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November 2015 Archives

November 2, 2015

The Times They Are a-Changin'

Monday, November 2, 2015

Today is the first trading day after most of the United States has set their clocks back and returned to standard time. It's also a rare occasion when Xpresso will look at the Euro currency futures market and not have to focus on Greece, as the latest in the ongoing series of Greek sovereign debt crises was finally resolved this summer.

Fundamentals

Euro currency futures are one of the more complex products to trade. 19 countries with wildly varying political and economic structures use the Euro as their currency. There have been several macroeconomic events affecting the Euro in 2015 besides the events in Greece. The lower price of Crude Oil is seen as a benefit to the Euro countries, and economic growth was a modest 0.4% in the second quarter of 2015. The quantitative easing program also has kept the Euro lower, which helps exports. Euro bears will be looking to see if there is any fallout from the Volkswagen emissions story. The ongoing migrant crisis also may lead to political pressure on some of the Euro states. Finally, the slowdown in China may also reduce the demand for German exports.

Technical Notes

Turning to the 3-month continuation chart, we see the bears in control right now. The Euro has been trading below both the 20- and 50-day Simple Moving Averages (SMA), and the slope of the 20-day SMA has turned downward, preparing to cross below the 50-day SMA. The 14-day Relative Strength Index shows oversold at a bearish 27.55.

Dale Jennings, Commodity Analyst


November 3, 2015

Oil Running Out of Gas?

Tuesday, November 3, 2015

Crude Oil futures have managed to hold technical support and avoid a breakdown, however prices have continued to suffer under the weight of a supply glut. The currency markets have done little to offer outside support to prices due to the recent strength of the greenback. The US Dollar was bolstered by surprisingly hawkish language from the FOMC, which suggested that a December rate hike may be on the table after all. The odds of a rate hike, as priced-in by Fed Funds futures, jumped significantly. However, the US Dollar Index has hit a wall short of technical resistance near the 98.00 mark. The failure of the index to push through this level suggests that prices could remain range-bound. A breakout to new highs could put significant selling pressure on the Crude Oil market, which is already technically and fundamentally vulnerable.

Fundamentals

While much has been made of the lower US Oil rig count, Oil production is only expected to drop by 35,000 barrels per day in 2016. In fact, there are signs that production could actually ramp-up at the tail end of this year into next year, as many Gulf of Mexico producers are delaying some field maintenance until next year to keep production high and reduce costs. Tomorrow's EIA inventory number is expected to show a build of 2.7 million barrels following last week's 3.4 million barrel build. Cushing, OK inventory levels are expected to show a slight drawdown, which could offer the market some support. Output continues to outpace demand globally. Large producers, such as Russia and Saudi Arabia, continue to pump at a high rate, disregarding anemic price levels. Current economic conditions remain lackluster both in the US and abroad. The Caixin China manufacturing purchasing managers index rose to 48.3 in October from 47.2 in September, however a reading below the 50 level indicates a contraction. With global economic growth remaining slow, it is difficult to see demand rising in the near future.

Technical Notes

Turning to the chart, we see the December Crude Oil contract failing to break through the 50.00 level on the upside. Prices did manage to hold support near the 44.00 level, but this only hints at range-bound trading. The momentum indicator continues to move lower, despite prices rising, which can be seen as a weak signal. When the market tested the 50.00 mark, it also tested the 100-day moving average, which it failed to break . Prices are once again closing in on the average, so it will be interesting to see how the market behaves if and when prices close in.

Rob Kurzatkowski, Senior Commodity Analyst


November 4, 2015

Will Pork Price Plunge Persists?

Wednesday, November 4, 2015

While U.S. Hog producers are currently seeing profit margins erode due to lower cash prices, there is some good news going into 2016. The cost of feed is expected to be lower next year as ample supplies of both Corn and Soybean Meal should keep prices in check in the coming months which will greatly help the bottom line for livestock producers in general.

Fundamentals

It is getting tough to be a Hog producer or meat packer of late as falling cash market prices combined with a full pork pipeline to the retail sector have hurt profit margins. Producers are just barely breaking even at current cash prices when as little as 1 month ago per head profit was nearing $20. The Pork packing industry is in better shape than producers, but have seen margins decline as well. Cash Hogs were trading between $0.50 and $1.50 per hundredweight lower than previous sales, as meat packers are lowering bids due to current large supplies of pork available in the wholesale market. Futures traders are anticipating further weakness in cash market prices as the lead month December futures are trading at a very wide 13-cent discount to cash prices currently, while December futures typically trade at a discount to cash prices this time of year, this season's discount is well above average and any firmness in pork prices could lead to a short-covering rally in the December futures in the next few weeks.

