after the EIA reported another weekly inventory increase. In addition to bearish inventory data, Oil felt the pinch of decreased liquidity from the Federal Reserve and bearish Chinese manufacturing data. It was a perfect storm of negative news for Crude Oil traders. That being said, it may be a stretch to say that prices are set to reverse course. This is because the wildcard is the Ukrainian crisis, which could continue to act as support for prices. Russian President Vladimir Putin and the West are playing a game of who will blink first, which may result in further sanctions. What has Oil traders concerned is the possibility of Russia retaliating by trimming or cutting off of energy supplies.

Fundamentals

The EIA reported that US Crude Oil inventories rose by 1.7 million barrels for the week, to 399.4 million barrels. This is the largest inventory level since the EIA began keeping tabs on energy stocks in 1982. While overall stockpiles rose, Cushing, OK supplies shank by 612,000 barrels, continuing the trend for the hub. While the Cushing drawdown could be seen as bullish, it does not erase the fact that the US remains extremely well supplied. In China, the Purchasing Managers' Index was at 50.4, according to the National Bureau of Statistics and China Federation of Logistics and Purchasing. This was short of the analyst estimate of 50.5, continuing the trend of soft Chinese economic data. The Federal Reserve cut its asset purchases by another $10 billion a month to $45 billion, which is what the market was expecting. While it is encouraging that household spending had kicked up, there are traders out that that are skeptical that the recovery can continue if the Fed ends quantitative easing by the end of 2014.

Technical Notes

Turning to the chart, we see the June Crude Oil contract baking through the $100 mark in early trading. This not only puts Oil prices below support at $100, but is also below the 20-, 50- and 100-day moving averages if prices close where they are overnight. The recent weakness could be attributed to technically overbought levels on the RSI, but the oscillator is now showing oversold conditions.

Rob Kurzatkowski, Senior Commodity Analyst


May 2, 2014

Another Month, Another Non-farm Payrolls Report

Friday, May 2, 2014

Here are the current estimates for this morning's employment data for April:
April Non-Farm Payrolls: 210,000 vs. 192,000 March
April Private Sector Payrolls 205,000 vs. 192,000 March
April Unemployment Rate 6.6% vs. 6.7 March

Fundamentals

Once again, it is time for market pundits to polish up their crystal balls and prove their best "guestimate" for the monthly non-farm payrolls and unemployment report. Traders and analysts are looking for some improvement in the employment picture from last month with some backing from the April ADP National Employment Report that was released earlier this week. According to ADP, 220,000 private sector jobs were created last month, which was an increase of 11,000 jobs from March. Small businesses accounted for the greatest share of new jobs created at 82,000. Improving weather conditions throughout much of the U.S. allowed the construction industry to ramp-up hiring as 19,000 jobs were created in this important employment sector. Economic data released on Thursday gave traders mixed signals as to the strength of the U.S. economy, as the Institute for Supply Managers (ISM) reading on the Manufacturing rose to 54.9 in April up from the 53.7 reading in March and above the pre-report estimate of 54.3. More importantly, the ISM employment index rose to a 54.7 reading in April vs. 51.1 in March. However, weekly jobless claims rose more than expected last week, adding 14,000 claimants last week to a seasonally adjusted 344,000. Federal Reserve officials continue to taper back on their bond purchases and provided a rather upbeat assessment of the U.S. economy in the statement following the 2-year FOMC meeting on Wednesday, this despite a measly 0.1% gain in 1st quarter GDP. It appears that the Fed is willing to blame "Mother Nature" for the dismal growth reading to start 2014, and instead has turned its focus to other economic data that signals stronger economic growth. However, should future economic data not support the Fed's thesis; it is possible that the Fed will consider temporally suspending its tapering, if U.S. economic growth continues to lag expectations.

