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December 2015 Archives

December 1, 2015

EU Manufacturing Grows, but Pressure Remains

Tuesday, December 1, 2015

Despite the Eurozone showing slight signs of economic improvement, it looks as though Mario Draghi and the ECB are poised to increase stimulus later this month. This is really not surprising to anyone, but it will be interesting to see how the currency markets will react to more liquidity in the EU. Traders are pricing in an interest rate hike from the FOMC at this month's meeting and the ECB is not even attempting to hide its hand, all but stating that further stimulus will be added. In these situations, markets can oftentimes take the "buy the rumor, sell the fact" approach, where we could actually see the markets react inversely to the news. However, it has been over 20 years since US and European central banks had monetary policy that was opposite of one another. The last time this occurred the EU did not even exist, making the policy decisions somewhat of a wild card.

Fundamentals

The Markit Economics Purchasing Manager's Index for the EU rose to 52.8 in November, up 0.5 from October. The biggest manufacturing gains were in Germany, which saw an increase to 52.9 from 52.1. The entire EU saw manufacturing growth, with the exception of Greece, which did see a modest improvement with contraction slowing. The Greek PMI remained below 50, but did improve to 48.1 from 47.3 in October. The jobless rate also unexpectedly fell to 10.7% in October, which is the lowest it has been in almost 4 years. The ECB has all but confirmed that it will add stimulus this month, but the exact course of action the bank will take is unknown. The ECB has a variety of tools at its disposal, including lowering interest rates, increasing asset purchases or a combination of the two.

Technical Notes

Turning to the continuation chart, we see the Euro currency continuing to grind lower toward the 1.0500 support level. Failure to hold support here could result in a test of parity with the US Dollar. It is interesting to note that, while prices have moved lower, the RSI actually reached a relative low in the second week of November. This divergence between price and RSI may be seen as a signal that a near-term price reversal could be on the horizon. The oversold conditions, positive divergence and the market nearing a support level could be building toward a price reversal or stabilization.

Rob Kurzatkowski, Senior Commodity Analyst


December 2, 2015

Warm Start to Winter Keeps Natural Gas Prices in Check

Wednesday, December 2, 2015

Large speculators remain net-short Natural Gas futures, but appear hesitant to add to existing positions with prices near contract lows. The most recent Commitment of Traders report shows non-commercial traders holding a net-short position of nearly 213,000 contracts as of November 24th. This was a reduction of nearly 5,500 contracts for the week, despite prices falling to new lows. Commercial traders are on the other side of the trade with a net-long position of just over 185,000 contracts. Meanwhile, non-reportable traders continue to try to pick a bottom and have added nearly 2,000 new net-long positions during the reporting week.

Fundamentals

It appears that winter is going to take its sweet time arriving this year, as weather forecasts are calling for above normal temperatures for most of the U.S. through mid-month. That was music to those short Natural Gas, as the lead-month January futures continue to trade near contract lows. Natural Gas fundamentals were already leaning towards the bear camp, with inventories already over 4 trillion cubic feet, which is up nearly 7% from the 5-year average. In addition, the Energy Information Administration reported that U.S. Gas production continues to increase, despite prices near multi-year lows. Now the Climate Prediction Center in its 8 to 14 day outlook has the entire eastern 2/3rds of the U.S. with above to well-above temperatures out to December 15th. If accurate, this will allow either additional Gas to be placed into storage or, at worst, greatly limit the amount of Gas drawn from storage to be used for heating purposes. Natural Gas futures spreads continue to weaken, with the Jan/Mar 2016 spread falling over 8 cents since the end of October, which appears to be signaling that market participants do not see any near-term demand spikes as we approach the official start of winter in the U.S. on December 21st.


Technical Notes

Looking at the daily chart for January Natural Gas futures, we notice prices continuing to hover near contract lows, with prices struggling to hold above 2.300. The 14-day RSI is weak, but is barely holding above oversold levels with a current reading of 30.11. There is strong chart resistance between 2.350 and 2.600, which are the high and low bands of the previous consolidation pattern. Chart support is seen at the November 30th low of 2.175, with major support seen at 2.000.

