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May 2015 Archives

May 1, 2015

Precious Metals Tarnished by Jump in 10-Year Note Yields

Friday, May 1, 2015

The weekly Commitment of Traders report shows non-commercial traders reducing their net-long position by over 10,000 contracts during the most recent reporting period ending on April 21st. During this long liquidation selling by commodity funds, commercial traders were covering short positions in nearly the same quantity as the commodity funds were selling. Small speculators remained net-long Silver, adding a scant 260 new net-long positions during this timeframe.

Fundamentals

Most commodity markets were trading lower following the April Federal Open Market Committee meeting (FOMC), despite a lower U.S. Dollar, as some positive economic news out of the U.S. has once again raised concerns among traders that the Fed will indeed move to raise short-term interest rates sometime this year. The precious metals sector was among the hardest hit on Thursday, with Silver down over 4% and Gold and Platinum declining nearly 2.5 % as of this writing. Weekly jobless claims fell to 262,000 for the week ending April 25th, which is the lowest level seen in nearly 15 years! On top of the good news on the labor front, reports on Personal Income, Employment Cost Index and Chicago PMI also came in above analysts' expectations. Precious metals prices are particularly vulnerable to changes in interest rate expectations given storage costs for holding the metal as well as the lack of an income stream. With the 10-year Note yield shooting higher the past two sessions, the benefits of holding precious metals has waned considerably, and what we are seeing appears to be long-liquidation selling by weak precious metals bulls.

Technical Notes

Looking at the weekly continuation chart for Silver, we note the market making a series of lower highs and lower lows since early 2012, following an unsuccessful attempt to trade above $50 per ounce in 2011. The market appears to be forming trading ranges for a moderate period of time prior to a gradual move lower to another price range. In 2015, Silver has spent the majority of its time trading between 15.000 and 18.500 and now appears poised to test the lower levels of the range. The next major support level is seen at the "spike" low made back in December of last year at 14.100, with resistance seen at the 2015 high of 18.445.

Mike Zarembski, Senior Commodity Analyst


May 4, 2015

British Pound Adrift Amidst Election Jitters

Monday, May 4, 2015

The next general election for Great Britain will occur on Thursday, May 7th. The outcome of the election is very tough to predict; as of now, the likely outcome is a hung parliament. In this case, the smaller parties -- Liberal Democrats, Scottish National Party, and UK Independent Party -- could determine which of the major parties forms the next government. The British Pound has seen volatile trading over the past few months in anticipation of the upcoming election.

Fundamentals

Aside from the election, two recent economic reports have put pressure on the Pound. First, UK GDP growth came in at 0.3%. This was far below the 0.6% rate in the fourth quarter of 2014. Secondly, the UK Manufacturing Purchasing Managers' Index fell to 51.9 in April, from 54 in March. These two economic reports have may have been a contributing factor to the Pound pulling back sharply after a mid-April run-up. The double-whammy of political and economic uncertainty may indicate more volatile trading sessions until a new UK government is formed.

Technical Notes

Turning to the six-month continuation chart, we see a range bound British pound from March until May. Swing traders may have been able to take advantage of the bearish market in March and the bullish market in April, as both trends were fairly steady trends. Support is seen around 1.4625, while resistance is around 1.5350. Right now, the chart shows the Pound trading above the 20-day moving average, but bullish traders should be wary if prices close below this moving average, which could be construed as a bearish signal. The 14-day RSI has moved down from overbought territory to a reasonably bullish 69.04.

Dale Jennings, Commodity Analyst


May 5, 2015

Divine Intervention for Oil?

Tuesday, May 5, 2015

Crude Oil futures have been bolstered by a weakening US Dollar and have flirted with the $60 area over the past several sessions. Last week's GDP figure showed anemic economic growth in the US, while the Chain Deflator showed slight pressure, both of which can be viewed as negative for the greenback. The Federal Reserve eliminated its mention of timeframe for raising interest rates and attempted to downplay the weakness in economic figures as a temporary phenomenon. The Dollar Index also broke a near-term technical support level, which could lead to further weakness in the currency.

