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April 2016 Archives

April 1, 2016

Fed Remains "Dovish" ahead of Employment Report

Friday, April 1, 2016

While there was talk earlier in the month that rather "hawkish" comments coming from some Federal Reserve officials could signal that an interest rate hike was not off the table for the April 27 Federal Open Market Committee Meeting. Traders in Fed Fund futures are telling a different story with the April 2016 futures pricing in only a 7% chance of an interest rate hike. In fact, you have to go out to the December futures to see an over 50% probability of a rate hike. This view is more in line with comments from Fed Chair Janet Yellen of a more deliberate approach to interest rate hikes this year.

Fundamentals

Federal Reserve Chair Janet Yellen further clarified that the Fed was going to be deliberate in regards to further rate hikes this year in a statement made on Tuesday to the Economic Club of New York. Citing concerns on global growth, in particular Chinese growth, and sluggish commodity prices, Ms. Yellen justified the revised outlook for interest rates that was first announced following the March Federal Open Market Committee meeting. Ms. Yellen stated that while the U.S. jobs and housing markets were a boost to the economic outlook, she was not concerned that recent signs of rising inflation were sustainable given pressures seen in manufacturing and exports which are anchors on economic growth. While the Fed continues to remain "data dependent" on the timing of any further interest rate increases, we will get another glimpse on the U.S. labor market this morning when the March non-farm payrolls and unemployment data are released. Once again, analysts are looking for a moderate increase in payrolls of 200,000 jobs created in March. A number that is good but not great in terms of absorbing those looking for employment. The unemployment rate is expected to remain unchanged at 4.9%, although traders will focus on the labor force participation rate which has held stubbornly at lows not seen since the 1970's. ADP released its estimate for private sector payrolls on Wednesday showing 200,000 jobs created in March vs. 214,000 in February. Of the jobs created, 191,000 were in the service providing sector with only 3,000 jobs created in manufacturing which appears in line with current estimates for the government's employment figures to be released this morning.

Technical Notes

Looking at the weekly continuation chart for the E-mini S&P 500 futures, we notice prices moving back above the 20-week moving average, following what appears to be a double bottom formation. For now we have to say the market has moved into a consolidation phase, until either we see a weekly close above 2100.00 or a drop below the recent lows of 1802.50. The 14-week RSI has started to show some strength, with a current reading of 57.14. Near-term resistance is seen at 2075.00, with near-term support found at 1991.00.

Mike Zarembski, Senior Commodity Analyst


April 4, 2016

Bonds React to Strong Employment Numbers

Monday, April 4, 2016

Friday's unemployment report showed a gain of 215,000 jobs for March. The unemployment rate inched up by 0.1% to 5.0%. The labor force participation rate also increased to 63.0%, however wage growth was disappointing, as wages grew only by 2.3% compared to the previous year. 5% is considered by many economists to be the natural rate of unemployment, so traders and Fed observers will be watching to see if there is any wage push inflation on the horizon.

Fundamentals

After a volatile start to the year, most of the US equity and world commodity markets recovered in March. The next Federal Open Market Committee meeting is April 26-27. Most Fed observers are not expecting a rate hike at that meeting, however the improved employment numbers may point to a potential rate hike in the June 14-15 meeting. The Fed will continue to monitor other economic indicators, such as the personal consumption expenditures price index (the Fed's preferred measure of inflation), as well as the GDP data for the first quarter of 2016 which ended last week.

Technical Notes

Turning to the six-month continuation chart, we see that US 30-Year Bond prices have been trading in a narrow channel over the past month. This channel occurred after a substantial bull run since the first of the year. In March, the 20-day Simple Moving Average ("SMA") crossed below the 50-day SMA, a bearish sign. The 50- day SMA has been providing support, but this support has been tested several times recently, but still has held relatively as a support level. 14-day RSI is showing as a bullish 67.60.

Dale Jennings, Commodity Analyst

April 5, 2016

Oil Set For Range-Bound Trading?

Tuesday, April 5, 2016

Crude Oil futures have been sliding after the EIA announced a smaller than expected rise in inventories for the prior week. After rallying for over a month, profit-taking and downsizing of risk has resulted in prices falling back over recent sessions. It will be interesting to see how Crude Oil trades over upcoming sessions in light of recent weakness in the US Dollar. Trading in Crude Oil has deviated a bit from its standard inverse relationship with the US currency.