Mike Zarembski, Senior Commodity Analyst


December 3, 2015

OPEC Meeting Lifts Ailing Crude Oil Market

Thursday, December 3, 2015

Crude Oil futures got a boost from signs that OPEC may cut supply to balance markets. Up to this point, Saudi Arabia has not been a supporter of market intervention, instead expecting the market to balance itself. However, a Saudi delegate was cited as saying that the country would be open to intervening if the non-OPEC countries of Russia, Oman, Kazakhstan and Mexico were also on board. The report has, at least initially, been refuted by at least one Saudi source calling it "baseless." Nevertheless, some traders took this as a sign that OPEC will not simply sit idly by as supplies swell and prices slump.

Fundamentals

Despite the drama sparked by the quote, this OPEC meeting is expected to be a non-event for the market. Ultimately, the Oil cartel will probably not agree to cut current output with a few dissenters, as has been par for the course in recent meetings. Traders will likely have to wait until the next meeting for a possible policy shift. The scheduling of the next meeting may be the only market event to come from the pow wow. If OPEC decides to go with March as the next meeting date, it could be viewed as bullish. On the flip side, a June meeting could be viewed in a more bearish light by Oil traders. Aside from the OPEC meeting, there is more of the same for the Crude Oil market. The EIA reported another Crude Oil build of 1.2 million barrels last week. Cushing, Oklahoma inventory levels reached a record high 309.4 million barrels. The combined storage of Cushing and the Gulf Coast, which accounts for 67% of the nation's total storage capacity, reached 70.2% utilization. While this is slightly below the record level of 71.2% set during the week ending April 24th of this year, it could be seen as very bearish fundamentally. Unlike April, there is no driving season ahead of this glut to chip away at the supply.


Technical Notes

Turning to the chart, we see the January Crude Oil contract trading near support at the 40.00 level. Additional support may be found at 38.24. The RSI has shown some divergence from price, which may be seen as positive. Prices may be able to capture some momentum if the January contract breaks through 43.25 on the upside.

Rob Kurzatkowski, Senior Commodity Analyst

December 7, 2015

Loonie Divergence

Monday, December 7, 2015

While most of the economic data for the United States has been positive, particularly job creation and a falling unemployment rate, Canada has seen a decidedly mixed bag of economic numbers for 2016. Falling commodity prices have hurt the Canadian economy, which is just now slowly emerging from a brief period of recession

Fundamentals

All signs point to a United States Federal Reserve rate hike in December. The Bank of Canada, however, left rates unchanged at .5%. The Bank of Canada has cut rates twice this year, while the United States has remained unchanged, albeit at zero. The Canadian economy exited their mild recession with growth resuming at a 2.3% annualized rate for the third quarter. This divergence between two neighboring economies has been reflected in the price of the Canadian Dollar, which has fallen below .75 recently.


Technical Notes

Turning to the 3-month continuation chart for the Canadian Dollar, most technical indicators are showing a bearish trend. The 20-day SMA is providing a resistance level and the curve is sharply downward. The 20-day SMA is not only below the 50-day SMA, but the divergence between the two moving averages is increasing. The current support level, near .74, is below the previous .75 level. The 14-day RSI is a bearish 34.21.

Dale Jennings, Commodity Analyst


December 9, 2015

Less than Zero

Wednesday, December 9, 2015

Please join us for the upcoming Futures webinar:

The End of Deflationary Commodity Markets and the Beginning of Re-flation! with David Hightower

David Hightower will take a step back and put current commodity prices into a historical perspective and discuss which commodities might start re-inflating after their extended deflationary period.

Tuesday, December 15, 2015

12:00 pm Central Standard Time


Fundamentals

While it appears that the Federal Reserve is finally ready to implement an interest rate hike, potentially as soon as the end of the 2-day December Federal Open Market Committee Meeting (FOMC) on December 16, our neighbors to the north in Canada appear to be on a different trajectory for interest rates. Bank of Canada (BOC) Governor Stephen Poloz commented on Tuesday that should condition warrant, the BOC is prepared to move its key policy rate below zero! While it should be noted that Mr. Poloz stated that a move to negative rates is not being planned at this time, it shows that the BOC is prepared to act to help its moribund economy that has been hampered by lower Oil and commodity prices. It appears the Mr. Poloz wants to inform market participants that the BOC is prepared to use tools such as negative interest rates, like we are seeing in Europe, if necessary, as these "unconventional actions" are being accepted by global central bankers. The Canadian Dollar fell to multi-year lows against the U.S. Dollar following Mr. Poloz's remarks, as some traders apparently see few signs that the "Loonie" is ready to fly higher given the divergent paths of the U.S. and Canadian economies.


