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March 2015 Archives

March 2, 2015

Gasoline Bear Market Running on Empty

Monday, March 2, 2015

Both Gasoline and Distillate supplies fell last week, and the U.S. is still awash in Crude Oil. That was the takeaway from Wednesday's Energy Information Administration's (EIA) weekly energy stocks report. For the week ending February 20th, U.S. Crude Oil inventories rose by 8.427 million barrels to a record 434.071 million barrels. U.S. Crude Inventories are running nearly 72 million barrels above last year's levels and nearly 80 million barrels above the 5-year average. Gasoline, however, saw supplies fall by a larger than expected 3.118 million barrels. Despite last week's decline, current U.S. Gasoline inventories are still above both last year's and the 5-year average. Distillate supplies, which include both Heating Oil and Diesel, fell by 2.711 million barrels, with current inventories running just over 13 million barrels below the 5-year average.

Fundamentals

U.S. motorists who were rejoicing at seeing a 1-dollar handle on Gas prices to start the New Year are now realizing that the good times may be over, as futures prices have rallied to their highest levels since early December. Some of the gains seen are tied to a seasonal shift by refiners to production of cleaner burning grades of Gasoline required by EPA regulations. Starting with the lead month April future, the RBOB term structure has moved into a backwardation out to the December 2015 contract, which will encourage less Gasoline production to move into storage. This may be necessary given signs that Gasoline demand is starting to increase. In addition, seasonal maintenance as well as labor issues at several U.S. refineries could spell further draws in Gasoline inventories in the coming weeks.

Technical Notes

Looking at the daily chart for April RBOB Gasoline, we notice prices starting to breakout to the upside after finding a near-term bottom near the 1.5000 price area. We should note how the 20-day moving average has acted as support and resistance for most of the market movement since July of last year. The 14-day RSI has turned positive, but remains below overbought levels with a current reading of 64.05. 2.0000 looks to be the next major resistance level for the April contract, with support found at 1.6626.
Mike Zarembski, Senior Commodity Analyst

March 3, 2015

Sunshine Before the Storm?

Tuesday, March 3, 2015

The Swiss economy grew twice as quickly as traders expected in the fourth quarter last year, bolstered by strong exports. Will this be enough to stop the Swiss Franc's recent slide? The currency spiked last month after the Swiss central bank announced it would remove the 1.20 upper limit on the currency. Since then, the Franc has been steadily declining, as investors' interest has waned.

Fundamentals

The positive GDP figure may not be as positive as it appears on the surface. The Swiss economy grew 0.6% versus analyst estimates of 0.3%. However, the economy was bolstered by strong export demand, which could deteriorate with a stronger currency. Exports grew 4.1% in 2014 after falling 0.1% the prior year. Furthermore, other areas of the Swiss economy performed much worse than exporters. Despite this, economists do not expect the Swiss economy to slip into a deep recession. If the economy even slips into recession that is. Many observers do not expect the Swiss economy to reach recessionary levels. Forecasters are expecting the Swiss economy to grow at just under 1 % in 2015. It is beginning to look like the Swiss National Bank let the Franc float at the right time, as pressure is taking its toll on the currency, making it fall naturally. There is momentum behind the idea that the SNB will cut interest rates, suggesting that the Franc could be trading too high versus the Euro and US Dollar.

Technical Notes

Turning to the chart, we see the March Swiss Franc giving back more than half of the gains that were made by the January price spike. Prices are now trading below the 1.05 level and is approaching pre-spike price levels. Prices are extremely oversold at the moment, which may result in consolidation in prices in the near-term.

Rob Kurzatkowski, Senior Commodity Analyst

March 4, 2015

Natural Gas Bears out of Hibernation as Spring Approaches

Wednesday, March 4, 2015

The drop in both Natural Gas and Crude Oil prices has forced producers to curtail drilling. As of February 25, U.S. Gas rigs count has fallen to 289, down 3.67% from the previous week and down nearly 15.5% from year ago levels. For Crude, the drop is even more dramatic with rig count falling to 1,019, down over 3.5% from the previous week and down a whopping 28.49% from year ago totals. The Permian Basin (West Texas and parts of Southeast New Mexico) saw the largest decline falling 125 units.

Fundamentals

Natural Gas bulls were looking for a huge draw from storage last week on the basis of a late winter cold snap that plagued the eastern half of the U.S. While working gas in storage did fall by 219 billion cubic feet during the week ending February 20, traders were expecting an even larger decline and prices fell sharply following the data release. Current gas in storage is running over 42% above year-ago levels, when the so called "polar vortex" sparked fears of a gas shortage heading into summer. Natural Gas demand since January 1 has varied sharply depending on what region one is analyzing with the east region seeing withdrawals running 5% above the 5-year average, but the west region seeing withdrawals down 7% from the 5-year average. Gas supplies, however continue to increase, with increased U.S. production as well as surging imports from Canada, keeping U.S. gas supplies running over 10% above this time last year.

Technical Notes

Looking at the daily chart for April Natural Gas, we notice the minor uptrend seen in prices since the start of February has been soundly negated by the steep price sell-off that followed the EIA Gas storage report last week. Prices have once again moved below the 20-day moving average and the 14-day RSI has started to weaken with a current reading of 43.29. Support is seen at the recent low of 2.589, with resistance found at 3.045.