Fundamentals

Last week's EIA report showed a build of 2.3 million barrels of Crude Oil, which fell short of the analysts' estimates of a 2.5 million barrel build. The total U.S. commercial Crude inventory of 534.8 million barrels is historically high for this time of year. The bigger story is Gasoline. Inventories decreased by 2.5 million barrels the week ended March 25. Total motor Gasoline supplied averaged roughly 9.4 million barrels a day over the last 4 weeks. This measure of consumption is up 5% over the same period last year. Even with the drawdown, Gasoline inventories remain above the 5-year upper average range. Refineries are running at 90.4% capacity right now, with a daily input of 16.2 million barrels of Crude Oil. Utilization is up 2% week over week, which could be a sign that Gasoline demand is on the increase. It also could be a sign that maintenance season is winding down and largely behind us. The US Dollar Index is approaching a key technical support level near the 94.00 mark. If the USDX breaks support here, there could be renewed selling vigor in the Dollar, which may, in turn, act as a catalyst for Oil prices.

Technical Notes

Turning to the continuous chart, we see Crude Oil failing to regain upward momentum after testing resistance near 43.00. The recent close below the 20-day moving average suggestis that a near-term high may be in place. The front-month May contract is heading toward near-term support between 33.85-35.00.

Rob Kurzatkowski, Senior Commodity Analyst

April 6, 2016

Potential Corn Acreage Expansion Sends Prices Tumbling

Wednesday, April 6, 2016

For those who missed last Thursday's USDA Prospective Plantings Report, here are the estimates:

Corn: USDA 2016: 93.601 million acres Average Estimate: 90.010 million acres USDA 2015:87.999 million acres
Soybeans: USDA 2016: 82.236 million acres Average Estimate: 82.950 million acres USDA 2015:82.650 million acres
Wheat(All): USDA 2016: 49.599 million acres Average Estimate: 51.660 million acres USDA 2015:54.644 million acres

Fundamentals

Last week's highly anticipated USDA Prospective Plantings Report had something for every market participant, with a moderately bullish outlook for Wheat, a rather neutral estimate for Soybeans, and a rather bearish figure for Corn acreage. The report certainly garnered the attention of traders, especially in the Corn market, as a new daily trading volume record was made with over 930,000 contracts traded. The market reaction was greatest for Corn, as traders were surprised that U.S. producers would sharply increase the acreage for Corn plantings given current market prices. However, it appears that the additional Corn acres will be at the expense of Wheat, where the economics for planting are even worse. While on the surface it appears that the trend for Corn prices is lower, especially if the USDA is correct and we see up to an additional 500 million bushels in Corn production this season, some analysts are questioning the USDA estimate -- especially with the uncertainly of weather forecasts early in the planting season, with a wetter than normal spring planting season potentially forcing producers away from Corn and into Soybeans. Should this scenario occur, we could be seeing USDA planting estimates get lowered as we move through the planting season.

Technical Notes

Today we are going to look at the November Soybeans vs. December Corn 1 by 2 ratio chart. Here we notice that after trading in a consolidation band of between 100.00 and 125.00 Soybean premium to 2 contracts of Corn, the market has broken out to the up-side, trading as high as a 192.75 Soybean premium. The price ratio of Soybean to Corn has reached 2.50, which could make Soybeans more attractive for marginal producers. Technically, prices are now well above both the 20- and 200-day moving averages, and the 14-day RSI had moved well into overbought territory with a reading as high as 85 last week, but have since moderated some with a current reading of 75.42. Resistance is seen at the recent highs of 192.75 Soybean premium, with support seen at the 200-day moving average, currently near a 150.00 Soybean premium.

Mike Zarembski, Senior Commodity Analyst


April 7, 2016

Gold Stalling?

Thursday, April 7, 2016

Gold futures have been in range bound trading over the past several weeks, as traders try to make sense of the market. On one hand, some of the economic pessimism from traders has somewhat subsided and the red hot Oil market cooled very quickly, eliminating some of the market's underpinning. On the other hand, the weakness in the US Dollar Index has acted as support for the market and prevented further selling. The question traders are now asking themselves is whether trading will continue to be range bound or if prices will choose a direction.