Fundamentals

Saudi Oil Minister, Ali Al-Naimi, told a reporter that "no one can set the price of oil - it's up to Allah" when asked indirectly how long his country would let Oil prices sit at their current levels. The bull camp looked favorably on his non-answer. There has been much speculation that Saudi Arabia may trim its production due to prices slumping for much longer than many OPEC nations would have liked. Saudi Arabia is considering a halt to its recent air strikes on Yemen, which could suck some of the risk premium from the market. There are reports of another port closure in Libya, which could cut some supplies to Europe. Traders are looking forward to this week's API number, and more importantly, tomorrow's EIA inventory numbers. The consensus opinion is leaning toward a build of around 1.5 million barrels for the week. However, some market watchers are expecting Cushing, OK inventories to shrink, which can be seen as bullish for Oil prices.

Technical Notes

Turning to the continuation chart, we see the June Crude Oil futures contract breaking through previous resistance around the 54.00 level. Prices may not meet any meaningful resistance until the 70's. The RSI indicator is showing overbought technical levels, which could lead to some sluggishness in the near term. Momentum has flattened, even as prices have risen, hinting at possible retracement or consolidation in the near-term.

Rob Kurzatkowski, Senior Commodity Analyst

May 6, 2015

Corn Feast for Commodity Bears

Wednesday, May 6, 2015

U.S. Corn exports have been running slightly behind the USDA estimate so far this year, despite sharply lower prices than the market has seen in recent years. The wild card for U.S. Corn exports appears to be South America, where potentially higher Corn production this season is offset by disruptions to exports from labor strikes that have plagued both Argentina and Brazil so far this year.

Fundamentals

There is little "cornfusion" that commodity bears are in control of the Corn market, as the lead month July futures have fallen to their lowest levels in 6 months. A quick pace of Corn plantings so far this spring has been cited by analysts as a potential catalyst for the market sell-off. The USDA reported on Monday that 55% of the U.S. Corn crop has been planted, vs. 19% last week. To put these figures into perspective, only 28% of the Corn crop was planted at this time last year. Plantings in the two largest Corn producing states, Iowa and Illinois, were even further ahead of the national average at 68% and 69% completed respectively. An early planting can help improve overall yields, as the crop can mature prior to any potential frost or freeze threats in the fall.

Technical Notes

Looking at the daily chart for July Corn futures, we notice that past support near the 375.00 price level failed to hold, which triggered additional selling pressure by momentum traders adding to short positions, as well as sell stops being triggered as weak longs exited the market. The 14-day RSI has just fallen into oversold territory, with a current reading of 26.18. The latest downward price move does not encounter any chart resistance until a test of the October 2014 low of 346.75, with resistance seen at the previous support level of 375.00.

Mike Zarembski, Senior Commodity Analyst

May 7, 2015

Euro Rally Losing Momentum?

Thursday, May 7, 2015

The Euro has been on quite a run since mid-April, recovering over 900 pips over the period. The bounce, however, seems to be losing a bit of steam of late. The strength in the Euro had more to do with the weakness in US economic data and a relatively dovish policy statement from the Federal Reserve than strength in the Eurozone. This is not to say that European data has not shown some silver linings of late, but the Greek economic mess continues to hang over the currency.

Fundamentals

The Euro has been on quite a run since mid-April, recovering over 900 pips over the period. The bounce, however, seems to be losing a bit of steam of late. The strength in the Euro had more to do with the weakness in US economic data and a relatively dovish policy statement from the Federal Reserve than strength in the Eurozone. This is not to say that European data has not shown some silver linings of late, but the Greek economic mess continues to hang over the currency.

Technical Notes

Turning to the continuous chart, we see the Euro breaking out of a double bottom formation on the daily chart. The measure of the move suggests that the Euro could test the 1.1600 area on the daily chart. The Euro closed above the 23.6% Fibonacci Retracement level yesterday, as well as the 100-day moving average. The next test for the Euro could be the 38.2% retracement around the 1.1792 mark. The RSI is showing overbought levels, which could weigh on prices in the near-term.