Technical Notes

Looking at the daily continuation chart for the E-mini S&P 500 futures, we notice the market treading water since mid-February as the market has been confined within a 100 point range. Prices are currently above the 20-day moving average and momentum as measured by the 14-day RSI is neutral to strong with a current reading of 57.39. 1786.25 looks to be near-term support for the lead-month June futures, with resistance found at the contract high of 1892.50.
Mike Zarembski, Senior Commodity Analyst


May 5, 2014

Bond Yields Rise then Fall after Non-farm Payrolls Surprise

Monday, May 5, 2014

Here are the details from Friday's April Non-farm payrolls report:
April Non-farm Payrolls: 288,000 April Private Payrolls: 273,000
April unemployment rate: 6.3% April hourly earnings 0.0%
April average work week: 34.5 hours March payrolls revised: 203, 000 up 11,000

Fundamentals

Spring is finally here and that was good news for the labor market as U.S. payrolls surged last month. On Friday morning, the Labor Department reported that U.S non-farm payrolls rose by 288,000 in April. This was the largest monthly increase since January 2012 and appears to represent pent-up demand for labor following the harsh winter over much of the country. Both the private and public sector saw jobs increase with private payrolls rising by 273,000 and even the beleaguered public sector saw a gain for 15,000 jobs in April. The real surprise in Friday's employment data was in the sharp drop in the unemployment rate, which tumbled by 0.4% to 6.3%. However before anyone celebrates this decline, we must note that the labor participation rate fell to 62.8% from 63.2% in March. This translates to over 800,000 participants leaving the labor force. Average hours worked as well as average hourly wages remained unchanged in April, which is helping to keep inflationary concerns in check. After an initial "spike" in yields once the employment data was released, Treasury bond futures reverses course and rallied to highs not seen since July of 2013 as yields in the cash 30-year bond moved below 3.70%. It appears the dip in long term yields was moderately offset by a slight rise in yields for the short end of the curve. Equity indices initially surged after the report, but turned mixed later in the session as traders seem to be anticipating that the Federal Reserve will continue its course in tapering back its bond purchases and could even be persuaded to raise short-term rates sooner than anticipated if employment data continues to improve, especially if average hours worked as well as wages start to turn upward in the coming months.

Technical Notes

Looking at the daily continuation chart for Treasury Bond futures, we note that prices appear to be trying to form a fairly significant bottom should we see a weekly close above long term resistance at 137-23. Prices are starting to trend above the 20-day moving average and momentum as measured by the 14-day RSI is strong with a current reading of 67.59. The next support level is seen at the April 4th lows of 131-21.

Mike Zarembski, Senior Commodity Analyst


May 6, 2014

Drought, Ukraine Drive Wheat Higher

Tuesday, May 6, 2014

Violence in the Ukraine has ramped up over the weekend, leading to fears that exports from the country could be disrupted. Clashes in Odessa have left several people injured. Odessa and four other Black Sea ports handle the bulk of Ukrainian Wheat shipments, which makes the situation in the city of particular concern. Russian and Ukraine are expected to be the fifth and sixth largest Wheat exporters for this upcoming crop year.

Fundamentals

The turbulent Ukrainian situation is not the only factor driving Wheat prices higher. Dryer weather conditions across most of the western Great Plains region could cut production. Parts of Kansas had temperatures over 100 degrees this past weekend. Parts of Kansas and Oklahoma are expected to have temperatures reaching in excess of 90 degrees this week. Kansas winter Wheat production is only expected to be a paltry 33.2 bushels an acre, which would be the lowest output in seven years. Total Oklahoma winter Wheat production is only forecast to be 66.5 million bushels, which would be the lowest output since 1957. The bullish fundamental news may, however, be offset by rising Canadian stockpiles. Canada had a record harvest according to government estimates and inventory levels increased by 47 percent over last year.

