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September 2014 Archives

September 3, 2014

Dollar Flies to One Year Highs

Wednesday, September 3, 2014

Long the Dollar is becoming a crowded trade according to the most recent Commitment of Traders report. For the reporting period ending August 26th, non-commercial traders, which are mainly hedge futures and large speculators, were holding a net-short position of 153,650 Euro futures and a net-long position of 28,765 Dollar index futures. Non-reportable traders, mainly small speculators, are also Dollar bulls, with a net-short Euro futures position totaling 44,356 contracts and a net-long Dollar Index position of 8,234 contracts.

Fundamentals

The U.S. Dollar is back in favor with currency traders, as the greenback has rallied to one-year highs vs. a basket of major global currencies. The September U.S. Dollar futures traded above 83.00 for the first time since July 2013 on positive data for U.S. manufacturing and construction. The Institute for Supply Management's (ISM) manufacturing purchasing manager's index for August came in at a surprisingly strong 59.0, vs. 57.1 in July. This was the highest reading since the 1st quarter of 2011 and well above the pre-report estimate of 56.8. This report seems to show that the U.S. recovery continues to strengthen, especially when compared to Europe where economic growth has stagnated and many countries in the European Union are seeing little to no growth -- or even moving back into recession. Dollar bulls received some additional good news on Tuesday, as construction spending rose by 1.8% in July, vs. estimates for a 1.2% increase from June. The strengthening Dollar was viewed as bearish for commodities, particularly for energies and metals which posted losses of over 1.5% on Tuesday.

Technical Notes

Looking at the weekly continuation chart for Dollar Index futures, we notice while prices are trading at one-year highs, a longer-term picture shows the market in a nearly 3-year consolidation pattern, as the market traded in a range from 78.00 on the downside to almost 85.00 on the upside. While prices are pulling further away to the upside from the 20- and 200-day moving averages, it should be noted that the 14-week RSI has moved into overbought territory, which could portend a near-term correction may be near. 83.41 is seen as the next resistance level for the front month futures, with support found at 81.52.

Mike Zarembski, Senior Commodity Analyst

September 4, 2014

Silver Lining for Oil?

Wednesday, September 4, 2014

Crude Oil futures rose sharply yesterday, as negotiations between Russia and Ukraine may lead to a ceasefire. Improved stability could significantly improve the economic outlook for the region, which, in turn, could improve Oil demand in the region. A ceasefire may not abruptly bring an end to the conflict, but this is definitely a step in the right direction. Meaningful progress could also lead to a loosening of European sanctions on Russia. There was never a question of Russia cutting off petroleum to the West, as the country's economy is dependent on energy exports.

Fundamentals

In addition to the progress between Russia and Ukraine, Oil traders have been a bit more upbeat on the demand outlook. Tuesday's US manufacturing and construction data came in better than expected. The EIA also reported that the 4-week average Crude Oil demand figure reached 19.8 million barrels per day in the period ending August 22. This is the highest average for the period since 2008. Upcoming refinery maintenance, ahead of colder weather, does slightly put a damper on the demand outlook. Traders may have already accounted for this, but it does take away from the momentum the oil market has been building. The Buzzard oil field in the North Sea has been shut down for a few days, which offered a brief reprieve to Brent Crude Oil prices, which found themselves under more pressure than the WTI contract. If the field comes back online, the spread between the Brent and WTI contracts could narrow further.

Technical Notes

Turning to the chart, we see the October Crude Oil contract trending lower, but holding above 92.50 thus far. The 91.50 support level could be viewed as critical near-term support. Failure to hold this support level could result in prices approaching the 85.00 level. The RSI indicator has recovered from oversold levels, but has not yet ventured too far into neutral territory to this point. The momentum indicator has turned up and is edging toward the zero line.

Rob Kurzatkowski, Senior Commodity Analyst


September 5, 2014

Will Cotton Bulls "Bale" after Recent Price Rise?

Friday, September 8, 2014

Large and Small speculators in Cotton futures have mixed opinions on the direction of prices but with little conviction in either camp. The most recent Commitment of Traders report shows non-commercial traders reversing their short positions and are now net-long 3,130 contracts as of August 26. Non-reportable traders are still net short after adding 281 new net-short positions to stand at 3,121. Commercials have liquidated their net- long positions during the same time-period and are only very slightly net-short as of August 26.