Rob Kurzatkowski, Senior Commodity Analyst

May 8, 2015

"It Ain't Over 'Til It's Over"

Friday, May 8, 2015

The following are the pre-report estimates for this morning's Non-farm Payrolls report:

Non-farm Payrolls: 215,000 April Estimate 126,000 March Initial
Unemployment Rate: 5.4% April Estimate 5.5% March Initial
Hourly Earnings: +0.2% April Estimate +0.3% March Initial
Average Work Week: 34.5 April Estimate 34.5 March Initial

Fundamentals

Depending on your generation, today's Xpresso title could be a famous quote attributed to Yogi Berra or a Lenny Kravitz song, but it is also the view of Bond bulls who are clinging to the belief that the recent sell-off in global Bond prices is nothing more than a "correction" in this historic interest rate bull market. The U.S. Ten-year Note yields have risen from a low of 1.845% to as high as 2.252% the past 4 weeks, as traders resist buying at current low yields with the Federal Reserve potentially ready to raise the Fed Funds rate sometime this year. Recent comments by Federal Reserve Chairwomen Janet Yellen and Atlanta Federal Reserve President Dennis Lockhart appeared to signal to traders that the Fed was preparing to hike short-term rates, possibly as early as September, for the first time since 2006. In addition, comments by the Fed Chair that equity valuations were "high" spooked market participants out of "risk assets," which culminated in a sell-off in both equities and Bonds. The recent selling in both stocks and Bonds also may be attributed to position squaring ahead of the Non-farm Payrolls report for April. The report scheduled to be released this morning at 7:30 am Chicago time will be particularly scrutinized by analysts given the surprisingly weak payrolls gain seen in March. Traders should focus on any "revisions" to last month's payrolls data, as well as the hourly earnings and average work week figures to see to what extent employee wages are increasing. It is the slow growth in the average worker's pay that is helping to keep inflationary pressures in check, and if this trend continues, it may force the Fed to postpone any potential rate hikes this year and potentially keep the Bond bull market from derailing once again.

Technical Notes

Looking at the weekly 10-year Note yield chart, we notice that the recent up-tick in Bond yields may only be a "test" of the downtrend line drawn from the most recent high in yields made back in December 2013. Since that time, 10-year yields have made a succession of lower highs and lower lows. This week's high yield of 2.252 is currently a failed test of the most recent high of 2.259 made back in early March. The real question is if this week's yield high holds, will we see a test of the recent low yield of 1.651 made back in late January of this year which would be necessary to continue the recent pattern.

Mike Zarembski, Senior Commodity Analyst


May 11, 2015

Election Shock Jolts the British Pound

Monday, May 11, 2015

Leading up to the May 7th British General Election, a majority of the polling was pointing to the potential for a "hung parliament," with no party obtaining a clear majority of the parliamentary seats available. Instead, the Conservative Party won an absolute majority in Parliament. The British Pound reacted violently to the initial news with a sharp spike up. Futures traders should always be prepared for these types of moves and make sure their account has an appropriate position size relative to the account balance

Fundamentals

There will be several issues related to this election that will be of interest to currency traders. First of all, it is apparent that the issue of Scottish independence is far from over, as the Scottish National Party picked up 56 seats in the new Parliament. In addition, Conservative leader Davis Cameron has promised a referendum on the UK's continued participation in the European Union. Ahead of the referendum, the Conservative government will likely seek to negotiate changes in Britain's relationship with the European Union. While there's been a recent bullish trend in the Pound, it still has quite a way to go if it wants to recapture the 1.70 trading range it was in as recently as July of 2014.

Technical Notes

Turning to the 6-month continuation chart, we see a pretty strong bullish trend ever since the reversal on April 13th. The Pound crossed solidly above the 20-day simple moving average back on April 16th. Contrarians will note that the 50-day simple moving average crossed below the 20-day moving average after the volatile May 1st trading session. RSI remains a relatively bullish 64.68.