Technical Notes

Looking at the daily continuation chart for Canadian Dollar futures, we notice prices have fallen to lows not seen since 2004, as continued weakness in the commodities sector has weighed on the so called "commodity currencies" such as the Brazilian Real and Australian and Canadian Dollars. There appears to be some strong support between 0.7200 and 0.7000, with a chart "gap" that may need to be filled down to 0.6967. The 14-day RSI is weak, but still holding above oversold levels, with a current reading of 31.27. The 2004 low of 0.7135 looks to be the next major support level for the front-month futures, with major resistance found at the October 2015 high of 0.7791.

Mike Zarembski, Senior Commodity Analyst


December 8, 2015

Will Miners' Challenges Drive Gold?

Tuesday, December 8, 2015

Shares of Anglo-American Plc tumbled to all-time lows after the mining giant indicated that it would suspend dividends to save cash. Anglo-American, which is one of the largest miners in the world, has suffered due to collapsing commodity prices. The company also plans to reduce its workforce to 50,000 employees, down from its current level of 135,000. Anglo-American is not the only miner facing these challenges. Struggling miners could significantly cut investment, which suggests that Gold could see an output decrease in 2016.


Fundamentals

Gold futures have benefited from strong US employment data, which suggests that economic activity is ramping-up. This could make inflationary pressure a relevant force worth discussing. Coupled with a possible output decrease, an economic rebound could put pressure on current supplies. Junk bonds are heading for their first annual loss since the financial crisis of 2008, suggesting some traders may be becoming more risk averse and could head toward higher ground. This could make Gold attractive for investors as a flight to quality asset. Gold may face outside pressure from the currency markets and tumbling Crude Oil prices, which presents downside risk for the metal.


Technical Notes

Turning to the chart, we see the February Gold contract rebounding off support at the 1050 level. However, Gold's advance was halted by resistance at the 1085 level. Closes above the 1085 and 1100 resistance levels would offer further confirmation of a reversal in Gold prices. The metal is still vulnerable at the 1050 level on the downside.
Rob Kurzatkowski, Senior Commodity Analyst

December 11, 2015

Soybean Prices Stabilize Following USDA Report

Friday, December 1, 2015

Please join us for the upcoming Futures webinar:

The End of Deflationary Commodity Markets and the Beginning of Re-flation! with David Hightower

David Hightower will take a step back and put current commodity prices into a historical perspective and discuss which commodities might start re-inflating after their extended deflationary period.

Tuesday, December 15, 2015

12:00 pm Central Standard Time


Fundamentals

Soybean prices staged a relief rally on Thursday, following what was deemed a modestly bearish government report on Wednesday. The USDA December Crop report estimated U.S. Soybean stockpiles at 465 million bushels, unchanged from the November estimate, but still more than double the inventory seen this time last year. Globally, the USDA increased old-crop Soybean stockpiles to 77.7 million metric tons, vs. 77.6 million metric tons in November. New-crop stockpiles were seen at 82.6 million metric tons, vs. 82.9 million metric tons last month. While the USDA estimates saw few changes, a sell-off in the value of the U.S. Dollar and short-covering buying by weak shorts may have been the ultimate catalyst for the rally on Thursday. As we approach 2016, some traders may once again turn their attention to crop production in South America, as both Brazil and Argentina are expected to produce large Soybean crops this season. This will increase the competition for U.S. Soybean exporters, especially with the Dollar remaining strong against the so called "commodity currencies" including the Brazilian Real and the Argentinian Peso.