Fundamentals

Cotton bulls have seen some positive price action of late as the lead month December futures have rallied from 5-year lows. However, any significant price rise still faces some major bearish headwinds. First, traders are concerned that Cotton imports from China, the world's largest Cotton consuming nation, will be lower this year as the nation continues to hold huge Cotton inventories in its strategic reserves. Additionally, global Cotton production is expected to increase this year to an estimated 22.25 million tons vs. just over 50.5 million tons last year. Earlier this month there was some concerns by market participants at the late start to the monsoon season in India, which could affect crops from Cotton to Sugar if timely rains did not develop. However, rainfall totals have increased of late, which is taking this bullish factor off the table for now. U.S. Cotton conditions declined last week, with 50% of the crop now rated good to excellent vs. 51% the prior week. However, only 16% of the crop is rated poor to very poor which is an improvement from the 10-year average of 22% for this time of year. As we head into the fall, Cotton prices may face harvest pressure as producers ponder selling new-crop Cotton in lieu of storage, especially if it appears that Chinese demand will be subdued going into the New Year.

Technical Notes

Looking at the daily chart for December Cotton, we notice what appears to be a bear-flag forming. This technical pattern can portend a resumption of the major trend once the current price correction has been completed. Generally, technicians would wish to see a close below the lower uptrend line that forms the bottom of the "flag" formation, on higher than average trading volume to confirm this bearish technical pattern. Currently, prices are holding just above the uptrend line drawn from the August 1st low, as well as the 20-day moving average. However, to shift the long-term trend back to the bull camp, we would need to see prices rally above the 200-day moving average, which is currently nearly 12-cents per pound higher than the current market price. Resistance is seen at 67.72, with support found at 62.02.

Mike Zarembski, Senior Commodity Analyst


September 8, 2014

ECB Rate Cuts Send Euro Tumbling

Monday, September 8, 2014

The short Euro futures trade was already popular among speculators with nearly 200,000 net short positions established in the Euro futures between large and small traders. We should expect to see in upcoming Commitment of Traders reports that additional net-short positions were added following the European Central Bank (ECB) interest rate announcement as the sharp-selloff in the Euro may have been viewed as a signal for trend following traders that the currency was potentially headed even lower given the bearish comments from President Draghi.

Fundamentals

The European Central Bank ECB surprised currency traders on Thursday as three key interest rates were lowered. The main lending rate was cut to 0.05% from 0.15% and the overnight lending rate was lowered to 0.30% from 0.40%. The cost of banks parking excess funds at the ECB also became more expensive with a negative rate of -0.20%. Most analysts were expecting no change in interest rates following the ECB meeting, believing that a statement from ECB President Mario Draghi in June that the central bank had reached the lower bounds for interest rates. In addition to the rate cuts, it was announced the ECB will embark on two programs to purchase asset-backed securities as well as covered bonds. The dovish rhetoric from the ECB President sent the Euro sharply lower vs. the U.S. Dollar and is now trading at lows not seen since July of last year. With Eurozone inflation running at 0.3% last month, which is a far cry from the targeted 2.0%, the ECB appeared forced to take some action to show it is serious about trying to stimulate economic growth in the hopes of encouraging both corporations and individuals to begin spending and borrowing which is something that has been lacking in the Eurozone since the 2008 banking crisis.

Technical Notes

Looking at the daily continuation chart for the Euro futures, we notice the sharp sell-off on Thursday following the ECB rate cut announcement. The Euro was already in a bearish trend since the middle of July as the uptrend line drawn from the July 2012 low failed to stop the Euro's decline. Heavy volume was seen on Thursday as trend-following traders added to existing short positions and weak bulls ran for the exits. The 14-day RSI has plunged well into oversold territory with a current reading of 16.75. 1.2750 is seen as the next major support level for the Euro, with resistance found at 1.3222.

Mike Zarembski, Senior Commodity Analyst


September 9, 2014

Dollar Pressure, Truce Drive Gold Lower

Tuesday, September 9, 2014

Gold futures have see weakness recently, as a flurry of negative data has pressured prices. The US Dollar Index continues to climb due to trader expectations of a rate hike in 2015 and the ECB slashing rates. The strength of the greenback has certainly played a role in weak commodity prices, but it is not the only reason commodity prices have been trending lower. Bumper crops in the major grains and a healthy supply of Crude Oil could hold back Gold prices, even if the Dollar regresses.

Fundamentals

In addition to currency machinations and outside resistance from commodity prices, geopolitical factors have been negative for Gold prices. The truce between Ukraine and Russia has held up to this point. While precious metals have seen spurts of buying interest in recent months due to flare-ups in various geopolitical hotspots, the trend among traders has been investors lightening their positions in favor of better performing assets. There is not an overwhelmingly bearish sentiment among metal traders; rather, they appear to be tired of seeing the stock market hit new record highs, only to be stuck in a commodity that has largely been sitting in a holding pattern. India and China have also seen dramatic reductions to imports of the metal. Stronger US economic data has also reduced the flight-to-quality demand for precious metals. The ISM reported the biggest jump in manufacturing in more than a decade, and the labor market continues to show steady progress.