Dale Jennings, Commodity Analyst


May 12, 2015

Ghana Secrecy Fuels Cocoa

Tuesday, May 12, 2015

Cocoa futures continue to rise, as delayed shipments from Ghana continue to rise. The West African nation has had a disappointing crop year, and the government has been extremely secretive regarding the status of shipments, which has added an air of uncertainty to the market. The government of Ghana has refused to acknowledge that there is a near-term supply problem and that the harvest is materially smaller than previously expected. One of the motivating factors behind the secrecy and silence has been the $1.7 billion in loans the government took out to finance the crop. The loan is expected to be paid off, but the sharp decline in production may negatively affect the ease and size of future financing.

Fundamentals

Dry weather, along with lower fertilizer and pesticide use, may have resulted in the worst harvest for Ghana in 5 years. Production in the West African nation is expected to not exceed 700,000 tonnes for the 2014/2015 crop year. This is a far cry from the 900,000 tonnes in the 2013/2014 crop year. While Cocoa transactions are private and exact figures are unknown, it is estimated that the government may have oversold 150,000 to 200,000 tonnes of Cocoa that it may not be able to deliver. The Ghanaian government may try to roll these to forward contracts for the following season. There is some hope that improving weather conditions in the Ivory Coast may offset some of the lost production in Ghana. However, a boost in the Ivorian mid-crop is going to completely offset the shortfall in Ghana.

Technical Notes

Turning to the continuation chart, we see the front-month July futures contract trading up against resistance near the 3008 level. If prices are able to convincingly close above resistance here, prices may be able to gain some further traction instead of sputtering out. Yesterday's close above the 200-day moving average also could be seen as bullish. The RSI indicator is currently at overbought levels, which could inhibit further advances.

Rob Kurzatkowski, Senior Commodity Analyst


May 13, 2015

Soybean Bonanza

Wednesday, May 13, 2015

Key estimates from Tuesday's USDA Supply/Demand Report

Corn: 2015 U.S. Production 13.630 billion bushels__ 2015/16 U.S. Stockpiles 1.746 billion bushels

Soybeans: 2015 U.S. Production 3.850 billion bushels __ 2015/16 U.S. Stockpiles 0.500 billion bushels
Fundamentals

U.S. Grain and Soybean producers are expected to produce a bumper crop again this season, although slightly below record levels seen last season. In its May crop production report which was released on Tuesday, the USDA estimated U.S. Soybean production at 3.85 billion bushels, slightly below last season's 3.969 billion bushel crop. U.S. Corn production was estimated at 13.630 billion bushels, down from 14.216 billion bushels produced in 2014. While U.S. production is expected to decline from last year's totals, global supplies are expected to remain ample. The USDA raised its estimates for global soybean inventories to 96.22 million metric tons which would surpass the previous record of 89.55 million metric tons made just last year. Global Corn inventory estimates were pegged at 191.94 million metric tons which would be slightly lower than the 192.5 million metric ton stockpile seen last year.

Here in the U.S., producers took advantage of dry conditions last week to resume planting for this season's crop. The USDA reported on Monday that 75% of the U.S. Corn crop has been planted as of May 10, which is well ahead of the 5-year average of 57%. Soybean producers were also active, with 31% of the crop planted vs. the 5-year average of 20%. Early plantings are generally viewed as supportive for crop yields as it reduces the chances of frost or freeze damage from a late maturing crop. So if Mother Nature cooperates, we could still see another "bin buster" for both U.S. Corn and Soybeans this season.

Technical Notes

Looking at the daily chart for November Soybeans, we notice daily price ranges becoming even tighter as the market awaits direction once the crop has been planted. The current trend is slightly favoring Bean bears as prices remain below the 200-day moving average. Ironically, while daily price ranges are getting tighter, trading volume is increasing as traders and hedgers start to position themselves in the new-crop contracts. The 14-day RSI has turned weak, with a current reading of 37.17. Support is seen at the September 2014 low of 927.50, with resistance found at the April 2015 high of 978.75.