Technical Notes

Turning to the chart, we see the July Wheat contract breaking through near-term resistance near the 715 level. Yesterday's candlestick has a long upper shadow, suggesting prices could reverse. Traders may want to be a bit cautious with the near-term breakout and wait for a confirmation of the breakout. The next resistance level may be found near the 800 level. The RSI indicator is showing technically overbought conditions, which could result in choppy trading.

Rob Kurzatkowski, Senior Commodity Analyst


May 7, 2014

No "pop" in Corn Prices ahead of USDA Report

Wednesday, May 7, 2014

A cool and wet spring this year has kept producers out of the fields throughout the Midwest keeping Corn plantings running behind schedule. The USDA estimated that 29% of the U.S. Corn crop has been planted as of May 4th. This is 13% below the 5-year average for this time of year. Producers in Iowa, the nation's leading Corn producing state, had only 23% of the expected Corn plantings done vs. nearly 50% for the past 5 years. However, weather forecasts calling for warmer temperatures the next several days could see producers working around the clock to finish the Corn plantings while Mother Nature is in a cooperative mood.

Fundamentals

The rally in new-crop Corn prices has stalled recently despite concerns that Corn production from Ukraine will be sharply lower this year. Estimates out of Ukraine are for this seasons Corn crop to be between 15 to 25% lower than last year with exports expected to fall even more. The U.S. has seen increased export business for Corn the past few weeks with weekly sales running ahead of the weekly pace needed to meet USDA projections. This Friday, traders will get their first peak at the government estimate for Corn inventories for the 2014/15 marketing year when the USDA releases their data in the May crop production and supply/demand report. Analysts expect the USDA to predict this coming season's Corn ending stocks will increase from this past seasons estimate near 1.310 billion bushels, but the range of estimates have been quite wide. Anywhere within a range of 1.500 to 2.000 billion bushels would have to be considered a "bull's-eye" given the current "unknowns" for this year's production totals.

Technical Notes

Looking at the daily chart for December Corn futures, we notice prices becoming range-bound since the beginning of April, following a $0.65 per bushel price rally that began back in mid-January. Prices are now holding above both the 20 and 200-day moving average and the 14-day RSI has once again moved above 50 with a current reading of 54.09. The high of 517.00, made back on April 9th looks to be the next major resistance level for the December futures, with support seen at the March 31st low of 476.00.

Mike Zarembski, Senior Commodity Analyst


May 9, 2014

Soybean Prices Steady ahead of USDA Report

Friday, May 9, 2014

Brazilian producers are expected to produce a record Soybean Crop this season, despite historic drought conditions over parts of the nation's Soybean growing areas. Brazil's government agency overseeing crop production, Conab, expects the 2013-14 Soybean harvest to total a record 86.1 million tons. While the size of the harvest is indeed impressive, it will still fall short of earlier estimates for a harvest over 90 million tons due to less than ideal weather this growing season.

Fundamentals

Earlier this week we took a look at the Corn market and how market participants are positioning themselves prior to the USDA crop production and supply/demand report. This morning let's take a peek at the Soybean market and what traders are anticipating from the USDA data. U.S. old-crop Soybean inventories are expected to show a moderate decline from April's estimate of 135 million bushels, but world inventories are expected to increase by 350,000 tons to nearly 70 million tons. It is the new-crop estimates were the variance of opinions lie. For the 2014/15 marketing year, traders expect U.S. Soybean carryover to more than double 2013/14 totals, with average estimates hovering just over 300 million bushels. However, analysts estimates have varied widely but a figure between 250 and 350 million bushels would be considered a "bull's-eye". Old-crop vs. new-crop Soybean spreads have begun to weaken the past several sessions as U.S. old crop exports start to wane with sales starting to move towards Brazil and Argentina as the new-crop harvest continues. However, last week U.S. exporters sold nearly 41,000 tons of old-crop soybeans which is still a significant amount given the current tight old-crop supplies in the U.S., as well as new-crop South American supplies starting to come to market. This may help to keep Old-crop Soybean prices supported in the near-term.