Fundamentals

The release of the FOMC minutes from the March 15-16 policy meeting was somewhat uninspiring for Gold traders. Committee members debated whether or not a rate hike would be needed in April, with a consensus leaning toward a cautious approach. The committee cited global economic risk. There has been talk that the sharp rise in Gold prices in recent weeks has hurt physical demand for the metal. In India, the All India Gem and Jewelry Trade Federation suggested many shoppers have been postponing their Gold purchases. Holdings in the SPDR Gold Trust (GLD) have steadied around the 820 tons mark. Previously, the ETF's holdings were growing at a sharp clip, so this may suggest traders might be fatigued or taking a wait and see approach. There seems to be renewed appetite for risk from traders in recent weeks, which may have a negative impact on prices.

Technical Notes

Turning to the chart, we see the June Gold contract forming a double top on the daily chart. After the pattern was confirmed, the market began to trade sideways, so further confirmation may be needed or the pattern could be invalidated. A breakdown below the 1200 level could be seen as technical setback for Gold.

Rob Kurzatkowski, Senior Commodity Analyst

April 8, 2016

Cotton Prices Rise as Traders Raise Doubts on USDA Plantings Estimate

Friday, April 8, 2016

Both large and small speculative accounts were adding to existing net-short positions ahead of the USDA Planting intentions report according to the most recent Commitment of Traders report. During the reporting period ending March 29, non-commercial traders added 2,865 new-net short positions to increase the overall net-short position to 28,816 contracts. Non-reportable traders also increased their net-short position by 506 contracts to a net-short position of 3,795 contracts. Commercials are on the other side of the trade and have increased their net-long position by 3,371 contracts to 32,611 contracts.

Fundamentals

Cotton futures prices are on the rise for the first time since late February, despite a moderately bearish USDA estimate on Cotton plantings this season. Last Thursday, the USDA released it's Prospective Planting report for the 2016 crop year and for Cotton it was estimated the U.S. producers would plant 9.56 million acres. This was moderately above average analyst's estimates for 9.4 million acres. However, early reports have Cotton plantings already running behind the average for this time of year especially in the south and south east portions of the Cotton belt that have experienced well above average precipitation levels the past several weeks, which has kept producers out of the fields. While it is still too early for traders to completely dismiss the USDA plantings estimate, one major European bank is estimating only 8.8 million acres will get planted this year. On the demand side, traders will continue to monitor U.S. Cotton export data as well as an upcoming auction of Cotton from Chinese state owned inventories. China is the world's largest importer and consumer of Cotton so any significant changes in demand can have a huge effect on Cotton prices. Technically, it appears that the recent rally is mainly short-covering buying as weak shorts exit the market. However, for the rally to have some legs, we will probably have to see the May futures close above the February 18 high of 60.40 in order to entice short-term momentum traders to jump on the long side of the Cotton trade.

Technical Notes

Looking at the daily chart for May Cotton, we notice prices beginning to consolidate just below recent highs as the recent bout of short-covering buying has started to ebb now that the USDA Prospective Plantings Report has been released. Prices are currently above the 20-day moving average but remain about 3.50 below the 200-day moving average. The 14-day RSI has weakened the past few trading sessions and currently is reading a moderately supportive 55.81. The February 18 high of 60.40 appears to be the next major resistance level for the May futures, with support seen at the March 31 low of 57.01.

Mike Zarembski, Senior Commodity Analyst

April 11, 2016

Euro Confronts Pressure from all Sides

Monday, April 11, 2016

Greece hasn't been in the financial news as much as in 2015, but negotiations are continuing between Greece, Eurozone finance ministers, and the International Monetary Fund. Although the framework of a deal was reached last year, the specifics of the Greek pension cuts and tax increases have still not been agreed upon. However, the tone from Germany has changed; there is no more talk of Greece leaving the Eurozone.