Mike Zarembski, Senior Commodity Analyst

May 18, 2015

Does Natural Gas Rally Have Room to Run?

Monday, May 18, 2015

On Friday, June Natural Gas struggled to hold recent gains made following the smaller than anticipated Gas storage build last week. Thursday's weekly release of the Energy Information Administration's (EIA) Gas storage report showed a build of 111 billion cubic feet (bcf) last week. This was below the average pre-report estimate of a 117 bcf build and was deemed bullish by traders. For the year, Natural Gas inventories stand at 1,897 bcf, which is well above last year's totals, but still 2% below the 5-year average.

Fundamentals

Energy traders saw not only a rebound in Crude Oil prices but also in Natural Gas, with the lead month June futures currently trading at its highest levels since late February. Right now most of the buying interest appears to be related to short-covering by commodity funds who are currently net-short over 244,000 contracts as of the most recent Commitment of Traders report. Going forward, the reduction in the drilling rig count could eventually curtail Gas production from the shale formations; however Gas production continues to increase, despite lower rig accounts according to data from the EIA. The final catalyst comes via weather forecasts, as we move closer to the start of summer cooling season. The most recent forecast from the Climate Prediction Center has an equal chance for above or below normal temperatures through July for the eastern 2/3rds of the country, with only the western 1/3 of the nation expected to see above normal temps as we move into the heart of summer.

Technical Notes

Looking at the daily chart for June Natural Gas futures, we notice what appears to be a "V" bottom formation. This bullish technical pattern needs a weekly close above the most recent high of 3.096, which occurred back in late February, in order to provide validation. The 14-day RSI is strong, but still below overbought
levels, with a current reading of 66.58. 3.096 remains as resistance for the June contract, with support found at 2.729.

Mike Zarembski, Senior Commodity Analyst

May 19, 2015

Gold Riding Dollar's Weakness

Tuesday, May 19, 2015

Gold futures closed higher for the fifth consecutive session ahead of Wednesday's release of the FOMC minutes. Many Gold traders are expecting the minutes to have more dovish internal discussions between members of the committee. The minutes are expected to focus on weaker economic growth and very low inflation. This could lead to the Fed pushing back its interest rate hike timeline, weakening the US Dollar even further

Fundamentals

Gold has lost much of its appeal as a defensive instrument to this point. With the opening of meaningful diplomacy between the West and Iran, among other developments, the geopolitical landscape is less "dangerous." Relative economic stability, albeit with lackluster growth, not only lessens the flight to quality demand for the metal, but slower growth means less inflationary pressure. Physical demand for Gold has not been impressive on any front - ETF, industrial or jewelry - so the metal is vulnerable should the greenback reverse course. The near-term direction of the Gold market is likely to be driven by the US Dollar more than any other factor. The combination of disappointing economic numbers and expectations that the Fed is in no hurry to raise rates leaves the US Dollar weak with no momentum.

Technical Notes

Turning to the chart, we see the June Gold contract breaking through resistance near the 1218.60 level and flirting with resistance near 1231.20. If prices can mount a breakout above the 1231.20 mark, they may test 1300 for the first time since late January. Prices managed 3 consecutive closes above the 200-day moving average, but have dipped below the average in early trading today.

Rob Kurzatkowski, Senior Commodity Analyst

May 20, 2015

Dollar Gains at Crude Oil's Expense

Wednesday, May 20, 2015

The following are the pre-report estimates for this morning's Energy Information Administration's Energy Stocks Report:

Crude Oil: + 1.1 million barrels
Gasoline: +300,000 barrels
Distillates: +100,000 barrels
Refinery Use: +0.3% to 91.5% Capacity

Fundamentals

"Oil's wells that ends well" That's the latest mantra for Crude bears as the recent resurgence in the value of the U.S. Dollar has once again become a major catalyst in sending commodity prices lower especially for Crude Oil. On Tuesday, the lead month July futures prices fell by over $2 per barrel after European Central Bank officials expressed a desire to increase its bond buying program in the short term ahead of what could be a period of reduced market liquidity as summer approaches. In addition, there has not been any real decline in global crude oil supplies despite prices remaining over 40% below the levels seen just one year ago. In fact, OPEC leading Oil producing nation, Saudi Arabia, is exporting at its highest levels in 10 years! Sharply lower Oil prices have helped to curtail some of the drilling in so called shale formations in the U.S. but even here, production has not fallen some have predicted. U.S. Crude Oil production totaled 9.3 million barrels per day in March vs. 8.2 million barrels only 1 year earlier. So unless the global economy stages a swift recovery, it appears that the world will remain awash in crude for the rest of 2015.