Mike Zarembski, Senior Commodity Analyst


March 5, 2015

Gold Choppy Ahead of Non-Farm Payrolls

Thursday, March 5, 2015

Gold futures have been trading in a choppy, sideways manner this week, as traders await the release of non-farm payroll data. Traders are expecting a mixed bag from the report, with the consensus estimating that the US economy will have added 238,000 jobs in February. February is expected to have seen a smaller increase than the January 257,000 figure. Unemployment is forecast to fall to 5.6%, while hourly earnings are expected to show a meager 0.2% increase. Stronger data could be viewed as being negative for Gold, lessening its appeal as a defensive play. Given recent uneasiness by the bull camp, a stronger jobs number could have more of an impact on the metals market than weaker data.

Fundamentals

In addition to the uneasiness of Gold bulls, several strong job numbers could sway the Fed to begin raising rates earlier rather than later. Gold was unaffected by rate cuts by several nations, including China and Australia. Not surprisingly, China revised down its GDP guidance, suggesting more rate cuts may be in the works. There has been a huge slowdown in the property market and China is concerned about deflationary pressure (who would have thought this was a possibility several years ago!). This could result in demand for precious metals as an investment from Chinese households. China could see some normalization in gold demand in 2015. Last year saw a drop off in imports. China imported around 813.13 tons of gold during 2014, compared to 1,158.16 tons imported during 2013, which was a record year.

Technical Notes

Turning to the chart, we see the April Gold contract hanging around the low 1200's in recent sessions. Prices have managed to avoid a breakdown below the 1200 level so far. Failure to hold the level would have been see as bearish. The April contract may be forming a small W, or double, bottom on the chart, suggesting the downtrend that started in mid-to-late January could reverse course, at least temporarily. The RSI indicator hasrecovered from oversold levels.

Rob Kurzatkowski, Senior Commodity Analyst


March 6, 2015

"Sell Mortimer Sell!"

Friday, March 6, 2015

The Orange Juice futures market is currently in a battle between large speculative and commercial traders according to the most recent Commitment of Traders report. For the week ending February 24, non-commercial traders were short a new 2,600 contracts, while commercial traders were adding to their net-long position by adding nearly 2,700 new net-long positions to stand at 2,849 contracts.

Fundamentals

This famous quote from the 1983 movie Trading Places might have been heard in the old Frozen Concentrated Orange Futures (FCOJ) ring earlier this week, if there was still floor trading at the old New York Board of Trade and now ICE US exchange, as continued weak retail demand for O.J. and a weak Brazilian currency were key catalysts for the aggressive selling seen on Tuesday. The lead month May futures fell to lows not seen since early in 2013 as long liquidation selling sent prices as low as 110.50 prior to some bargain hunting buying emerged. Retail O.J demand continues wane with February's sales down over 4.5 million gallons from year ago levels. On top of slumping demand, the continued weakening of the Brazilian real could encourage increased juice exports from Brazil in order to benefit from the conversion between the real and the dollar. While the fundamentals remain solidly in the bearish camp, some of the technical, especially the 14-day RSI seem to signal that prices may have become oversold. However, even Valentine and Winthorpe, may want to see further confirmation that a near-term low is in place prior to becoming bullish on FCOJ future.

Technical Notes

Looking at the daily chart for May O.J. futures we notice prices reaching over 2-year lows earlier this week but saw some short-covering buying emerge once it appeared that support near the 110.00 price level would hold. While prices still remain well below the 20-day moving average, the 14-day RSI has moved to oversold levels, with a current reading of 27.65. The recent low at 110.50 is seen as support for the May contract with resistance found at 127.00.

Mike Zarembski, Senior Commodity Analyst


March 9, 2015

"Get a Job!"

Monday, March 9, 2015

Overshadowed by the February payrolls data was the release of the U.S. trade deficit figures for January. The Commerce Department reported that the trade deficit fell to a seasonally adjusted $41.74 billion in January. December's deficit was also revised lower to $45.60 billion. Both imports and exports fell in January, with declines of 2.9% and 3.9% respectively, and Crude Oil imports accounting for the bulk of the decline in imports for January.

Fundamentals

The 1950's hit song by the Silhouettes "Get a Job" could be changed to "Got a Job" if one is to believe the recent employment data. On Friday, the Labor Department announced that U.S. non-farm payrolls rose by 295,000 in February, or 55,000 more than pre-report estimates. In addition, the unemployment rate fell by a larger than expected 0.2% to 5.5%. Private payrolls once again made up the bulk of jobs created last month, with a gain of 288,000. The leisure and hospitality sectors, as well as the professional and business services sectors led in total jobs created, however the widely watched manufacturing sector saw only 8,000 new jobs in February. While the headline figures were impressive, we should note that January's payrolls were revised downward by 18,000 jobs. Also, while employment increased last month, workers' paychecks are not yet seeing the benefits of a tighter labor market, as average hours worked in February remained unchanged at 34.6 hours, and average hourly earnings rose a modest $0.03 to $24.78. This 2% gain in hourly earnings is in line with gains seen for most of the last 4 years. The real question on traders' minds is whether Friday's employment data is enough to keep the Fed on pace to finally raise interest rates at the June FOMC meeting, or if the Fed will remain very cautious and wait for evidence that inflation is finally starting to tick upward prior to enacting a rate hike.