Technical Notes

Looking at the daily chart for January Soybeans, we notice prices attempting to find some support near the 875.00 price level after a test below 850.00 was met with some buying interest. Prices are holding just above the 20-day moving average, and the 14-day RSI has turned neutral, with a current reading of 53.12. It is beginning to look like the market is in the midst of a consolidation phase, with 925.00 the upper boundary of the range and a strong resistance level, with support seen at the November 23rd low of 844.25.

Mike Zarembski, Senior Commodity Analyst


December 14, 2015

London Calling

Monday, December 14, 2015

Please join us for the upcoming Futures webinar:

The End of Deflationary Commodity Markets and the Beginning of Re-flation! with David Hightower

David Hightower will take a step back and put current commodity prices into a historical perspective and discuss which commodities might start re-inflating after their extended deflationary period.

Tuesday, December 15, 2015

12:00 pm Central Standard Time


Fundamentals

The Bank of England left interest rates unchanged at 0.5% as the continuing drop in crude oil prices reduced inflation fears. The U.K.'s annual rate of inflation dropped precipitously to 0.5% in December. The Bank of England is targeting an annual inflation of rate of 2.0%. The U.K. economy continues to outperform European peers with an expected growth rate of 2.6% for 2015. The quantitative easing program by the European Central Bank is causing the Euro to fall against the Pound, potentially hurting U.K. exports. A bigger issue is the referendum on the U.K.'s continued participation in the European Union. Prime Minister David Cameron is attempting to push for reforms in the E.U. and spent last week negotiating in Poland and Romania.

Technical Notes

Turning to the 3 month continuation chart, we see that the British Pound is attempting to break though the 50 day SMA, which is providing resistance. The previous level of resistance was found at the 20 day SMA and is now providing support. The level near 1.545 provides the next level of resistance. 14 day RSI is a neutral 54.35
Dale Jennings, Commodity Analyst

December 15, 2015

Fed Watch

Tuesday, December 15, 2015

Please join us for the upcoming Futures webinar:

The End of Deflationary Commodity Markets and the Beginning of Re-flation! with David Hightower

David Hightower will take a step back and put current commodity prices into a historical perspective and discuss which commodities might start re-inflating after their extended deflationary period.

Tuesday, December 15, 2015

12:00 pm Central Standard Time


Fundamentals

The US Dollar Index has taken its share of lumps in December leading up to tomorrow's FOMC rate decision. The prevailing market opinion suggests that the FOMC is ready to raise interest rates tomorrow. According to the Fed Funds futures, traders have priced in a 80% chance of an interest rate increase at tomorrow's meeting. The second most important item, after the rate decision itself, will be the wording of the Committee's statement. A statement suggesting the FOMC will raise rates now and possible pause at the next meeting could be seen as negative for the greenback. Much of the recent weakness in the US Dollar Index can be attributed to profit taking and traders lightening up positions ahead of the Fed meeting. The US Dollar Index also suffered some setbacks due to traders unwinding carry trades borrowed in Euros. Tomorrow's FOMC meeting will likely determine the near-term direction of the market.

Technical Notes

Turning to the chart, we see the cash Dollar Index trading above the 100-day moving average. The Dollar Index is hanging around some potentially vulnerable levels on the downside. In addition to the 100 day MA, which currently sits at 96.98, support near the 96.50 level is not that far off of the current market. Failure to hold one or both of these levels can lead to technical selling.

Rob Kurzatkowski, Senior Commodity Analyst


December 16, 2015

All I Want for Christmas is an Interest Rate Hike?

Wednesday, December 16, 2015

The short-end of the yield curve has been affected the most from the belief of a Fed rate hike with the 2-year note yield rising by 13 basis points the past month. For the year, the yield has risen by 39 basis points to 0.97%. As a comparison, the 5-year note has seen only a modest 5 basis point yield rise the past month. For the year, the 5-year note yield is up only 13 basis points to 1.70%. The 2-year/10-year yield curve continues to flatten falling 10 basis points the past month to 1.30%.