Technical Notes

Looking at the daily chart for July Crude Oil, we notice the uptrend line drawn from the March 18 low has been taken out on Tuesday as prices fell sharply to nearly 1-month lows. Prices are now once again below the 20-day moving average and the 14-day RSI has turned weak with a current reading of 45.93. There appears to be some solid support near the 56.00 price level but should this support fail to hold, there is little in the way to prevent a test of the 50.00 price area. Resistance is seen at the recent high at 63.62.

Mike Zarembski, Senior Commodity Analyst


May 21, 2015

Greenback Pressured by Dovish Minutes

Thursday, May 21, 2015

The US Dollar Index sold off after the release of yesterday's FOMC minutes, which was dovish on the surface. The bulk of the language in the minutes was expected, as was the reaction by currency traders. The Fed decided to tone down the rate hike talk. Are the minutes as dovish as they appear on the surface, thought? Optimistic Fed economic projections were toned down and there was mention of worries over Greek and Chinese growth. However, the minutes gave the impression that the Fed viewed the weaker GDP in Q1 as being heavily affected by weather and the West Coast port labor issues. There was also mention of the improving labor market along with the emphasis on Q1 results being affected by extenuating circumstances.

Fundamentals

The FOMC statement was dovish in that it all but shot down the idea that the central bank will raise rates in June. There is some frustration among Committee members that the economy has not improved enough for the Fed to raise rates. There is also some cautious optimism that can be read into the report, which makes it perhaps not as dovish as it appears on the surface. The new "target date" for raising interest rates traders are looking for is now September. There has also been economic data released since the meeting, which may force the Fed to adopt a more hawkish tone. April Housing Starts were the best since the go-go days of the housing boom in 2007. The ECB is going to step up its bond purchases in the coming weeks, ahead of the summer doldrums, which could negatively impact the Euro and give the Dollar some much needed support.

Technical Notes

Turning to the chart, we see the cash Dollar Index (DXY) chart getting a bit of a technical bounce prior to reaching the 92.50 support level. The market rebounded upon reaching the 150-day moving average and the DXY closing above the 20-day moving average. This suggests that a near-term low may be in place. It is of interest to note that the 14-day RSI indicator made a relative low in late April and rebounded. Prices, however, continued to move lower, possibly forming a relative low last week. This divergence suggests the recent downtrend could reverse course.

Rob Kurzatkowski, Senior Commodity Analyst

May 22, 2015

Is Euro's Recent Bounce Sustainable?

Friday, May 22, 2015

Euro currency futures saw little reaction to the release of the Fed minutes on Wednesday as nothing in the notes signaled any change to traders' expectations that the Fed will hold-off on hiking the Fed Funds rate until sometime in the 4th quarter of this year.

Fundamentals

While the recent talk about the Euro reaching parity with the U.S. Dollar has been muted somewhat, especially following the nearly 1000 pip correction we have seen the past several weeks. Those traders looking at the long-term trend for the Euro vs. the Dollar may find it difficult to become overly bullish on the Euro's prospects. Since making all-time highs back in 2008, the Euro has made a series of lower highs and lower lows as an economic malaise has engulfed Europe since the financial crisis began. Now, with the European Central Bank embracing a very accommodative monetary policy, including the purchase of European sovereign bonds, the supply of Euros will increase, which could help to cap any rally attempts, especially those caused by weak bears covering short positions on technical corrections versus the long-term trend.