Technical Notes

Looking at the daily chart for December Lean Hog futures, we notice how quickly futures prices have plunged the past two weeks sending price to a test of contract lows. We have seen the 20-day moving average cross below the widely watched 200-day moving average, which is generally interpreted as a bearish technical signal. The 14-day RSI has entered oversold territory with a current reading of 25.65. The most recent Commitment of Traders report shows non-commercial trades continuing to lighten their net long position, while commercials are removing short-hedges as prices move lower. The contract low of 57.050 is seen as the next support level for the December futures, with resistance found near 61.500.

Mike Zarembski, Senior Commodity Analyst


November 6, 2015

Cattle Price Recovery Fades on Demand Concerns

Friday, November 6, 2015

Beef supplies are expected to see a rare increase in the 4th quarter this year, as production is expected to increase. This may counter the seasonal tendencies for cash Cattle prices to rise going into the winter. Ironically, it is the small speculators who are holding a net-short position in Live Cattle futures according to the most recent Commitment of Traders report. In fact, the non-reportable traders position is the only one that is entirely net-short the whole livestock complex.

Fundamentals

Ample supplies of both pork and poultry are starting to affect beef prices as consumers vote with their wallets and switch to cheaper sources of protein. Beef prices have remained stubbornly high for most of 2015, which was a byproduct of reduced Cattle herds the past couple of years. Drought conditions in the Great Plains had forced up the price of feed and, as a result, led producers to reduce the number of head of Cattle on feedlots. Now that feed prices have been greatly reduced, we are starting to see Cattle supplies increase, and average weights are at or near record levels. Beef supplies are starting to increase at the same time that pork and poultry prices are tumbling, adding to fears that beef prices will also have to follow suit. We are also entering the timeframe when retailers will start featuring turkey for the upcoming Thanksgiving holiday, which may also factor into lower beef demand from retailers. Futures traders have taken note of potential beef demand weakness sending Live Cattle futures prices tumbling off recent highs, with limit-down price moves seen on Wednesday for contract months out through June 2016 and expanded price moves seen for the first 3 expiration months on Thursday.

Technical Notes

Looking at the daily chart for December Live Cattle, we notice the price recovery that occurred for most of October now appears to have been only a correction in what may turn into a longer-term bear market trend for Cattle futures. Thursday's continuation of the sell-off following Wednesday's limit down price move has just missed filling the chart "gap" that occurred back on October 7th. Prices are once again trading below the 20- and 200-day moving averages, but the 14-day RSI, while weak, has yet to reach oversold levels, with a current reading of 36.10. 133.225 is seen as the next support level for the December contract, with resistance found at 140.000.

Mike Zarembski, Senior Commodity Analyst


November 11, 2015

Apparently Rain Really Does Make Grain

Wednesday, November 11, 2015

Wheat producers saw little to like in Tuesday's USDA crop report, as government analysts expect U.S. Wheat exports to fall to 800 million bushels for the 2015/16 marketing year. If accurate, this would be the lowest total of U.S. wheat exports since the early 1970's. So while Wheat exports are shrinking, U.S. Wheat stockpiles are expected to increase, with the USDA estimating ending stocks north of 900 million bushels.


Fundamentals

U.S. Grain and Oil seed producers once again exceeded expectations for this season's crops, despite above average rainfall early in the growing season. In the November crop production report, the USDA estimated the U.S. Corn crop at 13.654 billion bushels, which was an increase of 99 million bushels from the October report. Average Corn yield estimates rose by 1.3 bushels per acre to 169.3 bushels per acre. Soybean production also increased more than analysts expected, with the USDA estimating a crop of 3.981 billion bushels, which if accurate, would be a new production record. Higher production estimates allowed the USDA to increase its outlook for stockpiles next year, with Corn ending stocks now estimated at 1.76 billion bushels, vs. 1.561 billion bushels last months. Soybean inventories are also expected to see a moderate increase next year, with the USDA estimating 2015/16 stockpiles at 465 million bushels, up 36 million bushels from the October report. If there was one bright spot for Grain bulls, it was the USDA's expectations that U.S. Soybean exports would remain strong. However, with expectations for an increase in Soybean plantings in South America, the U.S. could see strong competitions for Soybean sales from Brazil and Argentina this spring.