Technical Notes

Turning to the chart, we see the December Gold contract approaching the low end of the trading range near the 1240 mark. Failure to hold here suggests prices could test support at the 1200 level, which is a very important price point, both technically and psychologically. If prices rebound here, Gold could very well see a continuation of range-bound trading for the foreseeable future. The RSI indicator is showing oversold levels, which could be supportive in the near-term.

Rob Kurzatkowski, Senior Commodity Analyst

September 10, 2014

Brent Breakdown

Wednesday, September 10, 2014

Crude Oil futures remain weak, amid worries that supply will outpace demand for the foreseeable future. While the economic outlook for the US remains upbeat, the same cannot be said for China and Europe. Chinese Premier Li Keqiang announced money-supply growth was the slowest in five months, which can be attributed to efforts by the Chinese government to stem the tide of money-supply into the Chinese economy. Long-term, this is healthy for the Chinese economy, but has a strong possibility of hurting commodity prices near-term. The October Brent Crude Oil (BZ1V14) is trading below the $100 mark for the second consecutive session, which may drag down WTI with it.

Fundamentals

Yesterday's American Petroleum Institute (API) report indicated that US Oil inventories shrank by 1.9 million barrels last week. It was a larger drawdown than expected, especially in light of the slight decline in refinery activity. The market may move around today's EIA inventory numbers, which are forecast to show a drawdown of 1.5 million barrels. Trading may be lighter as the session moves on, as OPEC meets tomorrow and there is always an air of uncertainty as to what the cartel plans to do moving forward. The US Dollar Index did pull back a bit, which could set a slightly bullish tone to trading. Also, it appears that the EU is holding off further sanctions against Russia due to its truce with Russia holding up to this point.

Technical Notes

Turning to the chart, we see the October Brent Crude Oil contract in a steady downtrend since forming a relative high in late June. Prices are trading below the $100 level, which is the near-term technical support. Additional support can be found near the 96.85 level. Despite the recent selling pressure, the RSI has managed to barely stay above oversold levels.

Rob Kurzatkowski, Senior Commodity Analyst

September 11, 2014

Copper Woes Continue

Thursday, September 11, 2014

Copper futures are trading at their lowest level since mid-June amid a flurry of negative forces affected the market. Uncertainties over the state of the Chinese economy and the strength of the US Dollar have been especially negative for the Copper market. China has been pushing out a series of reforms to ease the downward pressure on the economy, but, at the same time, the government has been battling corruption and attempting to prevent bubble conditions. As a result, July industrial output, investment and retail sales have regressed. The US Dollar has strengthened by almost 4 and a half percent over the quarter, which has put downward pressure on commodity prices across the board. Dollar-priced raw materials are more expensive, making them less attractive to investors.

Fundamentals

Despite softer economic data, Chinese imports of Copper were largely unchanged in the month of August. This can be seen as supportive in light of the poor economic showing and metal financing probe. The Chinese government has been investigating loans made to base metal firms using metals such as Copper as collateral. The unchanged import figure is also surprising given the fact that many Copper processing mills came back online in August, adding to the domestic supply of the metal. Reports out of the Philippines indicate that the proposed export ban that was supporting prices may be years away. Government officials suggest that the law may not go into effect for 2 years and companies will likely have a 5 year grace period.

Technical Notes

Turning to the chart, we see the December Copper contract coming down to test the 3.0750 level in early trading. Failure to hold 3.0750 suggests prices could come down to test the 3.0000 mark. The succession of lower highs and lower lows beginning in July gives a bearish tilt to the market. The RSI indicator is nearing oversold levels, which could be viewed as possibly being supportive in the near-term.

Rob Kurzatkowski, Senior Commodity Analyst

September 12, 2014

Aussie Crushed by Weight of Metal Prices

Friday, September 12, 2014

The Australian Dollar suffered heavy losses versus the greenback in recent sessions, driven by lower commodity prices. The recent strength of the US Dollar has triggered a wave of buying in the currency, at the expense of higher yielding currencies, such as the Aussie Dollar. The Federal Reserve is expected to begin raising interest rates next year, which was a departure from the low interest rate environment the US has been in for the past several years. Because of the shift in interest rate sentiment, currencies that have performed well due to favorable interest rate parity have suffered the most in recent days.

Fundamentals

The recent weakness in the Australian Dollar has been a welcome development for the Reserve Bank of Australia. The central bank has favored a lower exchange rate to bolster their economy. Australia is a supplier of raw goods to the region and a weaker currency would make those exports more attractively priced. Demand for base metals, especially from China, has been lackluster, at best, which may keep downward pressure on the Aussie. Currency traders may want to keep an eye on Chinese metal imports to gauge if the softening of the Aussie helps exports. Traders may also want to keep an eye on today's retail sales data, which will likely have an influence on the Fed's decision making process.