Technical Notes

Looking at the daily continuation chart for 10-year Note futures, we notice prices falling below the 200-day moving average for the first time since October of last year following the much better than expected payrolls data for February. The 14-day RSI has turned very weak and is approaching oversold levels, with a current reading of 32.87. The December 8th low of 125-17.5 is seen as the next support level, with the major support level not found until 123-16. Resistance is found at 129-01.

Mike Zarembski, Senior Commodity Analyst


March 10, 2015

More Rocky Times Ahead for Loonie?

Tuesday, March 10, 2015

Short positions in the Canadian Dollar have been building over the past several months. The Commitment of Traders report has shown an increase in the speculative net short position in 8 of the last 10 weeks. This is not necessarily due to any specific set of economic data in Canada, but, rather, is based off of US fundamentals. Friday's non-farm payroll report was better than expected, leading to speculation that the Federal Reserve may raise interest rates more quickly than previously expected. Dallas Fed President Richard Fisher said policy makers should raise rates sooner rather than later and aggressively.

Fundamentals

The Federal Reserve raising interest rates aggressively could have a double negative impact on the Canadian Dollar. Obviously, a stronger Dollar will naturally sink the Loonie. A stronger greenback could also sink Crude Oil prices even further, which could have a negative impact on the Canadian economy. The Canadian economy has held up very well, despite weaker Oil prices, and it is the third best performing G10 economy. What has some traders concerned is that the full impact of the breakdown in Crude Oil prices may not have shown up in jobs figures just yet. This Friday's Canadian jobs report from Statistics Canada may give traders a better idea of the health of the Canadian labor market. Analyst estimates are fairly optimistic, but there are some dangers in addition to possible losses in the Oil sector. Several large retailers have had closings and many believe this impact has not yet been felt, which could be seen as a wildcard.

Technical Notes

Turning to the chart, we see the Canadian Dollar consolidating in a wedge formation. Given the preceding downtrend, the bias for a possible breakout may be seen as favoring a downward breakout. Prices have been centered around the 20-day moving average, so deviation from the average could be seen as hinting toward the near-term market direction

Rob Kurzatkowski, Senior Commodity Analyst

March 11, 2015

Do Equities Fear the Fed?

Wednesday, March 11, 2015

As we begin to approach the end of the 1st quarter of 2015, U.S. equity markets have been a bit disappointing to market bulls as the S&P 500 is down 0.7% so far this year. While 2015 would be the 7th year of the recent bull market that started back in 2009, traders appear to be getting a bit nervous about the rally continuing with the possibility of a Federal Reserve rate hike looming.

Fundamentals

After reaching all-time highs just a few weeks ago, equity traders have become fearful that the Federal Reserve may finally begin to raise interest rates by mid-year, following the better than anticipated U.S. employment report released last Friday. On top of "Fed fears" traders are becoming concerned about the strength in the U.S. Dollar, especially now that the European Central Bank has embarked on its version of Quantitative easing (QE) which sent German bonds to their lowest yields in history. A stronger Dollar can hurt earnings of companies that rely on large percentages of sales from outside the U.S. The pattern of the U.S. stock market making new highs only to be followed by a "correction" is nothing new as this has been the pattern seen in the market the last several months. While no one really knows for certain when the "big" correction will come, the old market adage that "bull markets climb a wall of worry" may soon be eclipsed by the sage advice of "Don't fight the Fed!"

Technical Notes

Looking at the daily continuation chart for the E-mini S&P 500 futures, we notice that the recent sell-off has sent the index closer towards testing the uptrend line drawn from the October 2014 lows. Before one gets too negative on the outlook for stocks, we should note that the recent sell-off has not occurred on higher than normal trading volume and still remains above the 200-day moving average. Major chart support is seen at the December 17 low of 1966.00, with resistance not found until the most recent contract high of 2117.75.

Mike Zarembski, Senior Commodity Analyst

March 13, 2015

Crude Realities for Oil Bulls

Friday, March 13, 2015

Large Oil traders are taking advantage of the bear market in Crude Oil and the widening contango in the term structure to attempt to take physical delivery of Crude Oil and sell deferred futures in the hopes of locking in a profit. The biggest hurtle to this strategy is finding enough storage for the Oil and at the right price so that the spread between spot Crude and deferred futures is enough to overcome storage and delivery charges. The April 2015/December 2015 WTI spread has moved from a $5.00 December premium to over a $9.00 December premium since the start of the year. The widening of the contango is what is enabling this speculative trade as the larger the spot market discount to deferred futures, the more attractive this trade becomes.