Technical Notes

Looking at the daily chart for December Corn, we notice prices trading near the lower end of the recent price range that has been developing since late July. Earlier we had what could have been interpreted as a head and shoulders bottom chart formation taking shape, but prices never traded above the "neckline" to confirm the technical pattern. Instead we saw a failure of a test of the August 10th high of 402.00 back on October 7th, when prices fell just short of the 400.00 price level. Since that time, we have seen prices in full retreat, cumulating in a move to new contract lows of 356.00 following the USDA report. The 14-day RSI is very weak, but so far holding just above oversold levels with a current reading of 34.96. 350.00 appears to be the next major support level for the December futures, with resistance found at the October 27th high of 387.50.

Mike Zarembski, Senior Commodity Analyst


November 12, 2015

You Get a Job! You Get a Job! Everybody Gets a Job!

Thursday, November 12, 2015

The October non- farm payrolls came in way above expectations last Friday. 271,000 new jobs were added in October and the unemployment rate dropped to 5.0%. 5% unemployment is considered by many economists to be the natural rate of unemployment. A drop substantially below 5% could be a harbinger of wage push inflation. The Fed has set their inflation goal at 2% and they may proactively raise interest rates to head off inflation.

Fundamentals

The financial news media will often comment on how likely the market is pricing in the potential of a rate hike. Traders can examine this data themselves by looking at the Fed Funds futures. For example, let's look at the December 2015 Fed Funds futures, as of this writing they last traded at 99.785. To determine how Fed Funds futures are pricing in expected interest rates for December, subtract 99.785 from 100 (which would be an interest rate of zero.)100-99.875 which indicates an expected rate of .215, close to the expected increase from 0 to .25%. If Fed Funds futures are trading lower, then this indicates the market is expecting rates to be higher for that month.

Technical Notes

Technical analysis is not a useful tool to examine Fed Funds futures as interest rates have been at zero since December of 2008. However, the very actively traded Ten Year Treasury Note futures can be examined. Treasury Note prices are inversely correlated with interest rates. The 3 month continuation chart for Ten Year Notes has turned quite bearish, with a series of lower highs and lower lows. The 20 day Simple Moving Average (SMA) has turned downward and has made a bearish cross below the 50 day SMA. 14 day RSI is showing oversold at 18.82

Dale Jennings, Commodity Analyst


November 13, 2015

Crude Declines Despite OPEC Output Cut

Friday, November 13, 2015

The Weekly Energy Information Administration (EIA) energy stocks report was delayed one day due to the Veterans Day holiday. The EIA reported that U.S. Crude inventories rose by 4.224 million barrels last week versus expectations for a 1.1 million barrel rise. Distillate inventories, which include both Heating Oil and Diesel fuel, posted a surprising gain of 352,000 barrels when analysts were expecting a draw of 1 million barrels. Energy bulls did take some solace from Gasoline inventories, which fell by a larger than anticipated 2.102 million barrels last week.

Fundamentals

The Crude Oil market, like most commodities, is mired in a bear market slump, with the lead month December futures trading just above its 2015 lows. Traders appeared to have shrugged off a decline in Oil output from The Organization of the Petroleum Exporting Countries (OPEC) in October as the global market remains well supplied in Crude. In its monthly oil market report, OPEC reported Oil production among its members at 31.382 million barrels per day in October, down 256 thousand barrels per day from September. Iraq accounted for the largest volume decrease at nearly 195,500 barrels per day. Even Saudi Arabia, OPEC's largest Oil producing nation, saw production decline last month by 72,000 barrels per day. Saudi Arabia has been reluctant to support lower Oil production among OPEC members despite the steep drop in global Crude prices as it fears losing market share to non-OPEC producers, especially from shale Oil producers in North America. The next meeting of OPEC producers scheduled for December 4 in Vienna could prove contentious as several producers, including Venezuela and Algeria are expected to lobby strongly for a cut in production to help support prices. Many OPEC nations are dependent on Oil revenues to meet the vast majority of government expenditures and the collapse in Oil prices has caused severe economic pain for government budgets. However, Saudi Arabia remains the dominant force in OPEC and it appears that the kingdom's Oil Ministers are prepared to weather continued economic pain in order to preserve its market share despite the pleas from fellow cartel members.

Technical Notes

Looking at the daily chart for December Crude Oil, we notice prices trading at 3-month lows following the overall bearish EIA energy stocks report. With minor chart support at 42.58 failing to hold, there is little in the way of support until prices trade below $40. The 14-day RSI is weak but currently holding above oversold levels with a current reading of 34.47. The contract low at 39.22 is seen as the next major support level for the December futures, with resistance found at the November 4 high of 48.28.