Technical Notes

This morning we will look at the weekly continuation chart for Euro FX futures, we notice the series of lower highs and lower lows in the Euro starting at the all-time highs made back in 2008. While the Euro is currently in a "correction" phase from the recent lows made in March, we would still need to see a rally above 1.2000 to really begin to question the sustainability of the current downward price trend. Prices are once again hovering near the 20-week moving average after a brief stint above this widely watched indicator. The 14-week RSI has started to turn downward with a current reading of 43.10. 1.1539 is seen as the next resistance level for the front-month Euro, with support seen at 1.0529.

Mike Zarembski, Senior Commodity Analyst


May 26, 2015

More Pain Down Under?

Tuesday, May 26, 2015

The Australian Dollar looked as though it may have been on the verge of gaining some traction earlier this month, but the currency abruptly turned around mid-month. The Aussie posted a close above resistance near the 0.8050 level and it looked as though there may be something to build on, technically, but the currency closed back below the resistance level the next day, signaling a failed breakout. The currency has not had a single positive day since the failed breakout. There have been some mixed signals in the short-term rate direction in Australia, which has created a cloudy outlook for currency traders.

Fundamentals

Australian banks have curbed investment lending in Australia, which could keep housing prices depressed. This could force the Reserve Bank's hand to lower interest rates, making the currency less attractive to investors. While home prices are important, being the main source of wealth for many households, it may not be the only reason for the RBA to lower rates. Economic activity has been extremely lackluster following the end of the China-driven mining boom. The Australian economy faces the possibility of a recession for the first time in over 24 years! Some economists peg the likelihood of a recession at over 50%, which could end the unprecedented 24 years of expansion for the land "Down Under." The lone bright spot for the Australian economy has been a shaky job market, which has staved off an outright collapse.

Technical Notes

Turning to the chart, we see the June Australian Dollar contract closing above the aforementioned 0.8050 resistance level on May 13th, only to form a gravestone doji on May 14th. Prices have moved straight down since the reversal, closing below the major moving averages. The close below the 20-day moving average suggests that a near-term low may be in place. If prices are unable to hold near-term support near the 0.7682 mark, there is a chance of the market testing the pivotal 0.7500 level. The RSI is nearing oversold levels, which may offer some semblance of support in the near-term.

Rob Kurzatkowski, Senior Commodity Analyst

May 27, 2015

Wheat Price Retreat

Wednesday, May 27, 2015

Short-covering buying by large speculators appears to have been behind the recent rally in Wheat prices as the most recent Commitment of Traders report showed a large reduction in the net-short position in both Chicago and Kansas City Wheat last week. For the reporting period ending May 19, non-commercial traders reduced their net-short position in Chicago Wheat by nearly 22,500 contracts to stand at 59,907 contracts. Kansas City Wheat saw the net-short position reduced by over 9,100 contracts to 16,570 contracts.

Fundamentals

The recent rally in Wheat prices, which took new-crop July Chicago and Kansas City futures to 5 week highs, failed to hold over the Memorial Day Holiday despite wide-spread flooding seen in the Southern Plains. Both Chicago and Kansas City Wheat futures were posting losses of nearly 4% on Tuesday as traders return to work following the extended holiday weekend. Historic rainfall the past few weeks may affect the quality of the Hard Red Winter Wheat Crop in parts of Oklahoma and Texas. While this will affect this year's harvest, it does finally break the 3-year long drought in Texas and help to lessen long-term drought conditions in both Oklahoma and Kansas. While U.S. Wheat production will not set any records this season, we must remember that global Wheat supplies are more than ample and the recent strength in the U.S. Dollar is working against U.S. grain exports, which appear to more than offset any production disappointments this season.

Technical Notes

Looking at the daily chart for July Kansas City Wheat futures, we notice a "bull-trap" was sprung last week as prices briefly traded above the down-trend line formed from the last "major" high made back in December 2014. However, Wheat bears have re-exerted themselves in a big way to start the week, with the July futures closing down over 4% on Tuesday. The 14-day RSI which was trading just below 70 last week has turned very weak, with a current reading of 47.82. 518.75 is seen as the next support level for July K.C. Wheat, with resistance found at the recent high of 564.50.