Technical Notes

Turning to the chart, we see the December Australian Dollar breaking down below the 0.9200 support level. Prices have also broken through minor support around 0.9030 in early trading. The next fairly significant support level can be found around the 0.8875 level. Recent price movement has resulted in prices falling below the 200 day moving average. The RSI indicator is now showing oversold technical conditions, which may be seen as supportive in the near-term. The Aussie Dollar is heading into an area with heavy chart congestion, which may act as a buffer on the downside.

Rob Kurzatkowski, Senior Commodity Analyst

September 15, 2014

Fundamentals Fuel Bear Market for Crude

Monday, September 15, 2014

The price premium for Brent Crude vs. WTI has fallen of late despite continued tensions in the Middle East. The November spread has fallen below a $7 Brent premium as oil demand from both China and Europe has declined. Brent Crude is considered the benchmark for global Oil prices and its move below $100 per barrel appears to be signaling that concerns of lower global demand are overshadowing the fear of any supply disruptions tied to the continued political conflict in Iraq and Ukraine. While WTI Crude prices, the U.S. benchmark grade, have also been falling, the prospects for stronger economic growth in the U.S. are helping to lower Brent's price premium.

Fundamentals

Motorists are getting some relief from the "pain at the pump" as oil prices continue to slump. The latest bearish data came from the International Energy Agency (IEA), which lowered its forecast for global oil demand next year. While global demand for crude is expected to rise by 1.3% in 2015 according to the IEA, they cut the over 160,000 barrels from previous estimates. The bearish news continued when the IEA reported that Oil exports from Saudi Arabia, the largest OPEC oil-exporting nation, were at their lowest levels since 2011. U.S. Gasoline prices at the pump averaged just over $3.14 per gallon according to AAA, which was the lowest average price since late February. The Energy Information Administration (EIA) reported in its weekly energy stock report, that Gasoline inventories increased by 2.38 million barrels last week to stand at 212.4 million barrels. So while both Gasoline and Distillate fuel supplies rose, fuel usage declined by nearly 7% last week. Not even continued tensions in the Middle East seem to be able to support Oil prices of late, which leave little for energy bulls to hold on to as prices appear poised to enter into a bear market, which would be the first since late 2008.

Technical Notes

Looking at the daily chart for November WTI crude, we notice the current downtrend began back in July once prices fell below the 20-day moving average (MA). The longer-term trend entered the bear camp back in August once the 200-day MA failed to support prices. The 14-day RSI is weak but remains above oversold levels with a current reading of 35.66. 87.85 is seen as the next major support level for the November futures, with resistance found at 95.07.

Mike Zarembski, Senior Commodity Analyst

September 16, 2014

Is $5 Sustainable?

Tuesday, September 16, 2014

Wheat futures continue to move lower amid fund selling after the bearish USDA report last week. The December contract has been flirting with the $5 level over the past few sessions, but has not broken through to this point. After declining 21% for the year, traders are wondering if we are close to reaching a bottom. Some view $5 prices as unsustainable, as this price level could attract value buyers.

Fundamentals

The USDA estimates that the world output will reach a record 719.95 million metric tons this year, which would be a second consecutive yearly record output. For carry out, the USDA forecast domestic stockpiles at the end of the 2014-15 growing season next May 31 at 698 million bushels, up from its estimate of 663 million bushels last month. Globally, stockpiles are expected to total 196.38 metric tons, up for last month's forecast of 192.96 million metric tons. Saskatchewan has been experiencing some unseasonably cold weather. The freezes may result in some quality issues for the crop in that region and can be seen as supportive. The northern Great Plains is in danger of experiencing some early freezes, which traders may wish to monitor.

Technical Notes

Turning to the chart, we see the December Wheat contract continue to grind lower after breaking near-term support near the 520 level. The Wheat contract is heading into an area of heavy chart congestion going down to the 435 mark. The 435 support level could be seen as critical support. Recent price action has resulted in the RSI falling into oversold territory.

Rob Kurzatkowski, Senior Commodity Analyst

September 17, 2014

Traders Nervous Ahead of Fed Meeting

Wednesday, September 17, 2014

Bullish equity traders received a surprise ahead of today's Fed announcement, as the People's Bank of China provided 500 billion yuan of liquidity to the country's largest banks. This monetary stimulus signals that Chinese leaders areprepared to take steps to spur economic growth, which is viewed as supportive for both equities and commodities.