Technical Notes
Looking at the daily chart for July Soybeans, we notice what appears to be a rounded top formation on the daily chart. Prices have retreated nearly 90-cents since recent high were made, but a bout of short-covering buying, as well as better than expected old-crop exports last week have put an end to the recent price sell-off at least for now. Trading volume has been light the past several weeks, despite a move towards multi-month highs. 1365.50 is seen a strong support for July Soybeans, with resistance found at the recent highs of 1531.75.

Mike Zarembski, Senior Commodity Analyst

May 12, 2014

Greenback Holding for Now

Monday, May 12, 2014

The US Dollar Index rebounded from six-month lows after testimony from Fed Chair Janet Yellen said the US economy is poised for growth. Whether the greenback will be able to gain traction from economic growth remains up in the air. This could simply be a temporary reprieve from the recent wave of selling pressure. The firmness in prices may be seen as much technical in nature as much as news driven due to oversold conditions.

Fundamentals

The US Dollar got a bit of a boost from softer March German manufacturing data, which showed regression. New orders fell 2.8% in adjusted terms versus forecasts of a 0.2% increase in orders. The ECB held interest rates steady at 0.25%. There is some speculation that the ECB may go in the opposite direction of the Federal Reserve and begin asset purchases to weaken the currency. The Fed continues to be an enigma, not committing to an interest rate timetable. It is widely believed that the Fed will completely eliminate asset purchases by the end of the year, which will remove some money supply.

Technical Notes

Turning to the chart, we see the Dollar Index breaking down below support near the 79.25 mark. The downtrend that began last year continues and the Dollar Index now finds itself at a particularly important level - support at the 79.00 mark. Failure to hold here could result in a tidal wave of selling pressure. As previously mentioned, the RSI indicator is showing oversold conditions, which could be seen as supportive in the near-term.

Rob Kurzatkowski, Senior Commodity Analyst


May 14, 2014

Breakout or Bull Trap for Copper

Wednesday, May 14th, 2014

Copper is not the only member of the base metals group to find some bullish news. Nickel prices have risen sharply of late, as a continued export ban out of Indonesia coupled with concerns that Russian Nickel sales could be reduced if economic sanctions increase, has triggered rendered buying interest by speculators. Stainless Steel producers, the largest end users of Nickel, have been scrambling to secure supplies as prices rise adding to the buying pressure seen in the Nickel market.

Fundamentals

Continued uncertainty regarding the strength of the Chinese economy has failed to halt the recent rise in Copper prices after trading near 4-year lows. Lead month Copper futures have gained strength on the back of lower Copper inventories in both Shanghai and London Metal Exchange (LME) warehouses. Copper supplies have become tight in China, which has encouraged Chinese Copper smelters to curtail exports of the red metal and selling into the domestic market where spot prices are trading at a premium as buyers scramble to obtain supplies. Copper prices pulled back on Tuesday after trading at fresh 2-month highs, following a lower than expected reading on Chinese Industrial output in April. Copper bears point to sluggish economic data out of China as a sign that the world's most populous nation is facing some headwinds in its economy which would traditionally be a bearish weight on commodity prices, including that for Copper. However, trend-following technical traders may become increasingly bullish on Copper prices should the recent rally hold above chart support which could trigger additional buying from momentum based trading systems and potentially diminish the importance of economic data out of China at least in the short run.

Technical Notes

Looking at the daily chart for July Copper, we notice prices have recently broken-out to the upside after spending the past several weeks in an 8-cent price range. Although the market is trading well over the short-term 20-day moving average (MA), there is still some steep upside resistance prior to a test of the widely watched 200-day MA, which is currently near the 3.2200 price level. 3.1770 is seen as the next resistance level for July Copper, with support found at 3.0650.

