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March 2016 Archives

March 1, 2016

February was Golden

Tuesday, March 1, 2016

February was a strong month for Gold futures, marking the best month for the metal since January 2012. Gold futures gained 10.5% in February. The metal also saw high volatility in the month, as measured by CBOE/COMEX Gold Volatility Index (GVX). The index jumped 32% in February and volatility could remain high for the foreseeable future. There is economic uncertainty in the US and Europe, as well as China, so Gold could remain an attractive safe haven asset for the foreseeable future.

Fundamentals

Investors have been flocking to Gold as an investment, as evidenced by the jump in holdings in the SPDR Gold Shares (GLD) ETF. The world's largest exchange-traded product backed by Gold saw an increase of 16% in holdings for the month of February, finishing the month at 777.27 metric tons of the metal. GLD has brought in an estimated $4.55 billion in new money this year. Investors have good reason to be fearful about the global economy. In the US, conditions seem to be weakening. The Chicago PMI saw a sub-50 reading last week, indicating contraction. With the economy adding jobs at a slower pace since October, there are some concern that the economy could be heading toward a recession. This could change the interest rate outlook for the Fed and result in rates staying static for the foreseeable future. This could hurt the US Dollar versus the other major currencies.

Europe is also facing its challenges. While the ECB is mildly pleased at some of the economic improvements due to the central bank's loose monetary policy, growth is still lackluster. Some ECB members have also showed concern that the bank's monetary policy could lead to inflationary pressure that may be difficult to tame. The 800-pound gorilla in the room for the EU is the possibility that Great Britain will exit the union (Brexit). This could have a negative impact on the Euro and Pound, as well as lead to contagion, with other member states attempting to seek more favorable terms with the union.
Looking East, China has had its fair share of challenges over the past several years in real estate and manufacturing. The People's Bank has had a difficult time stimulating economic activity with aggressive action. Like in Europe, there are concerns that the prolonged period of cheap money will eventually kick start the economy and create an inflationary situation that is difficult to tame. The Shanghai stock market is still a mess and there has been a leadership change there to try to restore some order and confidence. The Bank of Japan continues to use aggressive stimulus, going to negative interest rates. The threat of runaway inflation in Japan is, however, seen as lower than the aforementioned areas.

Technical Notes

Turning to the chart, we see the April Gold contract continuing to consolidate in recent sessions. The consolidation has been tightening, leading to a triangle pattern on the daily chart. An upward breakout from the formation may suggest that prices could test the 1300 mark. The next resistance level may be found around the 1292.50 mark, followed by more significant resistance just below 1400. On the downside, support may be found around 1160 and 1100. It is interesting to note that the RSI indicator has been moving lower over the past two week, even as prices have remained sideways.

Rob Kurzatkowski, Senior Commodity Analyst


March 2, 2016

No Soft Landing for Cotton Prices Yet

Wednesday, March 2, 2016

Both large and small speculators have been adding to existing net-short positions the past week, despite prices hovering at nearly 6 ½ year lows. The most recent Commitment of Traders report shows the net-short position in Cotton for non-commercial and non-reportable traders increased by nearly 4,500 contracts during the reporting period ending February 23. Commercials are on the other side of the trade, increasing their net-long position to nearly 12,250 contracts.

Fundamentals

Commodity bears continue to have a "soft" spot for Cotton futures, as a higher than expected estimate for U.S. Cotton plantings this season sent front-month futures to their lowest levels in over 6 years. During last week's USDA Outlook Forum, government economists estimated this season's Cotton plantings at 9.4 million acres, vs. 8.58 million acres last year. The rise in Cotton acres despite the slump in prices is likely the result of low prices for alternative crops such as Soybeans and Corn. This leaves many producers little choice but to plant Cotton this season. Globally, Cotton demand has been lackluster, with Chinese Cotton imports falling in January. U.S. Cotton exports for the current marketing year are running nearly 20% below the 5-year average for this time of year. While current fundamentals appear to favor those with a bearish view for Cotton prices, there is some optimism for Cotton demand for the 2016/17 season. The USDA raised its estimate for Chinese Cotton demand next season to 33 million bales, which would be the first increase since the 2009/10 marketing year and could be the first major step for Cotton prices to finally attempt to form a bottom.

Technical Notes

Looking at the weekly continuation chart for Cotton futures, we notice prices trading below previous support at 57.05 and reaching price levels not seen since September 2009. While prices are forging a 6 ½ year low, the 14-week RSI has not yet reached oversold levels, which could leave room for further price declines. The next major support level is found at the June 2009 low of 50.15, with major resistance found at theAugust 2015 high of 68.30.