Fundamentals

The European Central Bank continued an aggressive stimulus policy during their meeting on March 10. The ECB is using negative interest rates of -.04% as well as an increased program of bond buying for quantitative easing, increasing to 80 billion Euros per month. The ECB also drastically cut their inflation forecast for 2016 to 0.1% from 1.0%. Eurozone growth is predicted to be a weak 1.4% for 2016, 1.7% for 2017, and 1.9% for 2018. The ECB decided against implementing a tiered deposit rate. The Bank of Japan implemented such a program in January.

Technical Notes

Turning to the six month continuation chart, we see several bullish signs for the Euro. Current trading is pushing up against the 1.1500 resistance level last tested in October. The 20 day Simple Moving Average (SMA) is providing support and the Euro contract is trading above both the 20 and 50 day SMAs. 14 day Relative Strength Index (RSI) is approaching overbought at 70.93

Dale Jennings, Commodity Analyst


April 12, 2016

Shale, Rig Counts on the Decline

Tuesday, April 12, 2016

Crude Oil futures have bounced back strongly in recent sessions, driven by signs that US production could continue to decline. Shale oil, which had been a contributor to the resurgence in overall Crude Oil production, continues to see production declines. There has been a huge decrease in investment in rigs and shale over the past year plus due to the global oversupply of petroleum. There are signs that the low price of Crude Oil and decreased investment may be catching up to the market.

Fundamentals

US shale production is expected to drop to 4.84 million barrels a day in May, which would be the lowest output in almost 2 years. Rig counts have fallen for the third consecutive week, according to Baker Hughes. The Oil services company reported a decline of 8 rigs, bringing the total count down to 354. The number of active rigs has now reached levels not seen since the early 90s. Major Oil producers, including Saudi Arabia and Russia, are scheduled to meet in Doha this Sunday to discuss a possible production freeze. The result of the meeting will certainly be newsworthy and could impact trading on Monday, but many traders will also view the outcome with a grain of salt. In the past, Russia has not held up its end of the bargain when the country agreed to production freezes. There is also distrust between Iran and the Saudis regarding each other's' willingness to honor a potential deal. The Iranian economy has suffered because of embargos and low prices, so there are suspicions that the country will pump out more Oil than it agrees to. While most of the recent market news has been on the supply side, there are signs that demand may be on the upswing. US refiners refined at a record pace last week and China saw record Crude Oil imports in February. Chinese imports of Crude Oil were 31.8 million metric tons, which is roughly 8 million barrels.

Technical Notes

Turning to the chart, we see the May contract testing the 200-day moving average in early trading. Prices are also advancing toward the recent high close of 41.52. Failure to take out this near-term high suggests prices could reverse course in the near-term, which could be seen put prices in a vulnerable spot. A failure could result in a topping formation, such as a double top, with a trigger slightly above the 35.00 level.

Rob Kurzatkowski, Senior Commodity Analyst

April 13, 2016

Is the Yen Rally Sustainable?

Wednesday, April 13, 2016

The International Monetary Fund (IMF) continues to sound the warning bell on the prospects for global economic growth, having just lowered its expectations for 2016 to 3.2% vs. 3.4% in January. Citing slowing growth in China and continued weak commodity prices for the lowered estimate, the IMF also noted the issues in Europe and Japan, where central banks have turned to negative interest rates to help spark bank lending and spur growth but have not seen the results expected as little to no growth and deflationary pressures continue. The recent strengthen in the Yen is causing considerable pain to Japan's exporters as well as increasing deflationary pressures which is the antithesis of what "Abenomics" was supposed to cure.

Fundamentals

Who would have thought that through the first 3 months of 2016, the Japanese Yen would be the best performing of the G10 currencies, given a move towards negative interest rates and a struggling equities market. However, that is exactly what is occurring, as market participants have lost much faith in the effectiveness of "Abenomics" which was supposed to pull Japan out of its deflationary spiral. Trend following traders are jumping on the bullish Yen bandwagon as the currency is currently hovering near highs not seen since October 2014 vs. the U.S. Dollar. Right now it appears that traders do not fear any currency intervention by the Bank of Japan (BOJ) to help weaken the value to the Yen despite the difficulties a stronger yen is causing the country's exporters. This belief was further cemented in trader's minds by comments from Japanese Prime Minister Shinzo Abe that countries should avoid "arbitrary intervention". While Japanese officials later attempted to clarify Abe's comments and state that the BOJ has not ruled out potential intervention should the Yen's ascent continue, it appears that the die has been cast and systematic traders may continue to buy the Yen vs. the USD until there is actual evidence that the BOJ will actually take action to not allow the Yen to strengthen any further without a fight.