Mike Zarembski, Senior Commodity Analyst


May 15, 2014

Supply Fears Ignite Palladium

Thursday, May 15th, 2014

Palladium futures have traded to their highest levels since August 2011 due to supply fears. New sanctions from the European Union are not expected to have a material impact on the Russian economy. However, Russia could retaliate by limiting exports from the nations, which could include its precious metals. Labor issues in South Africa also gave both Platinum and Palladium prices a boost due to labor issues in the nation

Fundamentals

Russia accounts for 44% of the world's Palladium production, followed by South Africa, which accounts for 40% of world production. The situation in South Africa may have a large impact on Palladium supplies. Members of the Association of Mineworkers and Construction Union have been on strike since January 23. There have been reports of workers being prevented from returning to work by force at Lomin mines, which has made it impossible for the company to get the mines back online. Over the weekend, it was reported that four people were killed and another six injured in violence linked to the worker turmoil. These supply issues come at a time when there is more optimism about the US and European economies, which would lead one to believe car sales are bound to improve. Palladium is a key component in emission control devices in cars.

Technical Notes

Turning to the chart, we see the June Palladium contract continuing to trade almost parabolically since the end of January. Prices broke through resistance at the 815.00 level and are now approaching the August 2011 spike high of 850.20. The RSI indicator remains on the high side of neutral, suggesting the indicator may creep into overbought territory with further price increases. It is of interest to note that the RSI has been diverging from prices for some time, hinting that a downside reversal is not out of the question.

Rob Kurzatkowski, Senior Commodity Analyst


May 16, 2014

Treasury Yields Fall Despite Signs of Rising Inflation

Friday, May 16, 2014

While U.S. Treasury prices continue to trend higher, U.S. equities are struggling with the e-mini S&P 500 falling nearly 40 points since making all-time highs earlier this week. There has been some talk among traders that U.S. equity prices may have become rich given current economic growth levels. Slower global growth could affect corporate earnings, especially for multi-national corporations, which rely on non-U.S sales for a large portion of their profits.

Fundamentals

Bond traders are in a quandary, as recent data seems to be suggesting that the inflation rate may be on the upswing at the same time that economist's are questioning why global economic growth seems to be stalling. It appears that sluggish growth is winning the battle for the direction of Bond prices as 10-year Note yields have fallen to levels not seen since October of last year. Many analysts were expecting Treasury yields to rise as the Federal Reserved continued to "taper" back on its bond purchases, as well as forecasts calling for U.S. GDP to rise above 3% this year. This belief led many traders to establish short positions in U.S. Treasury futures in anticipation of falling Bond prices as the economy gained steam. However, Treasury futures prices have not only failed to retreat but the Front month June 10-year note futures are now trading at its highest levels for the year in what appears to be a rather severe bout of short-covering as yields fell through 2.50%. Not even higher readings for both the Consumer Price Index (CPI) and Producer Price Index (PPI) could stop the onslaught of buyers in Treasuries of late. It appears that the focus of traders has turned back towards Europe, where additional stimulus measures may be enacted by the European Central Bank (ECB) due to stagnant growth on the European continent. The benchmark German 10-year Government Bond yield has fallen 1.30%, which is the lowest rate of the year and in turn may be drawing additional buyers into the U.S Bond markets, which are currently yielding over 1% above its German counterpart.

Technical Notes

Looking at the daily chart for June 10-year Note futures, we notice what may be an upside breakout from the two month long consolidation pattern where prices were holding within a 2-point range. The recent price rally is adding confirmation to the rounded-bottom formation that appears on the daily chart. Prices are above both the 20 and 200-day moving averages and the 14-day RSI is strong, having just nudged above 70 with a current reading of 72.03. 126-16.0 is seen as the next resistance level for the front month 10-year Note futures, with support found at 123-16.0.

Mike Zarembski, Senior Commodity Analyst


May 19, 2014

Got Milk?