Mike Zarembski, Senior Commodity Analyst

March 3, 2016

Oil Rallies Despite Headwinds

Thursday, March 3, 2016

Crude Oil futures posted a third consecutive positive session after the EIA reported a large inventory build, despite a decline in production. Oil prices have been making good progress in recent weeks, even as the market faces headwinds. Overnight, the market was greeted with more bad news, as China's manufacturing sector reported disappointing data. The official government PMI came in at a paltry 49.0 in February, down from 49.4 in January. The Oil market shrugged off the contraction in Chinese manufacturing and inventory build.

Fundamentals

According to the EIA, Crude Oil inventories rose by a 10.4 million barrels last week, exceeding the analyst estimate of a 9.9 million barrel build. Total Crude Oil production in the US decreased by 25,000 barrels per day, dropping the daily output to 9.077 million barrels per day. This can be attributed to a decrease in refinery demand for Crude Oil, which can be attributed to a conscious decision by refiners to scale back production for economic reasons. Refineries had increased output in the final quarter of 2015, exceeding demand. Demand could remain soft in upcoming weeks, as refinery maintenance season kicks in, leading to lowered output. However, many market observers expect refinery output to ramp up ahead of the driving season. There has been anecdotal evidence that storage facilities in Cushing, OK are not accepting new storage agreements at this time. The storage facility is at currently around 80% full, which can be viewed as operational capacity. At the current build level, it would take less than half the year until the choke point for the facility. There is no choice but to trim Crude Oil production as there is not enough refinery demand or storage for US Oil.

Technical Notes

Turning to the chart, the April Crude Oil contract traded though the near-term minor resistance mark around 33.65. Prices closed slightly below the 35.00 level. The next area of resistance may be found around the 38.15 level. The RSI indicator is showing overbought technical conditions, which may make it a bit of a grind in upcoming sessions.

Rob Kurzatkowski, Senior Commodity Analyst


March 4, 2016

Bond Prices Rally Ahead of Employment Report

Friday, March 4, 2016

Here are some pre-report estimates for this morning's release of February Non-Farm Payrolls and Unemployment report:

Payrolls: +190,000 vs +151,000 Jan

Unemployment Rate: 4.9% vs. 4.9% Jan

Average Hourly Earnings: +0.3% vs. 0.5% Jan

Average Workweek: 34.6 hr. vs. 34.6 hr. Jan

Fundamentals

Much of the gloomy talk about the American economy since the start of 2016 has apparently started to subside the past several trading sessions, as some "upbeat" data has started to emerge. On Tuesday, the institute for Supply Management's manufacturing index rose to 49.5, vs. 48.2 in January. This was the highest this index has been since September of last year. While the index is still reading below 50, which is an indication of contraction in the manufacturing sector, the trend is moving in the right direction for growth and could be signaling that dour economic expectations were overstated. Traders received some encouraging news on the labor front on Wednesday, as the ADP employment report showed that private payrolls grew by a larger than expected 214,000 jobs in February, which added further evidence to the resiliency of the U.S. economy. Even the Fed Beige Book released on Wednesday afternoon was moderately upbeat, with a majority of the 12 reporting districts showing expansion in both jobs and consumer spending. The interest rate sector has seen increased activity from the improving economic data, as the 10-year note yield is up over 30 basis points from its low of 1.567% back on February 11, and Fed fund futures are now pricing in a 47% chance of a Fed rate hike by the September Federal Open Market Committee Meeting, vs. a 27% chance just last week. Prior to the monthly payrolls report, we saw initial jobless claims rising last week by a larger than expected 6,000 to 278,000. Continuing claims rose by a very modest 3,000 to 2.257 million. With last month's payrolls a major miss by analysts, many traders will be keenly focused on any "revisions" to last month's figures to obtain a clearer picture of the strength of U.S. employment.

Technical Notes

Looking at the daily continuation chart for Ultra Bond futures, we note what appears to be a triple-top formation on the weekly chart, with prices now starting to slip below the 20-day moving average for the first time since early January. The 14-day RSI has retreated from overbought levels in mid-February to a more neutral level of 57.49. Prices appear to be forming a consolidation pattern, and this morning's payrolls report could be the catalyst for the direction of the next interim price move. Major resistance is found at the February 11 high of 177-24, with support seen at the February 17 low of 168-25.

Mike Zarembski, Senior Commodity Analyst


March 7, 2016

2001, a S&P Odyssey

Monday, March 7, 2016

The US economy added 242,000 jobs in February and the unemployment rate remained unchanged at 4.9%, 0.1% below the natural rate of unemployment rate of 5%. Job gains were found in a variety of sectors, Health care and social assistance added 57,000 jobs, retail added 55.000 jobs, food services added 40,000 jobs, and construction added 19,000 jobs. While most Fed watchers don't expect a March rate increase, these solid numbers make a June rate increase possible.