Technical Notes

Looking at the daily continuation chart for Japanese Yen futures, we notice prices finally having a down day on Tuesday following a nearly week-long rally which allowed the Jun futures to break above the 2-month long consolidation pattern that had formed. Prices are currently at their highest levels since October 2014, but appear to have become overbought as the 14-day RSI has broached 70. Upside resistance is seen at the October 15 high of 0.9510, with support found at the March 17 high of 0.90565.

Mike Zarembski, Senior Commodity Analyst

April 14, 2016

Make Or Break Time for Dollar Index

Thursday, April 14, 2016

The US Dollar Index has held support at the 94.00 level in its first attempt to test the level since this past fall. The US currency has come under pressure due to the Federal Reserve doing a complete 180 degree turn over the past several months, going from hawkish to possibly overly dovish. The greenback has also suffered due to the increased appetite for commodities. Are these factors going to be strong enough to warrant a complete reversal in the greenback?

Fundamentals

The Dollar Index rally had already run out of steam when the Fed began to change its tone, so the central bank is by no means the sole reason for the weakness in the US currency. Traders have had to digest different expectations after Committee members' suggested that 2 quarter point cuts may come by year end instead of the 4 traders were expecting. The rebound in Gold and Crude Oil has created an increased demand for commodity based currencies, such as the Australian and Canadian Dollars. Crude Oil fundamentals have the potential to shift drastically this year, as the oversupply is worked down and lack of investment and number of operating wells decreases. This could create a problem for the greenback, long-term. There are signs that the US economy could be picking up, while European growth is largely expected to remain anemic. The Yen has been the choice for defensive traders, but there is some concern that Japan would once again intervene and weaken the currency if its strength become a hindrance on the Japanese economy. Despite a statement that played down the prospect of currency intervention from Prime Minister Shinzo Abe, Finance Minister Taro Aso stated that other world powers would find it acceptable for a nation to act against "one-sided, speculative" exchange-rate movements. While Mr. Aso's comments are likely only a statement that Japan would intervene if it believed that the currency was being manipulated by speculators, it did draw some concern from traders. The Yen fell against the Dollar as result, but this could simply be a knee jerk reaction.

Technical Notes

Turning to the chart, we see the cash Dollar Index (DXY) testing critical support at the 94.00 level. This is a vital level for the Dollar Index, as there is very little support standing in the way between 94.00 and the low 80's If the index is able to hold this level, we may see more range-bound trading between 94.00 and 100.00. Prices could get a little momentum if they are able to cross 96.40. The RSI indicator remains oversold, which may offer some near-term support to DXY.

Rob Kurzatkowski, Senior Commodity Analyst


April 19, 2016

Failed Doha Accord Sinks Oil

Tuesday, April 19, 2016

Crude Oil Futures close below the $40 level after key producers failed to reach an agreement in Doha. Crude Oil bulls were hoping for leaders to agree on a production freeze, which cut down the oversupply of crude oil that has been affecting the market over the past two years. The failure of Russia and Saudi Arabia, along with other large producers, underscores the mistrust between OPEC members internally and with Russia. Traders now have to digest the possibility that not only will Russia and Saudi Arabia continue to produce at very high levels, but also the prospect of Iran flooding the market with Oil.

Fundamentals

Despite the failure in Doha, the fundamental outlook for crude oil seems to have shifted in favor of the bulls. Investment in petroleum infrastructure in the United States has continued to plummet due to very soft prices. Oil rig count are at 20 year lows and Shale oil is set to see a very large decline in production this month. Kuwait's oil workers' strike may help support the market in the near-term. The country's oil output drop by more than 50% as of Sunday due to the strike. Reportedly, the country's output had fallen to 1.1 million barrels a day down from 3 million barrels a day prior to the strike. This afternoon's API petroleum inventory report will give traders a better feel for tomorrow's EIA numbers. The analyst estimate of tomorrow's report suggests an increase in crude oil stocks of around 1.6 million barrels for last week, while gasoline inventories are expected to have fallen by 1.5 million barrels and distillate stocks had increased by 200,000 barrels.