Monday, May 19, 2014

optionsXpress is preparing to expand our futures and futures product lineup and in the coming days' we will be launching trading in CME Group cash-settled Butter futures. Butter futures will be the second dairy complex futures product offered at optionsXpress following Class lll Milk future and options. Trading in Butter futures is up 61.7% year to date at the CME and will be the start of an expanded agricultural futures lineup to be offered at optionsXpress in 2014. The following are some of the key specifications for this product:
Symbol: CB Contract Size: 20,000 lb.
Tick Size: 0.025 = $5 Trading Months: All Months
Trading Hours: Sun 6:00 PM-Fri 2:55 PM ET
(Daily Trading Halt 5:00 PM to 6:00 PM ET).

Fundamentals

It's been a great start to 2014 for U.S Daily producers as Milk prices reached record levels at the same time that feed costs are starting to move lower. Class lll Milk, used in the production of cheese, has traded at record prices in recent weeks with front-month futures recently surpassing the $24 per hundred-weight price level for the first time. While U.S. Milk production has increased the past few years, Milk exports have soared, accounting for over 15% of total sales vs. closer to 5% just 10 years earlier. Mexico is the largest buyer of U.S. Milk products and sales to our neighbor to the south increased sharply, especially for Cheese. However, the biggest surprise has been the sharp increase in demand for dairy products from China, where domestic dairy producers have not been able to keep up with demand and triggering increased import demand from the world's most populous nation. However, like any other commodity," the cure for high prices is high prices" and as we move into Summer we are starting to see some signs that prices may have peaked for the year. Milk production in New Zealand, the world's largest dairy exporter, is expected to increase this year, which will add supplies to the export market. In addition, domestic dairy demand in the U.S. continues to wane. For the rest of the year, Dairy traders will continue to monitor demand at current elevated price levels to determine if end users will balk at paying record high prices for Dairy, or will demand begin to diminish along with prices and call to close this historic bull market run.

Technical Notes

Looking at the daily chart for June Milk futures we notice price beginning to correct after trading at all time highs. Prices have now moved below the 20-day moving average (MA) but remains well above the longer-term 200-day MA which is currently near the 18.31 price level. The 14-day RSI has turned weaker with a current reading of 44.56. Support is seen at the April 14th low of 19.66, with resistance found at 21.84.

Mike Zarembski, Senior Commodity Analyst

May 20, 2014

Gold Trade Quiet

Tuesday, May 20, 2014

Gold futures continue to grind sideways, as the lack of investment demand and geopolitical tension have played pig pong with the market. Global investment demand from exchange traded products has fallen year over year. Total ETP holdings fell to 1,074.5 metric tons in the quarter, from 1,077.2 tons a year earlier, according to the World Gold Council. The geopolitical risks from the Ukrainian crisis have been well noted here and elsewhere. They may continue to underpin the market, providing a layer of support for Gold prices.

Fundamentals

Despite the softer demand from investment products, jewelry demand from Gold has increased, filling the void. Global Gold jewelry demand rose 3 % to 570.7 tons in the first quarter, according to data provided by the World Gold Council. A good chunk of that demand came from China at 203.2 tons. India, on the other hand, saw Gold demand drop by 8.7 % to 145.6 tons. Traders are somewhat optimistic that the Indian Gold demand will improve if and when tariffs are decreased. The US has shown an uptick in inflation, which could bode well for metal prices. The Federal Reserve will likely continue pumping money into the economy via low interest rates, which may stoke inflation. The problem with the Fed having target inflation is that once it does hit their benchmark, it may be difficult to keep in check. Tomorrow's release of the FOMC minutes may give traders a bit more insight into what the FOMC board members focus/concerns are.

Technical Notes

Turning to the chart, we see the August Gold contract continuing to consolidate in a progressively tightening manner. This has formed a triangle/wedge pattern on the chart, which has tightened to the point where a breakout is all but imminent. The direction of the potential breakout is unknown, but may move the price of the metal in the range of $50-60. The 100-day moving average has acted as support in recent weeks, while the 50-day moving average has played the role of resistance. The oscillators sit at neutral levels, offering no hint as to the direction of the market.