Fundamentals

The US equity markets have recently recovered from the brutal start to 2016 and the March emini S&P contract has been hovering around the psychologically important 2000 level during Friday's trading. A modest rise in crude oil prices as well as a slight rise in 4th quarter GDP, consumer spending, and personal income has calmed many investors' fears of sluggish economic group.

Traders should keep in mind that the rollover date for the March emini contract is March 10 and the contract expires on March 18. The quarterly options will expire at 830 AM Central time on March 18.

Technical Notes

Turning to the 6 month continuation chart, we see some bullish signs for the March emini S&P. The emini has rebounded from the double bottom at the 1800 level and the chart is showing the 20 day simple moving average getting ready to cross above the 50 day simple moving average. Previous short term resistance was found around the 1950 level and the next resistance level is near 2100. 14 day RSI is a slightly overbought level at 74.78.

Dale Jennings, Commodity Analyst

March 8, 2016

ECB on Tap for Currency Traders

Tuesday, March 8, 2016

The Euro currency started the week on a positive note, despite expectations that the European Central Bank will add more liquidity. The currency has also held up well in the face for the Brexit and the potential fallout from a UK exit from the EU. The referendum is slated for June 23, so there is quite a bit of time before it comes up for vote. The US Dollar continues to face pressure, despite a strong showing on the labor front last week. Some of the strength in the Euro could be attributed to some technical support and oversold conditions.

Fundamentals

Traders are expecting the ECB to be aggressive with rates and quantitative easing when the central bank meets later this week. German inflation grew at a slower pace than the ECB would like to see, which may open the door for more aggressive policy. In January, Europe's largest economy CPI rose 0.4% in January and was completely flat in February. German manufacturing orders fell by 0.1% in January, which was better than the -0.4% analyst estimate. The weaker economic data gives the ECB plenty of flexibility when it comes to policy. The bank is expected to cut the deposit rate for banks from -0.30% to -0.40%. The ECB is also expected to increase its asset purchases from €60 billion a month to €70-75 billion of Eurozone debt a month. There is speculation that the ECB could move to devalue to the Euro if member countries continue to see exports slipping.

Technical Notes

Turning to the chart, we see the June Euro currency trading down to support just above the 1.0800 level before bouncing back in recent sessions. The RSI indicator had also been giving oversold readings, which may have contributed to the rebound. Support around the 1.0800 level can be seen as fairly significant. Failure to hold the level could lead to declines in the currency. The chart suggests more range bound trading may be in store for the Euro.

Rob Kurzatkowski, Senior Commodity Analyst


March 9, 2016

Can Wheat Prices Spring to Life?

Wednesday, March 9, 2016

Wheat prices may receive a modest boost later this season from what is expected to be a second consecutive down year for Brazilian Wheat production. It appears that producers may favor planting additional acres for Corn next season given current favorable profit margins. While Brazil is an overall net-importer of Wheat, any additional shortfall in domestic production will likely force Brazil to purchase additional Wheat from its neighbor Argentina, and possibly the U.S. if prices remain attractive. Traders should keep an eye on the value of the Brazilian real which has become rather volatile of late, as the market has started to recover from 12-year lows vs. the U.S. Dollar.

Fundamentals

Wheat futures prices have been in the doldrums for the past 6 months, as large global supplies and weak demand for U.S. Wheat has kept the market on a downward path. However, as spring approaches and the Wheat crop emerges from its winter slumber, market participants may begin to fixate on Mother Nature and her potential wrath on the emerging crop. Weather forecasts are calling for above normal precipitation for the heart of the Soft Red Winter Wheat growing regions the next two weeks, with some areas expecting between 5 and 10 inches of rain during this time period, which raises the risks for potential flooding of fields. The Hard Red Winter Wheat growing region of the central and southern plains is experiencing the exact opposite weather issues, as the region is abnormally dry -- especially in central and western Oklahoma and Kansas. This morning's USDA supply/demand report is expected to show U.S. Wheat ending stocks in the neighborhood of 970 million bushels, with a figure +/- 20 million bushels within analysts' estimates. Large speculators are heavily net-short Chicago Wheat futures according to the most recent Commitment of Trader's report. For the reporting period ending March 1, non-commercial traders were net-short just over 123,000 contracts after adding an additional 12,678 new net-short positions the past week. Commercial traders are on the other side of the trade with a net-long position of nearly 122,100 contracts.

Technical Notes

Looking at the daily chart for July Chicago Wheat futures, we notice prices attempting to test the down trend line drawn from the June 2015 high of 628.50. Prices are hovering near the 20-day moving average (MA) but remain well below the key 200-day MA which is currently near the 514.00 price level. The 14-day RSI has rebounded off a near oversold reading to a more neutral 45.76. Chart support remains at the contract low of 449.50 made on March 2. Chart resistance is found at the January 26 high of 499.00.