Technical Notes

Turning to the chart, we see the May crude oil contract forming what appears to be a possible double top formation. If confirmed, this would suggest a near-term reversal to the uptrend the market has seen in recent months. The confirmation line of the double top appears to be around the 35.70 mark and suggest the market could retest the low 30s. So far the market is held above the 20-day moving average. A convincing close below the average would suggest that a near-term high could be in place. Both the relative strength index (RSI) and momentum indicators are giving neutral readings at this moment.

Rob Kurzatkowski, Senior Commodity Analyst

April 20, 2016

Soybeans Rally on Argentine Rains

Wednesday, April 20, 2016

The fundamentals for the Soy products Oil and Meal have diverged although prices have been strong in both contracts of late, following the strength in Soybeans. Soybean Oil has been the strongest performer in the grain complex this year as traders expect strong demand to emerge due to an expected reduction in Palm Oil production. For Soymeal, South America Meal should be a strong competitor for U.S. Meal, especially if the U.S. Dollar remains relatively strong to the Brazilian Real and the Argentina Peso.

Fundamentals

While the old adage "rain makes grains" is normally true, we also know that "there can be too much of a good thing," which is the situation currently in Argentina. Heavy rainfall has already caused some damage and lowered the quality of the Soybean crop in the western parts of the Argentinean growing region and now the concerns have turned to potential flooding which could cut output by nearly 3 million metric tons by some estimates, which would put this seasons production near 56 to 57 million metric tons. Recent rains have delayed the harvest with an estimated 19% completed so far this season which is about 5% below average for this time of year. Large speculators have jumped on the bullish Soybean bandwagon, with an additional 35,273 new net long positions added during the week ending April 12, according to the most recent Commitment of Trader's report. This takes the non-commercial net-long position to 123,268 contracts. With Soybeans now having a "weather premium" being built in to prices, we may need to see additional bullish news reach the market to keep the uptrend alive, especially if we start to see some producer "hedge selling" emerge which will help to counteract some of the trend-following buying that has entered the market of late.

Technical Notes

Looking at the daily chart for November Soybeans, we notice the market starting to move parabolic once the August 2015 high was taken out. Prices are now pulling away from both the 20 and 200 day moving averages and the RSI continues to strengthen with a current reading well into overbought territory at 81.32. With prices now at 16-month highs, we see some psychological resistance at 1000.00 and chart resistance at the December 2014 high of 1034.50. Support is seen at the April 4 high of 936.00.

Mike Zarembski, Senior Commodity Analyst

April 22, 2016

Follow the Leader

Friday, April 22, 2016

Implied volatility levels have been increasing in the grains with Corn and Wheat vol. at 60 day highs. May Corn implied volatility rose to 38.04 vs. an average of the last 60 days of 18.2. May Wheat implied volatility rose to 49.67 vs. an average of the last 60 days of 22.97.

Fundamentals

It seems the entire grain complex has caught the bullish sentiment spillover from Soybeans as both Corn and Wheat futures have rallied sharply the past several sessions although the fundamentals for these markets are not as strong as that for Soybeans. The big influence in the grains of late has been the shift back into commodities by large speculative funds. With the exception of Soybeans and Soybean Oil, non-commercial traders were overall net-short the grain complex, but especially in Corn and Wheat futures according to the most recent Commitment of Traders report. This net-short position was the fuel for the bullish fire we have seen in Corn and Wheat as commodity funds rush to cover net-short positions, as new highs were being made. Fundamentally for Corn, we note that U.S. Corn planting is off to a good start as ideal weather the past week or so in the Corn Belt allowed producers to get out into the fields. Traders estimate that about 1/3 of the Corn acres has been planted so far, which is above average for this time of year. On the demand side, it appears that Brazil may be in the market for U.S. Corn and traders see the potential for additional business to the South American nation now that the country's import tax has been suspended. For Wheat, the recent rally looks even murkier as global Wheat stocks appear to be more than ample and while U.S. Wheat production is expected to be lower this season, global production could be near a record, especially with higher output expected from the Black Sea region and Europe. While it is not unusual for the market to price in a "weather premium" as we head into the summer growing season, some analysts are beginning wonder if the recent price surge is a bit too aggressive this early in the planting season.