Fundamentals

Treasury futures have been in a downward correction mode since the beginning of September, as traders close out long positions ahead of the Federal Reserve's October Federal Open Market Committee (FOMC) meeting that ends this morning. The benchmark 10-year Note yields rose as high as 2.62% this month on concerns that the Fed may bring forward the timing of its first interest rate hike. While market participants anticipate the Fed may begin to raise rates early in the summer of 2015, traders will be keenly focusing on any changes in the language of the policy statement to be released following this month's FOMC meeting to gauge if the Fed is leaning towards hiking rates sooner than most traders expect. However, if we look at recent economic data for not only the U.S. but globally as well, there appear to be few signs that economic growth is strong enough for the Fed to "rush" into a move towards higher rates in the near-term. Inflation data has been tame, especially with energy prices starting to decline, and growth prospects in both Europe and China are showing signs of slowing. In addition, we cannot discount the "attractiveness" of U.S. Treasuries as "flight to safety" assets, especially for non- U.S. investors who see 10-year Note yields at 2.50% attractive compared to what is available in German or Japanese sovereign debt. Any further uptick in U.S. Treasury yields, especially in the middle and back end of the yield curve, could find eager buyers from outside the U.S. and result in a flattening of the yield curve from current levels, which is something that the Fed would not find ideal.

Technical Notes

Looking at the weekly continuation chart for Treasury Bond futures, we note that while the near-term trend has turned neutral to slightly bearish for prices, the longer-term trends are still favoring the bull camp. Drawing trendlines from the major lows back in 1981 and 1984, we notice that the first major support level is not found until just under 125-00. This support area is still over 11 points below current price levels, and it would be difficult to become very bearish on Bond prices until this support level fails to hold. Near-term traders will note that prices are now below both the 20- and 200-week moving averages, and the 14-week RSI has fallen below 50, with a current reading of 48.32. Near-term support is seen at 134-11, with near-term resistance found at 141-30.

Mike Zarembski, Senior Commodity Analyst


September 18, 2014

Gold Shrugs Off Fed, Sells Off

Thursday, September 18, 2014

Gold futures are little changed this morning after suffering late decline in yesterday's trading. The policy statement from the FOMC could be seen as extremely dovish on the surface, reiterating that interest rates are going to stay at near zero for a "considerable time". The central bank also moved forward with further reductions to asset purchases, staying on pace to end quantitative easing next month. The Fed had indicated that the labor market will heavily influence the bank's interest policy moving forward. The soft August jobs report likely influenced the FOMC to include the "considerable time" language in the policy statement. Despite the language in the statement, it seems that the bank is preparing the market for higher interest rates, which can be seen as Gold bearish. Tying the interest rate policy to the labor market potentially gives the Fed justification for deviating from its low interest policy if labor conditions improve.

Fundamentals

Gold fundamentals remain negative, despite what could be viewed as a potentially bullish FOMC policy statement. Holdings in gold-based ETFs are at the lowest level since October 2009, reducing demand from investors. The recent strength of the US Dollar has also exerted a negative influence on the Guild market. The greenback has the potential to keep moving higher, given the economic situations in Japan and Europe are far from ideal, which could lead to further injections of liquidity by their respective central banks. Commodity driven currencies, like the Aussie, Kiwi and Canadian Dollars have been hurt by weaker commodity prices. The relatively cheap price of Gold could attract some value buying around these levels.

Technical Notes

Turning to the chart, we see the December Gold contract trading below support at the 1240.50 mark. The next significant support levels can be found at 1185 and 1075. The RSI is currently at oversold levels, which could be seen as supportive of prices in the near-term.

Rob Kurzatkowski, Senior Commodity Analyst

September 19, 2014

Will Fed Determine Dollar's Direction

Friday, September 19, 2014

The British Pound (GBP) has lived up to its name of late as the GBP has been "pounded" lower vs. the U.S. Dollar on concerns of a "yes" vote for an independent Scotland. However, the GBP has gained in value versus the Euro, which may be a sign that market participants anticipate that the Scottish independence vote will fall to defeat. The results of the vote should be known sometime today.

Fundamentals

The U.S. Dollar has been a hot topic among traders of late as its next move would be highly dependent on the signals the Federal Reserve sends following the September Federal Open Market Committee meeting that ended this past Wednesday. Well, the upshot from the Fed seems to be "steady for the course" as the statement released following the 2-day meeting kept the key phrase that short-term rates would remain low for a "considerable time". While the Fed plans to keep short-term rates at very low levels for some time, it will also continue to wind down its bond buying purchases, with an eventual ending date possibly as early as October. 14 of 17 Fed officials believe that the first interest rate hike will occur in 2015, which is higher than the September forecast where only 12 members believed that the first rate hike would occur next year. Following the meeting, the U.S. Dollar rose to 6-year highs versus the Japanese Yen, as well as new 14-month highs versus the Euro. While currencies have historically been known to establish multi-year trends once a major fundamental shift has occurred, it may be still too early to tell if the Fed's eventual move towards raising the key benchmark will result in a bullish trend in the U.S. Dollar, especially against the Yen, where the Bank of Japan has no choice but to continue own quantitative easing policy to help weaken the value of the Yen to help break out of its multi-decade economic stagnation.