Mike Zarembski, Senior Commodity Analyst

March 11, 2016

The Tale of Two Bond Markets

Friday, March 11, 2016

With both the European Central Bank (ECB) and the Reserve Bank of New Zealand (RBNZ) lowering their benchmark interest rates this week, one has to wonder how this will influence members of the Federal Reserve who may be looking at rate hikes in 2016. Fed Funds futures traders are not looking for any movement on interest rates at the March Federal Open Market Committee meeting scheduled for next week, with the March futures currently pricing in a 0% chance of a rate hike. In fact, it is not until the July FOMC meeting where the futures market is pricing in a near 50% probability of a rate hike.

Fundamentals

U.S. Treasury yields are starting to see some volatility the past few weeks as traders attempt to assess how signs of slowing global economic will influence the Federal Reserve and an American economy that appears to be avoiding recessionary fears unlike we are seeing in parts of Asia and Europe. Data from Japan showing that its economy contracted by 1.1% in the fourth quarter of 2015 sent its 10-year yields to a record low of negative 0.1%, and sparked renewed interest in U.S. Treasuries where even 10-year yields below 2% look attractive to investors in a world where negative interest are becoming all too common. Bond traders are also facing a conundrum between what the U.S. Treasury market and the high yield corporate bond market are saying about expectations for the economy going forward, as each market segment appears to be painting a different picture. On the Treasuries side we are seeing the yield curve continue to flatten, with the 10-yr/2-yr curve currently at 0.98% which is down 0.52% from a year earlier. A flattening of the curve is generally considered a sign that market participants are expecting slower economic growth prospects. If that were true, one would think that yields on lower quality corporate debt would increase given the increased risks of a slowing economy on corporate profits. However, we are seeing the opposite occur as high-yield corporate bond indices are in a bullish trend of late and even the debt of companies involved in the energy sector are seeing the bond prices rise and yields decline as it appears that investors and traders are starting to believe that the worst may be over for the energy sector with Oil prices now holding above their lows for the year. So the million dollar question is which Bond sector will ultimately be proven correct and traders will be even more focused on the actions and statements coming out of the Federal Reserve and other major global Central Banks in the coming weeks and months to gauge the levels of concern on the performance of the global economy, and the prospects of further rate hikes by the Fed for the remainder of the year.

Technical Notes

Looking at the weekly continuation chart for 10-yr Note futures, we notice prices attempted an upside "breakout" from the nearly 3 year old consolidation pattern only to see it culminate into a "bull-trap" being sprung on momentum traders, as prices quickly moved back into the prior trading range. Prices remain above both the 20 and 200-day moving averages (MA) which appear to be converging, and if successful will be the first time the 20-day MA will have crossed above the 200-day MA since September 2013. The 14-week RSI has weakened the past several sessions and is now reading a more neutral 52.56 as of this writing. The "breakout" high of 133-01.5 remains resistance for the lead month June futures, with support seen at 125-09.

Mike Zarembski, Senior Commodity Analyst

March 14, 2016

The Revenge of the Loonie

Monday, March 14, 2016

The Bank of Canada left rates unchanged at 0.5%, as expected in their March 9 policy statement. The Bank of Canada pointed out the recent drop in financial market volatility. The Bank also noted that the price of oil has rebounded as well as well the better than expected 4th quarter GDP growth.

Fundamentals

All eyes are on March 22 when Prime Minister Justin Trudeau will reveal his first budget since his Liberal party won the general election in October of 2015. The budget is expected to show a much larger deficit than originally thought. During the campaign, the Liberal party promised to invest in infrastructure to spur job creation and economic growth. The unemployment rate in February rose to a 3 year high of 7.3%. Since winning the election, oil prices have fallen further and the formerly booming province of Alberta is likely to remain in recession throughout 2016. However, the province of British Columbia is doing quite well and is expected to lead Canada in growth for 2016 with a forecasted growth rate of 2.7%.

Technical Notes

Turning to the 6 month continuation chart, we see that this mixed, but slightly more positive economic news has helped the Loonie bounce back after being in free fall during the last 2 months of 2015. There's been an increase in volume after the Loonie bottomed out in January, potentially indicated short covering. 14 day RSI is bullish at 71.10, slightly overbought. The .7800 level looks to be the next point of resistance while support is found at the January lows around .6825

Dale Jennings, Commodity Analyst


March 15, 2016

What Will the Fed Have in Store for Bond Traders?

Tuesday, March 15, 2016

Bond futures are higher for the second consecutive session, as there is a growing expectation that the Federal Reserve will hold steady and not raise interest rates until December. The US central bank begins a 2-day meeting today, with the policy statement and interest rate decision coming tomorrow afternoon. The FOMC is expected to leave rates unchanged, and the consensus opinion seems to be leaning toward a very dovish statement from the Committee.