Fundamentals

It appears that Traders now appear convinced that the Federal Reserve (Fed) will finally announce an interest rate increase of an expected 25 basis points on Wednesday following the conclusion of the December Federal Open Market Committee Meeting (FOMC). Among the reasons cited by traders for the Fed to finally take action on rates include a positive trend of economic data of late, as well as some signs of wage pressures for sectors of the work force that could lead to wage inflation going forward. However, one cannot help but wonder if the real reason the Fed will move on rates this afternoon is more a question of losing credibility in the eyes of market participants as the Fed has hinted of rate increase in the past year, but always failed to take action citing economic headwinds that in hindsight were very temporary in nature. The real focus among economist will not be on the rate announcement but in the wording of the statement following the announcement. Here the text will be scrutinized for clues on when any following rate hikes will occur and to what extent the Fed hopes to bring interests rates too eventually as they move towards a more "normal" interest rate environment. The current thought is that we could see anywhere between 3 to 5 additional 25 basis point rate hikes in 2016 which would bring the Fed Funds rate to somewhere between 1 and 1.5% by the end of next year. However, if history is any guide, the Fed will most likely state that any further rate hikes will be "data dependent" and traders should not expect much more than a very moderate pace of interest rate increases in the next 2 to 3 years, barring any major inflation shocks that as of now do not appear in the horizon.

Technical Notes

To try to filter out some of the "noise" seen in the market the past several sessions, we are going to take a look at the weekly continuation chart for the e-mini S&P 500 futures. Here we notice that the long-term trend is still favoring the bull camp as the trend-line drawn from the major low back in 2009 has not even been challenged since October 2011. More recent trading activity has prices relatively range bound within a 100 point rage bounded by 2000.00 on the downside and 2100.00 on the upside. We are starting to see the 20-day moving converge with the 100-day moving average. The last time this occurred was back in December 2011 where this convergence was very short lived, and signaled a sharp price rally that has lasted nearly 4 years! The 14-week RSI has turned neutral with a current reading of 50.20. Support is seen at 1982.50 with resistance found at 2110.25.

Mike Zarembski, Senior Commodity Analyst

December 17, 2015

Gold Indifferent After Fed Raises Rates

Thursday, December 17, 2015

Gold futures reacted negatively to yesterday's FOMC rate decision, but remained firmer than many would have expected. The Fed had made a slightly stronger statement on closing the door on the zero interest rate era, but not only raising interest rates, but also increasing the repo cap to unlimited. That removes virtually all obstacles for the Fed being able to actually remove liquidity from the market. Some viewed the FOMC statement as dovish because of the suggestion that rates will increase gradually, but this may simply be a case where the Federal Reserve does not want to rock the boat too much. The central bank had raised interest rates for the first time in nine years and inflation is a non-factor at the moment.

Fundamentals

Gold traders have been bracing for a rate hike, so the market did not react very strongly to the news yesterday. The action of the Fed do give traders a bit of a mixed view. On one hand, the FOMC statement does not convey a sense of urgency in raising interest rates. On the other hand, the elimination of the repo cap suggests that the bank is serious about getting higher effective interest rates out there and curtailing liquidity. While the FOMC rate decision did not hurt Gold, the lack of fresh buying and soft physical demand for the metal may. ETFs may have been liquidators ahead of the meeting and there is very little investment demand for the metal at the present moment. The 8% percent global increase in Gold demand in Q3 may be more of an aberration rather than the start of a trend.

Technical Notes

Turning to the chart, we see the February Gold contract regressing after testing the 1085.00 resistance level. Prices have tested support near the 1050.00 support level in early trading. A close below 1050.00 may result in a test of the $1,000 price level.

Rob Kurzatkowski, Senior Commodity Analyst


December 18, 2015

Who Says History Does Not Repeat Itself!

Friday, December 18, 2015

While Oil prices are testing 6-year lows, we are seeing the Natural Gas market at price levels seen back in the 1990's, as ample supplies and an unusually warm start of the winter heating season has front-month futures trading well below $2. Thursday's morning's weekly release of the Energy Information Administration's (EIA) weekly Gas storage report showed only 34 billion cubic feet (bcf) of Gas was drawn from storage last week. This was 7 bcf below expectations, and weather forecasts are calling for well above average temperatures for the eastern 2/3rds of the U.S. out to the end of the year. If accurate, it could allow Gas storage levels to remain well above the 5-year average and potentially lead to more than adequate supplies going into spring.