Fundamentals

Here's a problem the U.S. never thought it would have--too much Crude Oil! However, that appears to be the reality, as storage tanks in Cushing Oklahoma, the delivery point for the NYMEX WTI futures, are filling rapidly with over 51.5 million barrels of Oil in storage as of last week, which is up just over 2.3 million barrels for the week. In fact, we are quickly approaching record storage levels throughout the U.S. A lack of storage capacity could force Oil prices even lower than current levels, especially if producers do not rein-in production and are forced to discount the price to persuade end-users to take the oil off of their hands. Tight U.S. storage has also contributed to a widening price spread between Brent and WTI Crude. Since January, when the Brent/WTI spread was trading near parity, we have seen the spread widen to an over $10 Brent premium due mainly to the glut of Crude in the U.S. While analysts expect U.S. crude production to eventually contract enough to curtail supplies, it may take Crude prices moving below $40 to finally see U.S. production slow and oil imports decrease enough to halt the price decline. Otherwise it may be a "Crude, Crude summer" for Oil bulls.

Technical Notes

Looking at the daily chart for April WTI crude, we notice prices forming a consolidation pattern following the steep price decline that begin last summer. Since January, April Crude has been trading between 55.00 on the upside and 44.00 on the downside as both Oil bulls and bears fight for control. Currently, Oil bears are holding the upper-hand as prices are trading below the 20-day moving average and the 14-day RSI has weakened with a current reading of 40.10. The next major support level is found at the January 29 low of 44.37, with resistance seen at The February 3 high of 55.05.

Mike Zarembski, Senior Commodity Analyst


March 16, 2015

Will U.S. Producers Plant too Much or too Little Corn this Year?

Monday, March 16, 2015

The strength in the U.S. Dollar could be the "wildcard" for U.S. grain exports this season as a stronger "greenback" makes U.S. Corn more expensive for non-dollar buyers. Given the current weakness in both the Brazilian Real and the Argentinian Peso, South America could see additional export business from traditional U.S. Corn buyers, especially as the Corn harvest in both Brazil and Argentina is underway and producers will be eager to sell this season's crop given the falling value of the Real and Peso.

Fundamentals

With temperatures nearing 60 degrees here in Chicago, spring is finally in the air and with that, trader's thoughts turn to the grain markets with the highly anticipated USDA Prospective Plantings report, viewed as the "official" start to the spring planting season, due out at the end of March. Corn futures may receive particular interest this year, as the outlook for U.S. Corn plantings has varied among analysts. While the general consensus is for about 87.5 million acres of Corn to be planted this season, a number of analysts are expecting a much higher acreage total, possibly as high as 92 million acres, if a number of producers in the upper Midwest switch to planting Corn from Soybeans this season. Assuming a conservative average trend yield of 160 bushels per acre, the difference between 87.5 and 92 million acres would be about 720 million bushels! That is a fair amount of Corn that may or may not be produced this season and could be the difference in determining whether U.S. Corn supplies will be more than ample or relatively tight this season. Last week, the USDA lowered its estimate for 2014-15 U.S. Corn carryout by 50 million bushels as U.S. Corn exporters are expected to increase due to strong global demand. While higher Corn production out of South America could see U.S. Corn sales face some competition this year, dry conditions in South Africa is expected to reduce that nations Corn exports to levels not seen in over 8 year.

Technical Notes

Looking at the daily chart for December Corn futures, we notice prices beginning to consolidate the past several weeks as the market has hovered between 400.00 and 425.00. We have seen the 20 and 200-day moving averages converge just above current price levels as it appears that market participants are awaiting a catalyst, such as the USDA Prospective Plantings report, to trigger the markets next major price move. The 14-day RSI has been holding near neutral readings but has recently started to weaken with a current reading of 39.80. Support is found at the January 30 low of 396.75, with resistance found at the December 29 high at 440.00.

Mike Zarembski, Senior Commodity Analyst


March 17, 2015

Rig Shutdown Cannot Stop US Oil Production

Tuesday, March 17, 2015

Crude Oil futures are teetering above near-term support, as US production continues to rise, flooding the market. Oil prices have also been under pressure due to a rising US Dollar. The US Dollar Index has actually consolidated around the 100.00 level, which can be seen as a significant level. If the index is able to convincingly break through this level, Crude Oil could find itself under further pressure. In Germany, the popular opinion against Greece staying in the Euro currency has been increasing. More than half of Germans believe it may be time for Greece to leave the currency, which could eventually pressure politicians to echo similar statements.

Fundamentals

US production of Crude Oil continues to climb, despite rigs being shut down at a feverish pace in recent months. The number of active Oil rigs had climbed to 1,609 in October, when the rig count peaked. The number of active rigs has dropped by over 46% to 866 to end last week. Despite this decrease in rig counts, Oil production has increase from 9.0 to 9.4 million barrels a day. The biggest challenge facing the industry may be where to store the excess Oil. Cushing, OK, home of the NYMEX delivery point, is currently at 61% of total capacity and climbing. US economic indicators are pointing higher, but it will take some time to work down excess supplies. The increasing likelihood that the Federal Reserve will soon raise interest rates, coupled with economic challenges facing Europe, China and developing nations, points to the possibility of a higher US Dollar Index, which could pressure prices.