Fundamentals

Lower energy costs, along with anemic manufacturing activity in China, has drastically reduced global inflation risk. For this reason, we will likely continue seeing central banks either pause or take aggressive action to stimulate growth. This could be seen as favorable for Bond prices, as expected yields decrease. Bond prices did take a hit in recent weeks, as it appeared that traders were looking to take on a bit more risk. Energy and equity prices seemed to be on the rise, however, it looks as though Crude Oil prices have stalled out a bit over recent sessions. The ECB surprised last week by being more aggressive in its policy than previously expected. The ECB lowered its deposit rate to -0.4% and included corporate debt to its asset purchase program. Traders are still split on the direction for the Federal Reserve. Some are not expecting a rate increase until the very end of the year, or none at all, while other traders are expecting several increases in the second half of the year. Bonds will likely have more upside potential if more traders start believing the Fed will hold off this year.

Technical Notes

Turning to the chart, we see the June Bond contract closing in on support around the 160-00 level after confirming a double-top in February. The contract closed below the 50-day moving average the past 2 sessions, which could be seen as negative for prices in the near-term. The RSI indicator is showing oversold conditions, which could be favorable for Bonds in the near-term.

Rob Kurzatkowski, Senior Commodity Analyst


March 16, 2016

Gold Retreats from Highs as Fed Meeting Looms

Wednesday, March 16, 2016

Speculative accounts continued to add to existing bullish positions in Gold futures last week as prices reached their highest levels in nearly a year. The most recent Commitment of Traders report shows non-commercial and non-reportable traders adding nearly 30,800 new net-long positions during the reporting period ending March 8. While we most likely saw some long liquidation this week as weak Gold bulls covered positions ahead of the Federal Reserve Open Market Committee Meeting (FOMC) that ends today, the overall bullishness towards Gold by trend-following traders still appears strong, but we will need to see some further upward momentum and, in particular, a close above the 2015 highs at 1307.80 for the lead month futures before we may see any additional significant buying emerge by systematic funds.

Fundamentals

Gold has been one of the few bright spots for commodity bulls so far in 2016, as prices rallied over 20% prior to a recent set-back the past several sessions. The Gold market has benefited from rising volatility in global equity markets, concerns for global economic growth, and political uncertainty in many parts of the globe. It has been this general uneasiness among investors that has once again triggered a move towards Gold as a so called "safe haven", especially in an environment of low to negative yields for top-rated government bonds and a U.S. Dollar that has been trending lower versus a basket of major currencies since December of last year. Today could be a critical day for helping to establish the next move for Gold prices, as we will have the release of the statement following the 2-day FOMC meeting. While many market participants are not expecting any movement in interest rates today, the tone of the Fed statement could offer the market clues as to how the Fed is currently viewing the global economic climate and, perhaps more importantly, whether the Fed is prepared to raise interest rates in the coming months. As of this writing, Fed Fund futures are pricing in a 22% chance of a rate hike at the April FOMC meeting and a 49% chance at the June meeting. A potential increase in rates would likely generally be viewed as bearish for Gold, as a U.S. rate hike could help to strengthen the U.S. Dollar, which is generally viewed as negative towards commodity prices. In addition, since holding Gold does not pay a dividend or generate interest, higher U.S. rates could discourage Gold ownership as funds shift to higher yielding assets. However, should the Fed appear "dovish", we could see the Dollar continue its recent downward trajectory and be the "catalyst" for momentum traders to jump back on the bullish Gold trade.

Technical Notes

Looking at the weekly continuation chart for Gold futures, we notice the short-term uptrend in prices has started to run into some resistance, as the lead month futures failed to test psychological resistance at the 1300.00 price level. The 14-week RSI has twice approached the 70 level and was turned back both times. The weekly chart shows three key resistance barriers that need to be overcome before we are willing to call an end to the nearly 5-year longer-term down move in Gold prices. The first level of major resistance is seen at the 2015 high at 1307.80. Above this price level sits the 200-day moving average, which is currently near the 1334.50 price area. Most important, in my opinion, is the downtrend line that is drawn from the historic highs made back in 2011. Currently this trend line sits near the 1393.30 price area, and a close above this trend line, especially on a weekly basis, would be a strong indicator that the longer-term trend for Gold prices now may be favoring the bull camp. Chart support is found at 1189.00 and at the 20-day moving average, currently near the 1133.80 price area.