Fundamentals

Oil prices are hovering near a critical price level, with a potential test of the 2009 lows in sight as the world remains awash in Crude. As most of us remember, Oil prices fell from the mid-$140's in 2008 to the low $30's during the height of the global economic crisis in early 2009. Who would have thought we would be revisiting that major low a mere 6 years later -- especially considering Oil was still trading above $100 per barrel as late as July of last year. Since the beginning of 2015, we have seen both WTI and Brent Crude Oil prices down about 35%, with both weak demand and ample supplies accounting for the plunge in prices. While the near-term outlook looks bleak for Oil bulls, we should remember that commodity prices rarely trend in one direction, and at some point there likely will be a catalyst that will halt the current price sell-off. The U.S. Congress has recently brought about legislation to potentially repeal the ban on U.S. Oil exports that has been in place since the early 1970's. While this legislation still needs the support of President Obama and there is no guarantee that he will approve this legislation, it is just this sort of unexpected "catalyst" that could eventually trigger a bottom for Oil prices.

Technical Notes

Looking at the weekly continuation chart for Crude Oil, we notice prices attempting a test of the 2009 lows. This sets up two possible scenarios: either a potential double-bottom formation or a move below $30 per barrel, which was the norm back in the early 2000's. We should remember that Oil prices above $40 were the "outlier" back in the 1990's. The 14-week RSI has once again breached oversold levels, and we do see a bullish divergence in the RSI, which could be a signal that a potential short-covering rally may be near. 33.20 is seen as the next major support level for the front-month futures, with resistance found at 50.92.

Mike Zarembski, Senior Commodity Analyst



December 21, 2015

An Olympic Sized Downgrade

Monday, December 21, 2015

With Brazil set to host the Summer Olympics next year, the country is still reeling from the expense of the 2014 World Cup. Both political and economic strains have hurt the Brazilian Real. Fitch Ratings downgraded Brazil's credit rating to BB+ from BBB-; this is effectively a 'junk' rating.

Fundamentals

Fitch cited continuing economic contraction as one of their reasons for the downgrade. The Brazilian economy contracted by 1.7% in the third quarter, and the forecast is for an annual grown rate of -3.7% for 2015 and -2.5% for 2016. Brazil is a commodity rich country, and the collapse in commodity prices has added to the economic stress. Continued political tension isn't helping either. There are repeated protests calling for the impeachment of President Dilma Rousseff. With a rise in unemployment, inflation at 10%, political corruption and uncertainty, the Brazilian Real seems likely to continue to decline heading into 2016 and the Rio Olympics.

Technical Notes

Turning to the 6-month continuation chart, there are many bearish technical signs. 0.24000 is a support level established this fall, and the Real seems prepared to test that level again. The Real is also trading beneath both the 20- and 50-day Simple Moving Averages (SMAs.) Both SMAs are converging around the .26250 level which is providing resistance. Finally, 14-day RSI is in bearish territory at an oversold 25.6263.


Dale Jennings, Commodity Analyst


December 22, 2015

Can Stocks Finish in the Black?

Tuesday, December 22, 2015

The S&P is close to break-even for the year, down only 1.69%, but will the index be able to finish the year on a positive note and finish in positive territory? Other than the August crash and subsequent recovery, it has been a relatively uneventful year for stocks. Corporate earnings have leveled off some and much of the year was spent on Fed watch. Nevertheless, ending the year on a positive note may give stocks a bit of a boost come the new year.

Fundamentals

The Great Recession has been followed by an equally painful period of slow recovery. Employment and housing, both key components of the economy, had a relatively good, but not great, year. When looking at other factors, such as the lower cost of petroleum and the Fed delaying rate hikes until December, traders can make an argument that employment and manufacturing should have performed much better than they had in 2015. This is the reason the Fed had delayed the interest rate increase until December and have not come close to committing to additional rate hikes. In fact, traders are only pricing in a 51% chance of a rate increase by April. Corporate earnings seemed to have plateaued, which is why traders are predicting single digit gains for the S&P in 2016.