Technical Notes

Turning to the chart, we see the May Crude Oil contract trading near the near-term support level around 44.55. Failure to hold this support level could result in prices testing the 40 level. The RSI indicator is at oversold levels, which could be supportive of prices in the near-term. For prices to capture some positive momentum, Crude Oil would likely have to break out above the 53.20 level.

Rob Kurzatkowski, Senior Commodity Analyst

March 18, 2015

Dollar Drops on Profit taking Ahead of FOMC Meeting

Wednesday, March 18, 2015

Speculators appear to have jumped full-on the Dollar bull market bandwagon, at least according to the most recent Commitment of Traders report. For the week ending March 10, non-commercial and non-reportable traders were holding a combined net-long position in the Dollar Index futures totaling a whopping 99,210 contracts. For the reporting period alone the speculative net long position increased by over 13,500 contracts. Commercial hedgers are on the other side of this trade with a total net-short position of nearly 99,800 contracts.

Fundamentals

The U.S. Dollar has been a bullish dream so far in 2015 as the "greenback" has posted gains of nearly 12% vs. the Euro this year. However, profit-taking selling emerged to start the week as weak longs were busy covering their positions ahead of this week's Federal Open Market Committee (FOMC) meeting that concludes this morning. Once again the "devil will be in the details" of the statement to be released following the meeting, as analysts scour for any changes in the wording from previous meetings. This time the "key" word appears to be "patient" in the context that the Fed will be "patient" before signaling a rise in rates. Chairwoman Janet Yellen has in the past stated that being "patient" meant waiting at least 2 FOMC meetings prior to adjusting rates upward. However, it is likely that the Fed will attempt to elaborate that it remains" data dependent" and will be flexible in determining the timing of any interest rate hike depending on how it views the performance of the labor market, as well as its projection for rising inflationary wage pressures which have generally been absent, despite the continued decline in the unemployment rate.

Technical Notes

Looking at the weekly continuation chart for the Dollar Index future, we notice a rather "parabolic" move upward starting in the 4th quarter of 2014. Since this major bull market move began, there have been only two minor consolidations/corrections, despite a nearly 20-full point up move. The 14-week high is well into overbought territory with a current reading of 82.77. The next resistance level is seen at the March 2003 high of 102.68, with support seen at the February low of 93.38.

Mike Zarembski, Senior Commodity Analyst


March 19, 2015

Can a Dovish Policy Statement Help the Euro?

Thursday, March 19, 2015

The Federal Reserve removed the word "patient" from its policy statement, which is what market observers were expecting of the central bank. However, in her press conference, Fed Chairwoman Janet Yellen, was very non-committal about the pace of tightening. This has led to speculation that the Fed 's timetable for raising interest rates may have been pushed back to a much later time than traders were expecting. The Euro rallied sharply versus the dollar after the news. Is this, however, enough to stabilize the battered currency?

Fundamentals

The Federal Reserve delaying interest rates will likely be looked upon as favorable for the Euro from a rate standpoint. However, the US central bank deciding to take a wait and see approach does not erase the underlying problems facing the European Union, including another Greek bailout, slow economic growth and deflationary pressure. Quantitative Easing by the ECB should help alleviate the deflationary risks and could help usher in investment and growth, but the latest Greek crisis may hang over Europe like a black cloud. Despite these difficulties facing Europe, there is an increasing vocal minority who believe the Euro currency may have been oversold and could rebound in the near-term. The increasing spec short position in the Euro also suggests that the currency may be oversold. There is roughly a 25% chance the Euro will finish the year below parity after starting the year at roughly a 5% chance.

Technical Notes

Turning to the chart, we see the June Euro holding around the 1.0500 at this time. This can be seen as near-term support for the Euro and failure to hold here could result in the currency testing parity. The Euro was extremely oversold before rebounding yesterday. The RSI indicator registered single digit levels for several trading sessions. For the Euro to recapture some near-term momentum, the June contract may need to break the 1.1275 level on the upside.

Rob Kurzatkowski, Senior Commodity Analyst

March 20, 2015

"All We Need is Just a Little Patience"

Friday, March 20, 2015

One reason why mid to long-term U.S. Treasury Yields have remained at relatively low levels despite a potential interest rate hike by the Federal Reserve some time this year is its "attractiveness" to non-U.S. buyers. If one compares a sub-2 percent U.S. 10-year note yield with the nearly zero or even negative yields that are available from German and Japanese bonds, it should come as no surprise that Treasuries are still in demand. If you further add on the effects of a rising U.S. Dollar to the mix, it makes U.S. Government debt even more attractive compared to most of its non-U.S. alternatives.

Fundamentals

"Do as I say not as I do?" This appears to be the takeaway by market participants following the March Federal Open Market Committee (FOMC) meeting with the Fed removing the key word "patience" from the statement released following the meeting. While this was widely expected to be the case, Fed Chairwomen Janet Yellen threw traders a curve ball in the press conference following the meeting by stating "Just because we removed the word "patient" from the statement doesn't mean that we are going to be impatient." This phrase triggered a violent reaction by the market as it appeared to imply that the Fed would not begin to raise interest rates in the near future and, in fact, appears to be quite willing to wait until it sees clear signs that inflation is running near its target of 2% and the labor market is fully recovered and wage growth is improving. So while it does still appear that by removing the word "patient" from the statement, the Fed does still plan to hike interest rates at some point this year however, the timing of the rate increase remains uncertain and may not occur until much later in the year than the previous market expectation of an increase at the June FOMC meeting. In the meantime, we may see an up-tick in market volatility, especially following the release of important economic data, as market participants try to anticipate if this will be the report that finally gets the Fed off the sidelines and moves to raise interest rate for the first time since June of 2006.