Mike Zarembski, Senior Commodity Analyst

March 17, 2016

Fed Sets the Doves Free

Thursday, March 17, 2016

The Federal Reserve policy statement took a decidedly more dovish tone than previous statements. The central bank not only held back raising borrowing costs, but also scaled back its forecast for its interest rate policy for the remainder of the year. The median of FOMC member projections saw the borrowing rate at 0.875 at the end of 2016. This would mean approximately 2 quarter point interest rate increases by the end of the year, which is down from December's projection of 4 quarter point rate increases. The Fed sees slower growth this year due to softer global conditions and financial turmoil and the Committee does not envision the inflation target of 2.0 percent until 2017. Currency traders were bracing for a dovish statement from the Fed, but were not expecting this sharp of a shift.

Fundamentals

The FOMC statement send the Dollar Index tumbling lower, which was not surprising in light of the Fed's bearish language. The sharp shift in the Fed's language from several months ago has the potential to drastically shift the outlook for the US Dollar versus other currencies. It looks as though Janet Yellen has fallen into the same trap as her two predecessors in trying to appease the financial markets instead of sticking to her guns. Negative interest rates in Europe and Japan can be viewed as limiting the downside risk to the US Dollar. The greatest risk to the greenback seems to be rising energy prices and potential spill over into other commodities, which could drive up the price of commodity based currencies, like the Australian and Canadian Dollars. The question is now whether currency traders are overreacting to the change in Fed language and outlook. The Dollar is still favorable against the Euro and Yen from an interest rate perspective. The Bank of England held rates steady at 0.50 percent this morning and many believe the BoE will keep rates at these levels through 2016.

Technical Notes

Turning to the chart, we see the cash Dollar Index (DXY) dropping sharply yesterday followed by another day of selling this morning. The activity can be seen as a confirmation of the double top formation confirmed last month. The next area of support may be found around the 94.00 mark, which is roughly the measure of the double top. The RSI indicator is in oversold territory, which may combat some selling pressure.

Rob Kurzatkowski, Senior Commodity Analyst


March 18, 2016

Oil Prices Rebound Following Dovish Fed Statement

Friday, March 18, 2016

Non-commercial traders have become bullish on Crude Oil futures according to the most recent Commitment of Trader's report. For the reporting period ending March 8, non-commercial traders added just over 43,000 new-net long positions to bring the overall net-long position to 303,758 contracts. Commercial traders are on the other side of the trade with a net-short position of 297,456 contracts.

Fundamentals

Crude Oil prices have rebounded nicely from its 2016 lows as a slumping U.S. Dollar, a moderately "Dovish" Federal Reserve and signs that OPEC may be ready to curb production has made analysts' predictions of Oil below $20 suspect. The lead month May futures are now trading above $40 per barrel and are at their highest price level since early January. The Crude market has seen an upside breakout from a short-term consolidation pattern that had formed the past several trading sessions following the statement released at the conclusion of the March Federal Open Market Committee (FOMC) meeting. The biggest takeaway from the FOMC statement was a lowering of the expectations for interest rates, with the Fed now only expecting 2 interest rate hikes in 2016. The U.S. Dollar posted steep declines following the Fed announcement which sparked a rally in commodity prices, including Crude Oil, as a weaker U.S. Dollar makes commodity prices more attractive to non-Dollar users. On the fundamental side, Oil prices are seeing some support from a smaller than expected storage builds last week. The Energy Information Administration (EIA) reported that U.S Crude inventories rose by 1.317 million barrels last week, which was about 2 million barrels below average analysts' expectations. In addition, we are still seeing U.S. Oil production trending lower, with U.S. Crude output falling to 9.07 million barrels per day vs. a high of nearly 9.7 million barrels in early spring of last year. Heading into the holiday shortened trading week next week, Oil traders will monitor any statements regarding an April 17 meeting of Oil producers being hosted by Qatar. Here traders will focus on who will be attending this meeting and attempt to gauge the potential that major Oil exporting nations, both in and out of OPEC, are ready to slow Oil output in hopes of bringing the supply and demand equation in-line and in turn ending the sharp decline in Oil prices we have seen since the summer of 2014.

Technical Notes

Looking at the daily chart for May Crude Oil, we notice the market forming what appears to be a rounded bottom technical pattern. This is being tested as we write as prices are testing chart resistance at the 41.60 price level. The market has moved above the 20-day moving average (MA) but still has a way to travel to catch the 200-day MA, which is currently hovering near the 46.15 price level. The 14-day RSI is strong with a current reading of 64.58. The August 24 low of 42.50 looks to be the next resistance level for the May futures, with support found at the March 15 low of 37.71.

Mike Zarembski, Senior Commodity Analyst


March 21, 2016

The Olympic-Sized Dive in the Brazilian Economy

Monday, March 21, 2016

As a reminder, futures markets will be closed on Friday, March 25, in observance of the Good Friday holiday.