Mike Zarembski, Senior Commodity Analyst

November 16, 2015

Euro Slide Continues

Monday, November 16, 2015

Futures Challenge, Presented by the Futures Institute and CME Group
Sunday, November 29--Friday, December 4, 2015
Begins Sunday at 4:30pm CST
Build your futures and futures options trading skills through actual experience during the upcoming Futures Challenge, a no-cost, six-day, online program where you can test your futures trading ideas.

Fundamentals

The terrorist attacks in France come on the heels of less than inspiring growth rates in the Eurozone for the 3rd quarter. GDP growth for the Eurozone slowed to just 0.3% in the 3rd quarter of this year. Surprisingly, the weakest growth came not from Greece but from Finland, with a contraction of 0.6%. Greece did contribute to the low growth rate, however, with a negative growth rate of 0.5%. More positive news came from Spain, with a 0.8% positive growth rate, as well as France returning to positive growth, with an increase of 0.3%. German growth was expected to slow due to the scandals at Volkswagen as well as the Chinese economic slowdown reducing demand for German imports. German growth did drop from 0.4% to 0.3%, not as severe of a contraction as some economists were predicting.

Technical Notes

Turning to the three-month continuation chart for the Euro, all the signs show a very bearish trend for the Euro. The series of lower highs and lower lows is continuing, with the trend pointing to the Euro trading at parity with the U.S. Dollar. The slope of the 20-day Simple Moving Average is a very steep downward slope, showing the rapid decline of the Euro in recent trading. 1.07 is near-term support, which has been tested several times recently. Resistance can be found at the 1.15 level. Finally, 14-day RSI shows oversold at 22.81.

Dale Jennings, Commodity Analyst

November 17, 2015

Gold Traders Avoid Playing Defense

Tuesday, November 17, 2015

Futures Challenge, Presented by the Futures Institute and CME Group
Sunday, November 29--Friday, December 4, 2015
Begins Sunday at 4:30pm CST
Build your futures and futures options trading skills through actual experience during the upcoming Futures Challenge, a no-cost, six-day, online program where you can test your futures trading ideas.

Fundamentals

Gold futures initially surged after trading opened Sunday evening after the Paris terrorist attacks, but prices gave back most of those gains by the end of the session. World equity markets remained firm due to traders seeing a limited economic impact. Nevertheless, Paris remains one of the most important centers of luxury good purchases and the timing of the attacks is bad, in light of the holiday shopping season being upon us. Retailers, especially luxury retailers, could feel the pinch. Gold prices are also facing pressure from the high likelihood of a Fed rate hike in December. After the surprisingly hawkish FOMC statement at the most recent policy meeting, the most recent Non-Farm Payroll report showed healthy job growth. Fed Funds futures are now pricing in a 66% chance of the Federal Reserve raising rates in December, which could mean a stronger US Dollar and pressure for Gold prices.

Technical Notes

Turning to the chart, we see the December Gold contract holding just above the 1075 level. There is very little support between the 1075 level and 1015, suggesting prices could even test the major technical and psychological support level near the $1000 mark. Currently the RSI indicator is extremely oversold, which may lend some support to prices in the near-term.

Rob Kurzatkowski, Senior Commodity Analyst

November 18, 2015

Bull's in the "Red" as Copper Prices Tumble

Wednesday, November 18, 2015

Futures Challenge, Presented by the Futures Institute and CME Group
Sunday, November 29--Friday, December 4, 2015
Begins Sunday at 4:30pm CST
Build your futures and futures options trading skills through actual experience during the upcoming Futures Challenge, a no-cost, six-day, online program where you can test your futures trading ideas.

Fundamentals

Copper futures have been an ideal market for trend following traders since mid-summer as prices have been mired in a rather steady price decline. There are two major fundamental factors have been cited for triggering this bear market move. With slowing economic growth in China grabbing most of the headlines but we cannot dismiss the importance of a rising U.S. Dollar which makes commodity purchases more expensive for non-dollar users. Chinese government officials have continued to lower its target for economic growth from around 8% early in 2014 to about 6.5% looking out through the end of the decade. Copper prices were especially hurt by lower Chinese demand as the world's most populous nation accounts for approximately 40% of global Copper consumption. So while the world's largest Copper consuming nation is seeing slower demand for commodities, a stronger U.S. Dollar is making commodities more expensive at the same time demand is waning. This is particularly apparent in the Wheat market, where U.S. exports are just not competitive on the world market due to a strong Dollar. With the Federal Reserve apparently eager to begin to raise interest rates, possibly as early as the December Federal Open Market Committee meeting, Copper prices and commodity price in general, may face further headwinds should the "greenback" continue to strengthen.