Technical Notes

Turning to the chart, we see the March e-mini S&P bouncing back after closing below the 2000 support level this past Friday. It looks as though the chart is close to confirming a possible double top formation. If the pattern is confirmed, prices may test the 1900 level on the downside. This is within earshot of the lows reached in late August and again in late September. Prices may find resistance near the 2045 level. For the market to regain some upward momentum, prices may need to break out above the 2100 level.

Rob Kurzatkowski, Senior Commodity Analyst



December 23, 2015

Too Much Too Soon?

Wednesday, December 23, 2015

Sugar futures will have normal trading hours on December 24, although the other "softs" products will see an early close on Thursday. All U.S. markets will be closed on Friday, December 25 in observance of the Christmas Holiday. Coffee, Sugar, Cocoa and Cotton traders can sleep-in on Monday, December 28, as these markets will have a late opening of 7 am Central Time in observance of Boxing Day celebrated in the U.K.

Fundamentals

Today's headline could sum-up the thoughts of Sugar traders, who have seen the front-month futures rally from just above 10 cents per pound to just over 15 cents as of this writing. Much of the gains were tied to the Sugar market moving to a global supply deficit following several years of a worldwide surplus. Current forecasts as to the potential size of the deficit vary by as much as 6 million metric tons, but the overall consensus is that we will see a supply deficit for the 2015/16 season. However, before one becomes too bullish on Sugar prices, we should note the market still faces some significant headwinds that may act as a lid on further price gains. First, we have the prospects that the U.S. Dollar will continue its gains against the so-called "commodity currencies" which have faltered due to the overall slump in commodity prices. For the Sugar market, the value of the Brazilian Real is a front and center concern of traders, as weakness in currency of the world's leading Sugar producing nation would encourage producers to increase overseas sales to take advantage of the weakened Real. There are also concerns on what the demand picture will look like in 2016, especially with prices up sharply from its recent lows and continued uncertainty regarding the overall strength in the global economy. The size of Chinese Sugar imports will be particularly scrutinized by analysts, as there is talk that China may reduce its import totals in 2016 -- but to what extent remains uncertain. Speculators are also starting to lighten-up on their net-long positions as prices hover around the 15-cent level basis the March futures, with the most recent Commitment of Traders report showing combined non-commercial and non-reportable traders reducing their net-long holdings by a combined 30,800 contracts during the reporting period ending December 15. So it appears that the market will need a new round of bullish inputs in order to convince market participants that the Sugar bull move is alive and well as we move into 2016.

Technical Notes

Looking at the weekly continuation chart for Sugar futures, we notice that the major downtrend line drawn from the major high made back in early 2011 definitely has been broken, although it is still too early to conclude if a bullish trend has begun or we are in a consolidation phase near recent lows. There remain several key resistance areas including the 200-day moving average, which is currently near the 16.80 price level, as well as the October 2013 high of 19.50 that must be challenged in order to help confirm that a major low has been formed. The 14-week RSI has recently retraced from near overbought levels near 70 to a more moderately supportive 60.99. 13.63 is seen as the near-term support level for the front-month futures, with near-term resistance seen at 15.58.

Mike Zarembski, Senior Commodity Analyst



December 28, 2015

Never Say Never Again

Monday, December 28, 2015

Experienced traders know that commodity prices can be extremely volatile. During the 2008 run up in oil prices, pundits were confidently proclaiming that consumers would never pay under $4 per gallon for gasoline again. Now, heading into 2016, sky high gas prices seem as antiquated as tail fins on cars. This Xpresso will review the oil market in 2015 and take a look ahead to 2016.

Fundamentals

Crude oil prices rebounded from 2014 lows heading into the spring and summer of 2015. However, these gains were short lived and began to fall even as the summer driving season was still in the peak months. There are several reasons for the continued decline in crude prices. The economic slowdown in China as well as parts of continental Europe are pressuring on the demand side. Inventories have been at record highs. The Iran nuclear deal will allow Iran to resume oil sales. Finally, the United States has lifted the decade long ban on oil exports.