Technical Notes

Looking at the weekly continuation chart for the Japanese Yen futures, we notice that the uptrend line drawn from the 1985 lows has been taken out to the downside. This could be a signal that the 30-year bull market for the Yen vs. the U.S. Dollar has ended. The market is now well below the 200-week moving average and the 14-week RSI has moved into oversold territory with a current reading of 25.65. If the Yen bull market has indeed ended, the next major support level is not seen until the 0.8160 price level, which is over 1100 pips lower than the current price. A weekly close above 1.0000 would put serious doubt to the change in trend, with a weekly close above 1.0660 needed for Yen bulls to regain the upper hand.

Mike Zarembski, Senior Commodity Analyst

September 22, 2014

Bears in Charge as Natural Gas Prices Tumble

Monday, September 22, 2014

The National Weather Service Climate Prediction Center is calling for above normal temperatures for most of the east and central parts of the U.S going into the start of October. Mild early fall temperatures should allow an increased amount of Natural Gas to be placed in storage the next few weeks which if accurate, will help to bring Gas inventories closer in line with the 5-year average and start the winter heating season with adequate supplies of Gas in storage.

Fundamentals

Households in the U.S. may get a warm feeling in the wallet this coming winter, as Natural gas futures have fallen below $4 for the start of the heating season month contracts. Mild summer temperatures helped to keep Gas demand for cooling at moderate levels, which led to larger Gas injections into storage for most of the summer. The Energy Information Administration (EIA) reported that 90 billion cubic feet (bcf) of Gas was placed into storage last week, which was in-line with pre-report estimates. However, the injection was more than double the 5-year average for this time of year and has allowed U.S. stockpiles to rise above 2.9 trillion cubic feet. While this is still below the storage levels we saw last year, this is a huge recovery compared to what we saw this past spring, as the brutal winter drew storage levels to near critical levels. In addition to mild temperatures this summer, U.S. Gas production continues to exceed expectations, which will most likely continue to be a bearish element overhanging the market unless we see a return of the "polar vortex" this winter.

Technical Notes

Looking at the daily chart for December Natural Gas, we notice the market trading near the lower part of the recent consolidation range. Bears have control as prices are below both the 20 and 200-day moving averages. The 14-day RSI has turned down with a current reading of 45.97. Trading volume is beginning to increase as traders begin to shift their focus towards the winter month expirations where the potential for large price moves increases now that we are nearing the end of the peak Atlantic hurricane season. 3.877 is seen as the next major support level for the December futures, with resistance found at 4.252.

Mike Zarembski, Senior Commodity Analyst


September 23, 2014

Gasoline Heading Toward $3?

Tuesday, September 23, 2014

Gasoline prices continue their summer decline, riding the Crude Oil market lower. Oil prices account for 66 % of the cost of gasoline. Crude Oil has declined amid fears that China, the world's second largest consumer, will experience an economic slowdown. A statement from Chinese Finance Minister Lou Jiwei indicates the Chinese economy will experience economic headwinds. Even with a recovery in the US, a slower China could put a severe damper on Crude Oil demand. International Crude Oil prices have fallen by 16% since the end of June. Domestically, the price decline has been 11%.

Fundamentals

In addition to the worries over Chinese demand, Libya is expecting to resume Crude Oil production. The Libyan situation seems to change every other week, so this may be taken with a grain of salt. Refiners are getting ready to switch over to the winter blend of gasoline, instead of the summer blend. Winter blend is cheaper to produce, but also commands a lower price at the pump. This time of year tends to bring cheaper gas prices along with it. Over the past three years, the national average price has fallen by more than 30 cents from September to November. Traders may want to keep an eye on this week's EIA inventory report, which could show a sizable drawdown in inventory levels of gasoline, which may give a temporary reprieve for RBOB prices. The EIA did raise its forecast for US gasoline consumption for 2014 to more than 2 billion gallons.

Technical Notes

Turning to the chart, we see the November RBOB contract giving back some of Friday's gains. The October contract could catch a bit of momentum if it can confirm a bottoming formation on the daily chart. Prices are near the 50-day moving average. If prices are able to hold gains above the moving average, the market could get a boost over the intermediate term. Failure to push through these prices levels could result in RBOB prices continuing to grind lower.

Rob Kurzatkowski, Senior Commodity Analyst


September 24, 2014

Cocoa Bucks Bearish Trend for Commodities

Wednesday, September 24, 2014

Both large and small speculators in Cocoa futures were lightening up on their net-long positions last week only to see prices soar in the past few trading sessions. The Commitment of Traders report shows non-commercial traders shedding nearly 6,600 net-long positions during the reporting period ending September 16. This long liquidation selling reduced the overall net-position of these large speculative accounts to just over 70,000 contracts. Non-reportable traders, normally small speculators, also saw long liquidation selling last week, and reduced their overall net long position by 655 contracts to stand at nearly 5,750 net-long contracts.