Technical Notes

Looking at the daily continuation chart for 10-year Note futures, we notice the price "spike" on Wednesday following the rather "dovish" Fed statement. However, we are starting to see some good resistance just above the 129-00 price level, as the market has tested this price level several times the past few weeks and has yet to move higher. However, prices remain above the 20 and 200-day moving averages and momentum is still positive with a current reading of 54.41. Resistance is seen at 129-03.5, with support found at 125-29.5.

Michael Zarembski, Senior Commodity Analyst


March 23, 2015

Gold Bugs Fly as Fed Doves Cry

Monday, March 23, 2015

While speculative accounts have been net-long Gold futures for quite some time, it is ironic that large traders cut their net-long position sharply just days prior to a near-term bottom forming. The Commitment of Traders report shows that for the reporting period ending on March 10th, non-commercial traders shed a whopping 31,283 net long positions! This took the overall net-long position held by non-commercial accounts to 105,707 contracts. So what we may be seeing is these weak-longs re-entering the Gold market on the long side following the "dovish" Fed FOMC statement.

Fundamentals

Gold futures have turned bullish of late, following what the market has deemed a "dovish" stance by the Federal Reserve after the Federal Open Market Committee meeting (FOMC) on Wednesday. While the key word "patient" was removed from the Fed statement following the FOMC meeting, traders focused their attention on the reduction in the Fed's expectations for both economic growth and inflation in the coming year. This appeared to signal that the Fed may not be in a hurry to begin to raise interest rates, and the expectations for a rate hike were moved further out on the calendar, with the October meeting now on the radar for a potential rate hike. The market reaction has been quite volatile, as markets in major bear market trends such as Crude Oil, Euro FX and Gold have seen counter-trend rallies as short positions are being liquidated. It appears that the market was anticipating that the Fed was preparing for an interest rate hike by the end of the June FOMC meeting, which caused trend-following speculators to increase bearish positions in commodities and non-U.S. Dollars in anticipation of a rate hike. Gold, in particular, would benefit from a "dovish" Fed, as higher interest rates would lessen the appeal of holding Gold because it pays no dividends and incurs storage costs. However, like a toddler stuck in the car during a long trip, it may only take something "shiny" such as improved economic data for the Fed to become "impatient" and finally embark on the first Fed rate increase since 2006.

Technical Notes

Looking at the daily continuation chart for Gold futures, we notice prices trading above the 20-day moving average for the first time since early February, as well as heading for the downtrend line drawn from the January 22nd high of 1308.80. The 14-day RSI has rebounded from oversold levels to a more neutral reading of 47.90. We also may have a double-bottom formation in play, with the most recent low at 1141.60 being a failed test of the major low of 1132.10 made back on November 7th of last year. 1141.60 remains support for the lead-month April futures, with resistance seen at 1190.00.

Mike Zarembski, Senior Commodity Analyst

March 24, 2015

Stagnation

Tuesday, March 24, 2015

Crude Oil prices are have been hanging around north of the $40 mark, bolstered by a weaker Dollar. The greenback has given back some of its gains in recent sessions due to the dovish policy statement from the Federal Reserve, as well as technical selling. Some traders were discouraged by the inability of the US Dollar Index to firmly break out above the 100.00 mark, which has triggered some profit taking. Nothing has fundamentally changed for either Crude Oil or the greenback, so traders may take the recent strength of Crude Oil and weakness in the US Dollar with a grain of salt. The shift in the timetable for interest rate hikes from the Fed does not take away from the fact that Europe will, in all likelihood, still be in an easing cycle when the US central bank does raise rates.

Fundamentals

Last week's large jump in Crude Oil inventories surprised no one, as production continues to increase. Inventory levels in Cushing, Oklahoma have increased for 15 consecutive weeks, reaching a record 54.4 million barrels on March 13. Traders are beginning to wonder if Cushing has the potential to reach its full capacity of 70.8 million barrels. Cushing is not only the delivery point for the NYMEX (CME Group), but also a key hub for Oil going to refineries along the Gulf of Mexico. It also represents 60% of storage capacity in the Midwest and 19% of all commercial Crude Oil storage in the US. China has done little to help instill confidence in Crude Oil bulls. The HSBC/Markit Purchasing Managers' Index fell to 49.2 in March, which is below the 50.0 dividing line between growth and contraction. This is a 11-month low for the indicator. Investors are concerned that China may be behind pace for its target 7% annual GDP growth rate in the first quarter, which may have negative implications for the labor market. A downtick in Chinese manufacturing could be a sign of weaker than expected demand from China. In the short-term, Crude Oil may continue to fluctuate based on currency movements. However, the fundamentals are difficult for traders to discount.