Technical Notes

Looking at the daily chart for December Copper futures, we notice the bear market trend has re-asserted itself after a nearly 2-month long consolidation pattern failed to hold. Prices are now well below both the 20 and 200-day moving averages, and the 14-day RSI has moved well into oversold territory with a current reading of 17.81. So, while it appears that a short-covering rally may be overdue, recent strength in the value of the U.S. Dollar is acting as a strong headwind towards a price recovery. Large speculative accounts have been adding to existing short positions the past several sessions, with the most recent Commitment of Trader's report showing non-commercial traders increasing their net short position by nearly 15,700 contracts during the reporting period ending November 10. This is prior to the sharp price decline seen the past few sessions as it appears that trend following funds are adding positions despite prices trading near 6 year lows. Tuesday's low at 2.0660 looks to be the next support level for the December futures, with resistance found at 2.2505.
Mike Zarembski, Senior Commodity Analyst


November 20, 2015

Traders Starting to Believe Fed Rate Hike in December

Friday, November 20, 2015

Futures Challenge, Presented by the Futures Institute and CME Group
Sunday, November 29--Friday, December 4, 2015
Begins Sunday at 4:30pm CST
Build your futures and futures options trading skills through actual experience during the upcoming Futures Challenge, a no-cost, six-day, online program where you can test your futures trading ideas.

Fundamentals

"Do they really mean it this time?" That is the question being asked by many traders following the release of the Fed minutes from the October Federal Open Market Committee (FOMC) meeting. It appears that many Fed members finally believe that economic conditions have stabilized enough to begin to raise interest rates at the December FOMC meeting. While the statement does leave room to hold off on a rate hike should economic data weaken, traders in Fed Fund futures are pricing in a 72% probability of a Fed rate hike at the December meeting. The U.S. Treasury yield curve is also reflecting the belief that a rate hike is coming, with the 2-year /10-year Treasury curve flattening to a 136 basis point 10-year yield premium to the 2-year note. We are seeing the 2-year yield rising vs. the 10-year note, as shorter maturities are more sensitive to changes in Fed interest rate policies. Even the equity markets appear ready to accept an increase in interest rates, as equity markets soared following the release of the Fed minutes on Wednesday. While many analysts expect any rate increases to be done very gradually, there is a small minority of pundits who believe that a rate hike in December is too aggressive given global growth prospects and the fact that the Fed may have to backtrack should economic headwinds return. However, my take is that the Fed could lose some credibility from market participants if they once again backtrack from a rate hike in December, as they could be labeled as an "all talk and no action" Fed in regards to starting to normalize interest rates.

Technical Notes

Looking at the daily chart for the December 2-year Note futures, we notice prices trading near recent lows but consolidating following the steep sell-off seen in late October. Prices are now well below both the 20- and 100-day moving averages (MA) and we have recently seen the 20-day MA cross below the 100-day MA, which is generally viewed as a bearish technical signal by market technicians. The spike low made on November 6th at 108-29.75 looks to be the next support level for the December futures, with resistance seen at the recent high of 109-7.5.

Mike Zarembski, Senior Commodity Analyst


November 23, 2015

The Wide World of Eurodollar Futures

Monday, November 23, 2015

Futures Challenge, Presented by the Futures Institute and CME Group
Sunday, November 29--Friday, December 4, 2015
Begins Sunday at 4:30pm CST
Build your futures and futures options trading skills through actual experience during the upcoming Futures Challenge, a no-cost, six-day, online program where you can test your futures trading ideas.

Fundamentals

This Xpresso is going to cover the basics of Eurodollar futures, one of the most active and liquid futures contracts currently traded. Eurodollars are deposits in foreign banks held in U.S. dollars. They have nothing to do with the Euro currency and the foreign banks are often not located in Europe. Traders can use Eurodollar futures to take a position on the future movement of the LIBOR (London InterBank Offer Rate), as Eurodollar futures reflect a 3-month LIBOR rate. Similar to Fed Fund Futures, the price for Eurodollar futures is determined by subtracting the expected 3-month LIBOR rate from 100. So, a Eurodollar future that last traded at 99.42 would reflect an expected LIBOR rate at settlement of 0.58. A declining trading price indicates expected higher rates and vice versa.