Fundamentals

Bullish futures traders have had little to cheer for the past several months as a stronger U.S. Dollar and fears of slowing economic growth in Europe and China have triggered an overall bear market in commodities price. One of the few exceptions to the current bearish trend has been Cocoa. Here prices are currently trading near 3-year highs on concerns that the Ebola outbreak that has plagued parts of West Africa, could eventually spread to the major Cocoa growing nations of Ivory Coast and Ghana, and potentially causing disruptions of Cocoa shipments should strict quarantines be implemented. Cocoa prices were already seeing support from strong demand from global chocolate makers and while this season's Ivory Coast Cocoa production totals were at record levels, traders note that recent Cocoa arrivals at Ivory Coast ports has been lower than expected. Traders should prepare for increased volatility in the near-term as market participants determine what if any adequate "risk premium" should be reflected in prices should West African Cocoa shipments face disruptions.

Technical Notes

Looking at the daily chart for December Cocoa, we notice prices moving "parabolic" following the recent sell-off that, in hindsight, turned into a "bear-trap" and forced out weak longs prior to the recent price surge. The 200-day moving average (MA) has acted as a key support barrier throughout most of the 18-month bull market run. We do note that the 14-day RSI has entered overbought territory with a current reading of 73.80. Any price correction could be severe given the steep upward price move the past 7 sessions with yesterday's "reversal" potentially triggering some profit-taking selling. 3366 appears to be the next resistance level for December Cocoa, with support seen at the 20-day moving MA, currently near the 3156 price level.

Mike Zarembski, Senior Commodity Analyst

September 25, 2014

Currency Corruption Weighs on Copper

Thursday, September 25, 2014

Front month Copper futures fell to their lowest levels in over 3 months on currency and demand concerns. The Federal Reserve indicated the asset purchase program will conclude on schedule next month, which helped bolster the US Dollar versus other major currencies. The Japanese Yen was noticeably weaker due to economic growth concerns in Japan. There is also news that the Chinese government uncovered more than $10 billion in fake currency transactions. Much of this activity took place in the port of Qingdao. According to the State Administration of Foreign Exchange indicated that companies "faked, forged and illegally reused" documents for exports and imports. Could this be just the tip of the iceberg? No one knows at this point. There have been rumblings about these types of sham transactions for some time, but these accusations were dismissed by many.

Fundamentals

The uncovering of the false transactions could have a negative impact on import activity, as the crackdown will likely continue. Investigators are now looking into whether or not Copper and other metals being held at facilities in the port were part of these sham transactions. Besides potentially being purchased with fraudulent funds, metals may have been pledged more than once to obtain loans. As a result, banks may attempt to limit their potential exposure by refusing to make loans secured by Copper and other metals. This crackdown is just one of a series of measures the Chinese government has taken recently to reduce fraudulent activity and corruption. Long-term, these reforms will lead to more transparency and will reassure investors to continue investing in China. In the near-term, however, reforms and economic tightening could make for rocky growth. The US continues to have a rosier economic outlook than Europe, Japan and China, which could contribute to further gains in the greenback. A stronger US Dollar could mean lower investment demand for commodities, including Copper.

Technical Notes

Turning to the chart, we see the December contract breaking near-term support near the 3.0750 level. Prices may now test the $3 mark in the near-term, which may be viewed as a key psychological level. Technical support comes in just below $3 at 2.9750. The market could regain some near-term momentum by reclaiming the 3.0750 level. The RSI indicator is not at oversold levels, which could be seen as technically supportive in the near-term.

Rob Kurzatkowski, Senior Commodity Analyst


September 26, 2014

Will Traders go "Hog Wild" following USDA Report?

Friday, September 26, 2014

The following are the average "trade" estimates for this afternoon's USDA Quarterly Hogs and Pigs Report due out at 2 pm Chicago time.
All Hogs and Pigs on Sep 1: 96.5% of year-ago totals
Hogs kept for breeding: 101.5% of year-ago totals
Hogs kept for marketing: 96.3% of year-ago totals

Fundamentals

Lean Hog futures prices remain at historically high price levels despite seasonal tendencies that favor lower pork prices. Pork cut-out values have seen gains the past week, despite the end of the summer grilling season. Near-term supply tightness appears to be responsible for the price increases, which are helping to keep packer profit margins in the black. Hog slaughter projections are expected to rise to near 420,000 head, which is above 411,000 head seen one week ago. Increased packer demand for market ready hogs is helping to raise cash market prices, with the CME 2-day Lean Hog index up over 3.00 to 105.30. Livestock traders will be busy squaring their positions this morning ahead of the widely watched USDA quarterly Hogs and Pigs report. This quarter's report will is seen as especially important to get a sense of producer's intentions to increase the breeding herd following the devastating outbreak of PED virus, which greatly reduced the young pig population this year. While traders expect producers to increase the number of Hogs used for breeding, any major differences from average estimates could spark increased volatility in the 2015 futures months.