Rob Kurzatkowski, Senior Commodity Analyst

May 21, 2014

Wheat Prices Weak Despite Worsening Crop Conditions

Wednesday, May 21, 2014

Large speculators have been trimming their net-long positions in K.C. Wheat futures despite new-crop condition woes. The most recent Commitment of Traders report shows non-commercial traders holding a net-long position totaling 27,030 as of May 13th. This was a decline of just over 4,000 contracts from the previous week. Commercial and non-reportable traders are net-short the K.C. Wheat market, although open interest in declining as prices trader near 3 week lows.

Fundamentals

Wheat futures are getting no love from commodity bulls despite the continued deterioration of the soon to be harvested crop. The USDA reported on Monday that 29% of the winter Wheat crop was rated good/excellent vs. 30% last week. However, 44% of the crop was rated poor/very poor, which was an increase of 2% for the week. To put these numbers in perspective, the 10-year average for this time of year is for 47% of the crop to be rated good/excellent. Crop conditions in Kansas, traditionally the largest Hard Red Winter Wheat producer, are even worse than the national average, as 59% of the Wheat crop is rated poor/very poor due to continued drought conditions. Although it appears that the U.S. winter crop may be a disappointment this season, traders seem more focused on sluggish U.S. Wheat exports, which are running behind USDA expectations as buyers continue to purchase Wheat from the European Union as well as the Black Sea region, where wheat prices are at a discount to U.S. prices. Analysts note that world Wheat inventories are expected to increase in the coming season, with the USDA expecting global Wheat stockpiles to reach 187.4 million metric tons by June of 2015. So unless production issues occur outside the U.S. and Wheat importers are forced to seek U.S. supplies, it may be difficult for Wheat prices to sustain any significant price rally despite lower U.S. production.

Technical Notes

Looking at the daily chart for July K.C. Wheat, we notice prices attempting to form a near-term bottom after a nearly $1 per bushel price decline the past several sessions. Trading volume has declined since the start of May, as it appears that long liquidation selling and not the establishment of bearish positions that has been the main catalyst behind the recent price decline. Prices are sandwiched between the 20 and 200-day moving averages, but are currently hovering below the up-trend line drawn from the early February lows. The 14-day RSI has turned neutral to weak with a current reading of 42.08. 759.00 is seen as the next near-term support level for July K.C. Wheat, with near-term resistance seen at 794.50.

Mike Zarembski, Senior Commodity Analyst


May 23, 2014

Will the Pound Sterling Shine Bright in 2014

Friday, May 23, 2014

Although the British Pound has strengthened vs. the U.S. Dollar the past 12 months, the rally in the Pound Sterling still has its roadblocks. On Thursday, first quarter GDP readings came in at +0.8%, which was unchanged from the initial forecast. This disappointed traders who were expecting a gain of 0.9. In addition, net-borrowing in April rose to 11.5 billion pounds, up from 9.5 billion pounds in April 2013. So while the uptrend is still intact, Pound bulls may become nervous and a correction is possible, unless the market continues to receive "positive" economic news on the U.K. economy.

Fundamentals

Are "hawks" starting to hatch at the Bank of England (BOE)? That is a question currency traders are beginning to ask, as the value of the British Pound is continuing to increase versus the U.S. Dollar. It appears that the UK economy is recovering faster than its European neighbors, with the BOE raising its Q2 growth forecast to 0.9% from 0.8% in Q1. This growth forecast received a boost from a larger than expected rise in retail sales in April, a 1.3% gain for the month, which was well above expectations of a 0.4% gain. Recently released minutes from the last BOE monetary policy meeting showed some members of the Monetary Policy Committee believe that interest rates may need to rise, but at a very gradual rate. This view has sparked talk that the BOE will begin to raise rates earlier than the market expected, which was for a start sometime in the first quarter of 2015. Committee members expect U.K. inflation to rise closer to 2% in the coming months, although a stronger Pound may help to dampen rising inflationary concerns. UK property values continue to rise sharply, which may force the BOE to take action to help "cool" the red-hot property market.