Mike Zarembski, Senior Commodity Analyst

May 28, 2015

Greece Debt Deal All But Done?

Thursday, May 28, 2015

Signs that a deal may be reached between Greece and its creditors has stopped the slide in the Euro for the time being. The country is facing an upcoming payment of $1.6 billion to the International Monetary Fund scheduled for June 5th. Without the debt relief, it was doubtful Greece would have been able to meet its obligation to the IMF, which would have had negative implications for the Eurozone. European and Greek officials have denied that a deal is imminent, but the market's favorable reaction to the news of a possible deal may put some pressure on both sides to get the deal done.

Fundamentals

The doom with the upcoming Greek debt payment has not been the only factor negatively affecting the Euro. Recent Eurozone economic data has been extremely lackluster. There was a stretch of time where European data seemed to be pointing up, whereas US economic data was showing signs of weakening. However, recent housing and jobs data in the US has been stronger than expected, which has reversed the tide in the near-term. The recent FOMC statement was dovish on the surface, which could be seen as positive for the Euro. The minutes and comments from policymakers tell a different story. The minutes suggest that Fed members really want to move forward with rate hikes, but are prevented from doing so by weaker economic metrics. San Francisco Fed President John Williams reiterated that a rate hike from the Fed is always a possibility and that he believes that increases are coming by year's end. This is somewhat supportive of the greenback and could put pressure on the Euro, especially if European economic data does not see improvement.

Technical Notes

Turning to the continuation chart, we see the June Euro forming a small double-top and reversing its month-long uptrend. The Euro failed to reach the 38.2% Fibonacci retracement level, which can be seen as weak. The June contract also has seen consecutive closes below the 50-day moving average, which can likely be interpreted as negative in the near-term. The RSI indicator is showing oversold levels, which might offer some near-term support.

Rob Kurzatkowski, Senior Commodity Analyst


May 29, 2015

Coffee Prices Grind Lower Despite "El Nino" Forecast

Friday, May 29, 2015

Brazilian Coffee exports have been on a tear of late, rising by over 12% to 32.7 million bags for the 2014-15 season. However, last season's subpar production totals could put an end to the aggressive export pace as the nation's exportable supplies dwindle ahead of this coming season's harvest.

Fundamentals

Traders are finding little in the way of fundamentals to "perk-up" Coffee futures prices of late, as the lead month July futures are trading at lows not seen since December of 2013. It appears that the market is looking for Brazil's Coffee production to rise sharply this season, with some more optimistic analysts looking for production to potentially reach 53 million bags. This is good news for producers who saw production fall to a disappointing 4.3 million bags last season. The expected increase in Brazil's Coffee production for the 2015-16 season appears to be significant enough for some private forecasters to predict that the market will move to a small global surplus in 2016. While the current production forecast looks bearish for Coffee prices in the coming months, it appears that market participants are not placing much of a "weather premium" on prices -- especially with weather forecasters calling for a much above normal chance of a strong "El Nino" weather event. Historically, El Nino's have caused unusual weather patterns across the globe, including a pattern of dry conditions across Southeast Asia, which is a major production area for Robusta Coffee. If this year's El Nino event materializes as forecasted, we could see both Vietnam and Indonesia face potentially serious production issues, which could significantly change the price outlook for Coffee futures prices later this year and percolate interest in Coffee futures for trend following traders.

Technical Notes

Looking at the daily chart for July Coffee, we notice prices have been trending lower since the recent highs were made back in October of 2014. Prices appeared to be forming a consolidation trading pattern between 130.00 and 150.00 until the past few trading sessions, when aggressive selling pressure sent prices below support at 130.00 with little in the way of end user buying to curtail the down move. Prices are now trending away from the 20-day moving average and the 14-day RSI has turned weak, with a current reading of 34.63. 121.15 is now seen as the next support level for the July contract, with resistance found at 143.85.

Mike Zarembski, Senior Commodity Analyst