Technical Notes

Looking at the daily chart for December Lean Hogs, we notice prices beginning to consolidate following a rather significant sell-off from late July into the middle of August. Bulls still have a slight edge as prices remain above the 200-day moving average. However, the 14-day RSI remains in neutral territory with a current reading of 44.15. 99.000 is seen as the next major resistance level for the December futures, with support found at the September 18th "spike" low of 90.900.

Mike Zarembski, Senior Commodity Analyst


September 29, 2014

Bear Trend in Crude Stalling?

Bear Trend in Crude Stalling?

Crude Oil Bulls received some positive news last week after the Energy Information Administration reported that U.S. Crude Oil inventories fell by over 4.2 million barrels the past week, which was a surprise to traders who were looking for a 500,000 barrel build. Higher refining rates as well as a sharp decline in U.S. Oil imports accounted for the surprising decline in inventories.

Fundamentals

The recent bear market run for Crude Oil prices appears to have taken a bit of a breather as the market has moved into a price consolidation phase after the lead month November futures briefly fell below support at $90 per barrel. Global oil supply and demand picture continues to favor the bear camp with European Oil demand weakened by slowing economic growth and refinery maintenance and reports that the leading OPEC Oil exporter, Saudi Arabia, will be keeping Oil output steady despite lackluster global demand. However, one has to wonder how long traders will ignore escalating geopolitical concerns in both the Middle East, West Africa and Russia, and not place a "risk premium" in prices should oil production be curtailed should tensions increase. In addition, OPEC member Iran is now calling for cartel member nations to begin to take action to prevent Oil prices from falling further. Whether this call to action will influence other member nations to begin to curb Oil production remains to be seen. Traders may not wish to become overly bearish on Oil prices with potential upside price "shocks" no out of the question.

Technical Notes

Looking at the daily chart for November Crude Oil, we notice a consolidation pattern forming following a nearly $15 price break from yearly highs. A test of support at 90.00 failed as renewed buying interest returned once prices briefly breached this psychological support level. Short-term momentum has turned in favor of Oil bulls as prices have moved above the 20-day moving average. The 14-day RSI has moved into neutral territory with a current reading of 50.03. Resistance is seen at the recent high of 95.07, with support found at 89.56.

Mike Zarembski, Senior Commodity Analyst


September 30, 2014

Slow News Cycle Keeps Oil Prices in Check

Tuesday, September 30, 2014

Crude Oil futures continue to tread water due to lack of geopolitical events and more than ample supplies. While there is still plenty of tension in Syria with ISIS rebels, the potential impact on Oil supplies is negligible. This is a shift from late 2012 to early 2013 when the Iranian nuclear standoff and Libyan instability created a tangible threat to supplies. In addition to the lack of news, inventory levels remain above average. There is simply not enough demand to put a major dent in supply.

Fundamentals

US Crude Oil inventories are forecast to have swollen to 359.6 million barrels this week, which would be above the 5-year average. US Crude production is expected to have reached 8.87 million barrels a day, the highest output since 1986. Inventory levels could swell in the near-term due to refinery outages and maintenance. Gasoline inventories, however, may see drawdowns as a result, which may offset the potentially bearish Crude Oil inventory data. Chinese manufacturing continues to post disappointing numbers, with the PMI coming in at 50.2. The median estimate was 50.5. It will be interesting to see the impact the recent Chinese reforms will have on the economy there. Also, it seems as though the government in China is willing to miss its 7.5% target growth rate in order to put in reforms to keep inflation in check and crack down on corruption. In the US, the economic outlook is much more upbeat, with last Friday's upward revision to the GDP. The labor market continues to make positive strides, but traders may want to keep an eye on the real estate market. It could be the weak link going forward, as a housing slowdown may lead to a loss of wealth and curb consumer spending.

Technical Notes

Turning to the chart, we see the November Crude Oil market deviating from its recent sharp downtrend line. Additionally, Nov Crude may be forming a double-bottom on the chart, which could signal a near-term price reversal. If confirmed, the measure of the double-bottom could suggest prices might test the $100 mark on the upside. Failure to confirm the pattern could mean prices are set to grind lower or, at best, trade sideways. The recent bounce in prices has resulted in the RSI indicator nearing overbought territory. The RSI indicator has been moving higher since mid-August, even though prices moved lower-to-sideways over the same period. This may suggest that prices could see a reversal.

Rob Kurzatkowski, Senior Commodity Analyst