Technical Notes

Turning to the chart, we see the May Crude Oil contract trading above near-term support around the $44 mark. Price briefly dipped below this support level before recovering. The RSI indicator remains near oversold levels, which could be seen as positive in the near-term. Prices have traded up to the 20- and 50-day simple moving averages without crossing the averages. A move above the 20-day moving average could be seen as possibly forming a near-term low.

Rob Kurzatkowski, Senior Commodity Analyst


March 25, 2015

Bears in Retreat from Oversold Wheat

Wednesday, March 25, 2015

Our "neighbor to the north" Canada is expecting to see its grain stocks fall this coming season as Durum Wheat supplies are expected to decline due to lower plantings. Agriculture and Agri-Food Canada (AAFC) is reducing its estimates for Durum Wheat inventories by 200,000 tons for the 2015-16 marketing season to 800,000 tons. The reduction is based on expectations for reduced acreage this coming season, while Durum export estimates remained unchanged at 4.9 million tons. Overall Canadian grain inventories are expected to decline to 8.73 million tons which if accurate would be a decline of over 20% from the previous season.

Fundamentals

"The rain in Spain is missing the Great Plains!" While not quite the lyrics from the famous Lerner & Loewe tune that was used in the musical My Fair Lady, but certainly more apropos to the situation facing the Hard Red Winter Wheat crop in the U.S. as early spring rain totals have been disappointing. Traders are beginning to fret that the emerging Wheat crop is becoming stressed due to a combination of volatile swings in temperatures, as well as growing drought conditions, especially in the western parts of Kansas and Oklahoma. The Climate Prediction Center has just published its seasonal drought outlook for the next 3 months which show that drought conditions are expected to persist for most of the Southern Plains regions, especially in the Panhandle area of Oklahoma and Texas. As we head into April, traders will be keeping their eyes on the weather forecasts with the 6 to 10 day outlook calling for above to well above temperatures and below average precipitation for the central and west central parts of the U.S. This continuation of warm and dry conditions has started to affect the quality of the emerging Wheat crop with Kansas seeing the percentage of the Wheat crop rated poor to very poor rise by 4% to 17% last week. With U.S. Wheat exports running behind USDA forecasts, it appears that Mother Nature may be the key determinant as to the direction of Wheat prices this spring.

Technical Notes

Looking at the daily chart for May K.C. Wheat, we notice the minor uptrend that has formed following a move to new contract lows back in early March. Although prices are now trading above the 20-day moving average, we should note that Tuesday's sell-off has raised the odds that a double top is forming as Monday's high of 579.25 failed to test chart resistance at the February 17 high of 583.25. The 14-day RSI, which has been trending higher of late, has moved to a more neutral stance with a current reading of 55.39. Wheat bulls will counter that what we are seeing on the daily chart is actually a "V" bottom, but this pattern will not be confirmed unless we see a close above 587.75.

Mike Zarembski, Senior Commodity Analyst


March 26, 2015

Yemen Situation Boosts Gold

Thursday, March 26, 2015

Gold futures have gotten a bit of a boost from the Saudi military action in Yemen. Much of this boost came on the shoulders of Crude Oil prices spiking to their highest levels in more than a month. However, prices did fall back a bit after traders looked at the bigger picture. Yemen only accounts for 0.2% of the world's Oil production. There are regional security concerns, of course, but a disruption to Yemen's output would only account for a drop in the bucket when looking at the whole picture. Traders may continue to closely monitor the situation, but it is unlikely to produce sustained support for Gold as a defensive play.

Fundamentals

Geopolitics were not the only drivers of Gold prices in early trading. UK retail sales figures came in better than expected, rising 0.7% month over month in February. The figures were even better on a yearly basis, rising 5.7% over February 2014. German business sentiment, as measured by the purchasing managers' index, or PMI, also rose to 54.1 in March, up from 53.3 in February. This was enough to weigh on the US Dollar Index, which has cooled off the past several sessions. The Dollar Index has managed to stay above support at 95.00, so this could be considered consolidation. The cooling of the red hot greenback has also offered a reprieve for Gold traders, as the market has seen some short covering.

Technical Notes

Turning to the chart, we see the continuous Gold contract rebounding off support near the 1145 level. Prices also moved above the 20-day moving average, suggesting that a near-term low may be in place. The April contract closed above 1192.60, which was the near-term resistance for the contract. Prices may soon test the 50- and 100-day moving average. Closing above the averages could be seen as positive in the near-term.

Rob Kurzatkowski, Senior Commodity Analyst


March 27, 2015

Producers going "Hog Wild" as Hog Herd Increases

Friday, March 27, 2015

The following are the pre-report estimates for this afternoon's release of the USDA quarterly Hogs & Pigs report.