Technical Notes

Looking at the daily continuation chart for British Pound futures, we notice prices steadily climbing the past 12 month, although recent price action seems to be testing the uptrend line drawn from the July 2013 lows. Trading volume has been light the past several weeks, as it appears that fresh buying is not materializing in any meaningful way. The 14-day RSI has turned neutral, with a current reading of 53.95. 1.6992 is seen as the next resistance level for the Pound futures, with support found at 1.6727.

Mike Zarembski, Senior Commodity Analyst

May 27, 2014

Will New "Ghost" Acres Appear for Soybeans?

Tuesday May 27, 2014

Soybean prices rose to their highest level in almost a year on stronger demand from China. China is said to have ordered 110,000 tons of 2014-2015 Soybeans, easing fears that demand from the Asian giant may be soft. There were fears that China may default on some imports due to bird flu and receding pork prices, which could decrease demand for Soybean Meal. While the news from China is positive, weather conditions may put a cap on Bean prices.

Fundamentals

Weather conditions are expected to warm up going into June, and the grain belt is expected to see healthy rains. This is good news for farmers. Presently, roughly 33% of the US crop has been planted, which is 5% behind the 5-year average. Traders may want to keep an eye on North Dakota and Minnesota. Corn plantings are already behind schedule due to the long, harsh winter. There are 10 million acres that could shift from Corn to Soybeans if farmers are unable to get Corn planted in time. There are also 4-5 million unplanted acres the USDA did not account for. That makes a total of 14-15 million acres that could, theoretically, shift to Beans. This could be a downer for prices

Technical Notes

Turning to the continuous chart, we see the July Soybean contract pushing through the recent high close of 1518.75. If prices are able to confirm a breakout above this level, they could test the next significant resistance level at 1575. The RSI indicator is closing in on overbought levels, which could restrict further advances. If, however, the Soybean market sees a breakout with overbought conditions, the breakout could be explosive.

Rob Kurzatkowski, Senior Commodity Analyst

May 28, 2014

Palladium Rally Approaches 2011 Highs

Wednesday, May 28, 2014

Platinum prices have also rallied of late, though not quite to the extent of Palladium. Private forecasters believe that there is currently about a 6-month supply of Platinum globally, which should provide some cushion for end-users should the mining strikes in South Africa be settled shortly. However, should South African production remain off-line through the summer, we may need to see prices rise in order to ration demand.

Fundamentals

Palladium continues to be the best performing of the major precious metals, with prices approaching highs not seen since 2011, as traders fear that supplies are not keeping up with demand. Violence has erupted in South Africa, where precious metals miners have been on strike for over 4 months. This has curtailed Palladium supplies out of one of the world's largest producing nations, responsible for about one-third of the global Palladium production. A report by Johnson Matthey suggests the Palladium market may see a deficit of over 1.6 million ounces in 2014, vs. just over 370,000 ounces in 2013. The wild-card for the Palladium market will be Russia, which is the largest global producer of Palladium. In 2013, Russia was responsible for just over 40% of global Palladium supplies, and it appears that sales from state-owned reserves may cease this year, as domestic inventories have fallen to near zero. The possibility of additional western nation sanctions against Russia for its involvement in Ukraine may also limit supplies of Palladium to the market this year.

Technical Notes

Looking at the weekly continuation chart for Palladium futures, we notice prices approaching the top of a multi-year continuation pattern as prices near 33-month highs. Prices are beginning to pull away from the 20-week moving average, as the 14-week RSI remains strong, with a current reading of 67.47. 850.20 is seen as the next resistance level for front-month Palladium, with support seen at 745.70.
Mike Zarembski, Senior Commodity Analyst