What a difference a decade makes. BRIC (Brazil, Russia, India, and China) was the acronym of choice and investors flocked to emerging markets. Brazil saw growth of 4.0% in 2006, 6.1% in 2007 and ended the decade with growth of 7.5% in 2010, even after the global financial crises. The Brazilian Real also has plummeted, the Real traded in the .63000 range as recently as 2008, and now it struggles to reach the .30000 level.

Fundamentals

As Brazil anticipates the 2016 Olympic Games, there is a considerable degree of political and economic turmoil. A massive protest on March 13 against President Dilma Rousseff added to pressure for the Brazilian government to impeach the President. Economically, the worldwide drop in commodity prices has stung the Brazilian economy. Inflation is over 10%, unemployment is around 7.6%, the country has been in recession since 2015, and the International Monetary Fund projects a negative growth rate of 3.5% for 2016. The coinciding of a political crisis with an economic crisis also may reduce the likelihood of additional foreign investment, even with the country being in the spotlight during August for the Summer Olympics.

Technical Notes

Turning to the 6-month continuation chart, we see some very choppy trading, but some potential short-term bullish signs as well. The 20-day Simple Moving Average (SMA) is providing short-term support as the Real continues to trade above the SMA. The curve of the 20-day SMA is becoming more steep and diverging from the 50-day SMA. 14-day RSI is bullish, mildly overbought at 71.92. Support can be found around .24000 at the mid-January lows, while .28000 is the next resistance level.

Dale Jennings, Commodity Analyst.


March 22, 2016

Gold Getting Top Heavy?

Tuesday, March 22, 2016

Gold futures have started the year off on a very strong note, driven by economic uncertainty and regression in the US Dollar. After the strong start, though, metal traders may be a bit fatigued, which may lead to a bit of profit-taking. Gold fundamentals and outside market fundamentals generally could be seen as favorable to the bull camp. Last week's surprisingly dovish FOMC policy statement could be seen as very bearish for the US Dollar Index, which normally moves inverse to Gold prices.

Fundamentals

The March FOMC policy statement could be seen as a game changer for the US Dollar. Some traders had already become increasingly bearish in their opinion of the greenback, and expectations for rate hikes had been scaled back. However, not many market watchers were expecting the central back to halve their rate increase outlook. This could change the trajectory for the currency. Conversely, the Fed announcement came at an opportune time for Gold traders. It seems as though some traders were cooling a bit on Gold prices. The metal's value as a defensive instrument was high to start the year. Lately, the defensive value has been eroding due to better economic outlooks in Europe and the US. The economic optimism is not strong enough to drive inflation hedging, and global growth potential seems to have a low ceiling in 2016. It is an awkward spot for Gold. Not only could slow growth not spark inflation fear, but demand for industrial use could remain lackluster. The Crude Oil rally also has stolen Gold's thunder, and investors may be seeing more upside potential for petroleum in light of the sharp sell-off from October of last year through early February. Retail investors could provide a safety net and prevent sharper retracement. Assets in the SPDR Gold Trust jumped to 818.98 tons on Friday, the highest level since December 16, 2013, suggesting healthy demand from retail traders.

Technical Notes

Turning to the chart, we see the rally in April Gold starting to stall. The recent closes below the 20-day moving average suggest that a near-term high may be in place. This is supported by the failure of the April contract to retest recent highs. It is of interest to note that the RSI and Momentum indicators are showing negative divergence to prices, which suggests prices could take a turn lower.

Rob Kurzatkowski, Senior Commodity Analyst

March 23, 2016

Is the Start of a Bull Market Brewing in Coffee Futures

Wednesday, March 23, 2016

Large speculators reversed their net-position in Coffee last week, moving from a net-short to a net-long position. The most recent Commitment of Traders report shows non-commercial traders added over 19,400 new net-long positions during the reporting period ending March 15. This moved the overall position to a net-long 14,865 contracts. Commercial Traders, as expected, sold into the rally adding over 18,600 new net-short positions and moving the overall positon to net-short 16,357 contracts. The non-reportable or small speculative position saw some long liquidation selling into the rally as the overall net-long position declined by just over 800 contracts to a net-long 1,492 contracts.


Fundamentals

Commodity traders are beginning to "perk-up" to some bullish fundamental news in the Coffee market of late as prices have rallied over 20-cents per pound since the beginning of March. First we have started to see some concerns from traders that dry weather conditions in the Coffee growing regions of Brazil and Columbia may force analysts to revise lower their production estimates for the 2016/17 season. Low Coffee prices the last few years could produce lingering effects on future production as producers are forced, for economic reasons, to defer or curtail maintenance on the trees to save money. A large European bank has lowered its estimate for Brazilian coffee production to 51.8 million 60kg bags, with Arabica production totaling 39.2 million bags and Robusta production totaling 12.6 million bags. The wildcard for Coffee prices could be any fallout from the political uncertainty surrounding Brazil's President and its effects on the value of the nation's currency the Real. While the Real has recently recovered from over 13-year lows vs. the U.S. Dollar, traders fear the Real could come under further pressure should the political climate continue to worsen. While normally a weak Real would encourage producers to sell Coffee into the global market, there is some thought that producers may withhold Coffee from the market as a potential inflation hedge should the Real slide further as well as a means to help support prices as end users are forced to pay higher prices to pry supplies out of storage.