U.S. Hog Inventory March 1, 2015 (106.8%)

U.S. Hog Breeding Herd (103.5%)

U.S. Hog Marketing (107.2%)

Fundamentals

"What a difference a year makes!" That is the cry expected from livestock traders, in regards to expectations for this afternoon's USDA quarterly hogs & pigs report. The U.S. Hog herd has expanded sharply following an outbreak of the PED virus that was discovered in the U.S. back in 2013 which triggered a sharp increase in the mortality rate of young pigs in 2013 and 2014. Now that the spread of the virus is in check, Hog producers have been encouraged to increase the herd size, especially given the attractive prices for Hogs last year. Traders are expecting the USDA to report that the U.S. Hog herd expanded over 5% from year ago levels with Hogs kept for breeding purposes to have increased by over 3% year over year. While Hog production seems certain to have increased, we should also note that Hog slaughter rates have also increased recently with slaughter rates running over 430,000 head many days. Near-term cash Hog prices could see some pressure stemming from an expected slowdown of packer demand with many plants curtailing operations for the upcoming Easter holiday. The lead month April futures are trading at a moderate discount to the 2-day CME Lean Hog index which was at 61.81 as of March 23. While we have seen some short-covering buying ahead of the USDA report, any major surprises from pre-report estimates could see market participants "squeal" if market prices move sharply on Monday.

Technical Notes

Looking at the daily chart for June Lean Hog futures, we notice the market remains in a significant downtrend that began back in late November of last year with prices falling over 25% in the past 4-months. We have seen some price consolidation of late as traders were beginning to square their positions ahead of the USDA report. The 14-day RSI has started to move upward after skirting just above oversold readings, but remains at a relatively weak 35.54. The contract low of 72.050 remains support for the June futures, with resistance seen at the March 17 high of 77.200.
Mike Zarembski, Senior Commodity Analyst


March 30, 2015

Natural Gas Bears Party like its 1999!

Monday, March 30, 2015

The Climate Prediction Center's 8- to 14-day weather outlook for the U.S. has nearly 2/3's of the country expecting above average temperatures. The exception to the warm weather outlook is the northeastern sections of the U.S,. from the upper Midwest and Great Lakes region through the Mid-Atlantic coast and up through New England. The most recent Commitment of Traders report shows large speculators continuing to hold a large net-short positon in Natural Gas, with non-commercial traders net-short nearly 212,000 contracts for the reporting period ending March 17th. While both non-commercial and commercial traders have been lightly reducing their positions of late, the non-reportable traders, which are small speculative accounts, have been adding to their net-long positions as prices tumble, with hopes of trying to pick a bottom in this multi-year bear market.

Fundamentals

Judging by the snow we received here in Chicago on Friday, one would never know that spring has arrived. However, for Natural Gas traders the winter heating season has "unofficially" come to a close, with the Energy Information Administration reporting the first Gas storage injection for 2015. In its weekly Natural Gas storage report on Thursday, the EIA reported a Gas storage build of 12 billion cubic feet (bcf) last week. While the build was not unexpected by market participants, storage injections in March are unusual, as the first week of April is normally considered the end of the winter heating season. U.S. Gas inventories now total 1.479 trillion cubic feet (tcf,) which is over 60% higher than this time last year, although storage levels are over 11% below the 5-year average. The market reaction to the storage build was negative, with the lead month May contract falling to lows not seen since early February, as Gas bears continue to hold the upper hand. While it may seem difficult to be short Natural Gas with prices well below $3, we should remember that prior to the year 2000, Natural Gas prices with a $2 handle were the norm, and many years saw prices dip below $1.50 when supplies were ample. So who says that history does not repeat itself?

Technical Notes

Looking at the daily chart for May Natural Gas, we notice prices trading near the lower band of the recent price consolidation that formed between 3.000 and 2.550. Prices are trading once again below the 20-day moving average, and the 14-day RSI has turned weak, with a current reading of 41.55. Support is seen at the recent low of 2.567, with resistance seen at 3.045.

Mike Zarembski, Senior Commodity Analyst


March 31, 2015

Eurozone QE Helps Relieve Deflationary Pressure

Tuesday, March 31, 2015

The Euro is lower against the US Dollar this morning, despite positive economic news from Germany. The currency is suffering from lingering fears that Greece will not be able to obtain funding before government coffers run dry in 3 weeks. European indicators have been positive of late, which offer some support to the pan European currency.

Fundamentals

German unemployment hit 6.4% in March, which is a record low for the nation. This could be seen as a sign that the private sector is strengthening. German consumers have been spending more due to lower unemployment and cheaper petroleum prices. Low interest rates also give little incentive to save. The improvement in the German economy could, however, also fuel public resentment toward Greece, which is in need of yet another bailout. This could make future bailout negotiations near impossible to support. European inflation increased to -0.1% from -0.3% in February. This could be seen as a sign that quantitative easing could be benefitting the Eurozone. Europe has been fighting deflationary pressure for some time, so this is a good start, but Europe is definitely still at risk when it comes to deflation.

Technical Notes

Turning to the chart, we see the Euro bouncing off the 1.0500 support level, which is the last line of defense before parity with the greenback. Prices had bounced back and tested 1.1000 before falling back, hinting at possible consolidation. The June Euro has traded above the 20-day moving average over the past several sessions, suggesting that a near-term low could be in place. The RSI indicator has recovered from oversold levels, which reached single digits. The RSI is diverging from prices recently, hinting at possible near-term strength.

Rob Kurzatkowski, Senior Commodity Analyst