Technical Notes

Turning to the year to date continuation chart of crude prices, we see several bearish signs. After failing to break through resistance around the $63 level, the market has been making a series of lower highs and lower lows. The 20 day Simple Moving Average (SMA) has crossed under the 50 day SMA and there is increased divergence between these moving averages with an extremely sharp downward slope for the 20 day SMA. The Christmas Week rally, on thin volume, has helped the 14 day RSI head into neutral territory of 46.55.

Dale Jennings, Commodity Analyst


December 29, 2015

Oil Limping Into Year End

Tuesday, December 29, 2015

Crude Oil bulls have been unable to muster any sort of fight going into the end of the year, as oversupply continues to eclipse all other news. Despite the huge slump in prices, Saudi Arabia is certainly showing no panic. According to Chairman Khalid al-Falih of Saudi Aramco, the state-owned Oil company, the belief is that world market for Crude Oil will balance in 2016. Mr. al-Falih noted that North American supply has plateaued and production is on the decline. While this is true, the government of Saudi Arabia has slowly been diversifying away from petroleum. The government there has been talking up economic diversification since 1970, but it seems the recent resurgence in North American production and slumping prices. In 2016, 70% of government revenue is expected to be derived from Oil, down from 73% and 89% in 2015 and 2014, respectively. This can partially be attributed to the price slump, but there seems to be a less positive long-term price outlook on the part of Saudi Arabia as well.

Fundamentals

The supply glut has been the main story for Oil this year and will likely remain a main challenge for Oil bulls into 2016. OPEC futures suggest that the cartel is adding 2 million barrels per day over oversupply, which equates to roughly 2% of global supply. This figure could increase as sanctions against Iran are lifted. Traders are looking forward to tomorrow's inventory data, which is expected to show Cushing, OK stockpiles increase by 1.2 million barrels. The currency markets have been the lone bright spot for Crude Oil prices. The US Dollar Index has been unable to mount any sort of sustained rally and remains technically vulnerable. The boost from a weaker greenback could only be minor unless the Dollar finds itself in freefall.

Technical Notes

Turning to the chart, we see the February Crude oil contract bouncing off support at the $35 level. Prices have not posted a solid close above the 20-day moving average, which would suggest a near-term low could be in place. A solid close above the $40 level could give Oil prices a bit of momentum. There is plenty of chart congestion between 40-50, which may have a limiting effect on Crude Oil prices.

Rob Kurzatkowski, Senior Commodity Analyst


December 30, 2015

Trader's Ponder Dairy Dilemma for 2016

Wednesday, December 30, 2015

optionsXpress offers trading in futures and futures options on the following CME Dairy products:

Class lll Milk Futures and Options: (Symbol DA)

Cash-settled Butter Futures and Options: (Symbol CB)

Cash-settled Cheese Futures: (Symbol CSC1)

Trading hours are Sunday 5:00 pm CT to Friday 1:55 pm CT with a daily trading halt between 4:00 pm can 5:00 pm CT.


Fundamentals

Like most commodities in 2015, Milk prices were mired in a bear market slump following the huge drop in prices seen in 2014. The decline in international dairy prices has finally convinced many producers to cry "uncle" as milk production is seen declining in the leading dairy exporting countries. The biggest decline in production is seen from New Zealand, which is the 8th largest global milk producing nation at approximately 21 billion liters annually. While a slowdown in global Milk production appears likely going into 2016, current dairy inventories remain more than ample to meet current demand. This overhanging supply may act as a headwind for any price recovery in the first half of the New Year. Many analysts now expect any meaningful recovery for Milk prices may not occur until 2017, when the effects of improving global economic growth and lower Milk production will finally begin to skew the supply/demand situation for dairy products back in favor of the bulls. In the meantime, dairy futures traders should expect choppy trading action in 2016 as the market struggles to digest the slow shift in dairy market fundamentals.

Technical Notes

Looking at the weekly chart for February Milk futures, we notice prices finally trying to from a near-term bottom after seeing price decline for 9 consecutive weeks. The 14-week RSI has rebounded off recent lows but still remains at oversold levels with a current reading of 25.75. The next major chart resistance level is not seen until prices move above 15.00 which is where the last price consolidation level occurred and is also currently near the 20-week moving average. Support is found at the recent lows near the 13.25 price level.

Mike Zarembski, Senior Commodity Analyst