Technical Notes

Looking at the weekly chart for May Coffee we notice the steep up move in prices since the beginning of March, which has matched the rally in the Brazilian Real. In addition, the March 1 low at 113.40 could be a failed test of the previous low made back on January 20 which could be interpreted as a double-bottom technical formation. Coffee prices have rallied above several chart resistance levels the past several trading sessions including trading above both the 20 and 200-day moving averages and moving above the downtrend line drawn from the April 2015 highs. The 14-day RSI has moved into overbought levels with a current reading of 70.49. Chart resistance is seen at the recent highs of 135.00, with a weekly close above this level setting-up a potential test of the October 2015 high of 142.85. Support is found at the March 16 low of 124.05, with major support found at the January 20 low of 113.35.


Mike Zarembski, Senior Commodity Analyst

March 28, 2016

Upcoming Earnings Season to Provide a Spring Spark?

Monday, March 28, 2016

As the first quarter draws to a close this week, many investors are looking ahead to the upcoming corporate earnings season to provide some direction. The first quarter of 2016 has seen extremely volatile markets across a wide spectrum. Equity markets, gold, oil, and currencies have been on a roller coaster ride throughout the past three months as markets reacted to the Federal Reserve's first interest rate rise in December 2015, slowing growth in China, a glut of crude oil supply, and the possibility of the United Kingdom leaving the European Union.

Fundamentals

As the first quarter draws to a close this week, many investors are looking ahead to the upcoming corporate earnings season to provide some direction. The first quarter of 2016 has seen extremely volatile markets across a wide spectrum. Equity markets, gold, oil, and currencies have been on a roller coaster ride throughout the past three months as markets reacted to the Federal Reserve's first interest rate rise in December 2015, slowing growth in China, a glut of crude oil supply, and the possibility of the United Kingdom leaving the European Union.

Technical Notes

Turning to the 6 month continuation chart for the e-mini S&P 500, we see a moderately bullish trend. The e-mini has rebounded since the double bottom near the 1800 level. The 200 day Simple Moving Average (SMA) is providing support, the e-mini crossed above the 200 day SMA in mid-March, the 200 day SMA was previously providing resistance and this previous resistance level is now providing support. 14 day RSI is a moderately bullish 64.41.

Dale Jennings, Commodity Analyst


March 30, 2016

Global Sugar Deficit Expected to Increase in 2016

Wednesday, March 30, 2016

Both large and small speculators have been on a Sugar buying binge the past week according to the most recent Commitment of Traders report. For the reporting period ending March 22, non-commercial and non-reportable traders added a combined 60,759 new net-long positions. This took the combined speculative net-long position to 263,482 contracts. Commercial traders are on the other side of the trade and have increased their net-short position to 263,482.

Fundamentals

After 5 years of falling prices due to a global surplus, the Sugar futures market appears to have broken out of its bear market slump, as growing demand and potential crop issues in Asia have sent prices soaring this quarter. Dry conditions in the Sugar Cane growing regions of India, Thailand and Brazil have commodity analysts revising their production estimates lower for the 2015-16 season. Sugar production in India is expected to fall by about 10% from last season's totals, as monsoon rains were disappointing. El Nino is thought to be responsible for dry conditions over Southeast Asia, which could lead to lower Cane production in that region. Current forecasts are for a global Sugar deficit of between 6.6 and 7.8 million metric tons for the 2015-16 season, which should help to keep prices above the lows seen in February. However, with speculative long positions increasing sharply the past few weeks, a market correction would not be surprising to help shake weak longs out of the market, prior to another test of recent highs. Looking towards the 2016-17 season, all eyes will be on Brazil, the world's leading Sugar exporting nation. Here traders will focus on the effects of Cane production going towards ethanol production, as well as the direction of the Brazilian currency -- two factors outside of Mother Nature's control that may have an outsized influence on Sugar prices later this year.

Technical Notes

Looking at the daily chart for May Sugar, we notice that what appeared to be a rounded top formation ended in a so called "bear trap," as prices failed to hold below chart support at 12.75, which cumulated in a sharp price rally on February 23. Prices are now well above both the 20- and 200-day moving averages (MA), and the 14-day RSI has fallen below overbought levels, with a current reading of 62.27. The March 17 low of 15.47 looks to be near-term support for the May futures, with resistance found at the March 23 high of 16.75.

Mike Zarembski, Senior Commodity Analyst