Technical Notes

Short-term technical analysis isn't especially useful for Eurodollar futures, since interest rates don't tend to move drastically up or down. Looking at a 5-year weekly continuation chart shows the March 2016 Eurodollar future finding support near 99.30, a level last reached in late 2011. The slope of both the 20- and 50-week Simple Moving Averages has turned downward as well. Since mid-2015, the weekly chart shows a series of lower highs and lower lows, indicating an expectation of higher LIBOR rates going forward.

Dale Jennings, Commodity Analyst

November 24, 2015

Can Germany Save the Euro?

Tuesday, November 24, 2015

Futures Challenge, Presented by the Futures Institute and CME Group
Sunday, November 29--Friday, December 4, 2015
Begins Sunday at 4:30pm CST
Build your futures and futures options trading skills through actual experience during the upcoming Futures Challenge, a no-cost, six-day, online program where you can test your futures trading ideas.

Fundamentals

Germany's GDP came in at 0.3% in the third quarter, meeting analyst estimates. On an annual basis, price-adjusted GDP rose by 1.8%, or 1.7 % when calendar-adjusted. While being far from jaw-dropping figures, the fact that the growth came from internal growth was encouraging. Being a manufacturing economy, Germany relies heavily on exports, which have been lackluster due to the Chinese slowdown. Germany has benefited from low interest and unemployment rates to grow economically, but will this be enough to stop the Euro slide? The Federal Reserve seems poised to raise interest rates in December, while ECB President Mario Draghhi has hinted that the ECB will either lower interest rates or increase the pace of its bond-buying program. If this is indeed the case, it would be the first time since 1994 that the Federal Reserve and a European central bank went in opposite directions on interest rates. This does not automatically mean the Euro will drop against the greenback, as traders are expecting both to occur. The focus of traders will instead likely be the language of the Fed. Many traders are expecting a rate hike in December, but the unknown is what the FOMC plans on doing going forward. Is the Committee going to raise rates and then hold steady, or is this the first of a series of consecutive hikes? That is the question traders will be asking themselves.

Technical Notes

Turning to the chart, we see the December Euro chart drifting lower toward the 1.0500 support level. The 1.0500 support can be seen as significant and could lead to a test of parity. It is interesting to note that the RSI indicator reached a relative low earlier this month, yet prices continue to move lower.This could be seen as potentially bullish.

Rob Kurzatkowski, Senior Commodity Analyst

November 25, 2015

Will Strong El Nino Warm-up Coffee Market

Wednesday, November 25, 2015

Futures Challenge, Presented by the Futures Institute and CME Group
Sunday, November 29--Friday, December 4, 2015
Begins Sunday at 4:30pm CST
Build your futures and futures options trading skills through actual experience during the upcoming Futures Challenge, a no-cost, six-day, online program where you can test your futures trading ideas.

Fundamentals

The so-called "tropical softs" commodity markets of Coffee, Cocoa and Sugar are starting to show some increased trading activity of late, as a potential record El Nino weather event has caused traders to price in some "risk premium" should production issues develop. Cocoa prices have been in a bullish trend for most of 2015, and recently Sugar prices have started to breakout of a bearish trend. That leaves the Coffee market still favoring the bear camp, but there may be some signs of a potential change in trend. Last week, the lead month March futures staged a bullish reversal after prices failed to make new lows on Wednesday. Prices have rallied over 10 cents per pound since that time on what may have initially been short-covering by weak bears. However, fundamental traders are starting to fear that Coffee production in Brazil and Indonesia could be affected by the strengthening El Nino, with below normal rainfall the major concern. While it correctly appears that the production of Robusta Coffee could be particularly affected, higher quality Arabica Coffee could also see prices rise due to production concerns.

Technical Notes

Looking at the daily chart for March Coffee futures, we notice prices have once again moved above the 20-day moving average, which is a potential buy signal for short-term momentum traders. The 14-day RSI has moved from near oversold levels to a more neutral reading of 52.13. One issue with the recent rally is that trading volume has dropped the past few trading sessions, which could signal that the recent buying is mostly short-covering in nature or could be reflective of the upcoming Thanksgiving Holiday, when trading activity can be subdued. We should get a clearer picture of this activity next week. 115.30 remains support for the March futures, with resistance found at 130.20.

Mike Zarembski, Senior Commodity Analyst