Technical Notes

Looking at the daily chart for May Chicago Wheat futures, we notice prices reaching 6 month highs on Thursday, only to close the day sharply lower. This price reversal came as the 14-day RSI just missed touching overbought levels above 70 and closed the session at a still strong 62.26. Prices remain above the 20-day moving average (MA) and are hovering near the 200-day MA. Thursday's high of 510.75 should act as resistance for the May futures, with chart support seen at 479.50.

Mike Zarembski, Senior Commodity Analyst


April 25, 2016

Loonie Winning Slow and Steady Race?

Monday, April 25, 2016

Crude oil prices have remained volatile after negotiations collapsed in Doha, Qatar last weekend. Iran refused to attend the Doha summit. When the summit opened, Saudi Arabia insisted that all OPEC member nations agree to any production freeze, which proved to be a deal breaker. Oil traders will now be looking ahead to the June OPEC meeting to see if an agreement is made at that time.

Fundamentals

The recent rise in crude prices has been correlated with a rise in the Canadian Dollar. The most recent meeting on April 13 of the Bank of Canada culminated with the Bank of Canada leaving rates unchanged at 0.5%. The Bank of Canada revised upward their estimate for first quarter growth in Canadian GDP to 2.8%. However, the Bank cautioned that they believe that GDP growth rate is a temporary blip and they forecast growth for 2016 to be 1.7%, an increase from their previous estimate of 1.4%. The Bank of Canada also mentioned that the Canadian economy will be undergoing a lengthy period of complex adjustment to lower oil prices

Technical Notes

Turning to the 3 month continuation chart, we see several bullish signs for the Canadian Dollar. The 20 day Simple Moving Average (SMA) is providing a nice support level and the 20 day SMA is also above the 50 day SMA. The Canadian Dollar has also been achieving a series of higher highs and higher lows since the bull run began in mid-January. 14 day Relative Strength Index is a moderately bullish 65.37.

Dale Jennings, Commodity Analyst


April 27, 2016

Cocoa: Bull Market or Overbought?

Wednesday, April 27, 2016

The most recent Commitment of Traders report shows both large and small speculators adding to net-long positions. During the reporting period ending on April 19, non-commercial and non-reportable traders added a combined 7,493 new-net long positions to take the overall speculative net-long position to just over 38,700 contracts. Commercials are on the other side of the speculative trade as producer hedging continues as prices rose to 2016 highs.

Fundamentals

Cocoa futures are one of the leaders in the recent recovery in commodity prices seen of late, with both fundamentals and technicals currently favoring the bull camp. On the supply side, traders turn their attention to the Ivory Coast, the world's largest Cocoa producing nation, where Cocoa arrivals at port are running below last year's totals. In addition, the effects to this season's El Nino weather event appears to have harmed mid-crop production as dry conditions has led to smaller production, as well as concerns about the quality of the Cocoa beans being harvested. On the demand side, Cocoa grindings in Asia were reported up 2.9% during the 1st quarter of 2016 according to a report by the Cocoa Association of Asia (CAA). While we note that both North American and European Cocoa grinding were lower in Q1, market participants appear to have shrugged off the news as prices continued to move higher for most of the month of April. While it appears that prices are starting to become a bit overbought as Cocoa has not yet seen any major long liquidation selling by weak bulls so far this month, trend following speculative accounts continue to pile into the Cocoa market overwhelming commercial selling as prices trend higher.

Technical Notes

Looking at the daily chart for July Cocoa, we notice prices moving in relatively well defined channels since October of last year. Prices are now well above both the 20 and 200-day moving averages which can encourage additional buying by trend following systematic traders. The 14-day RSI has reached overbought levels with a current reading of 73.10. The December 24 high of 3254 looks to be the next resistance level for the July futures, with support found at 3046.

Mike Zarembski, Senior Commodity Analyst

April 28, 2016

BOJ Surprises By Holding Steady

Thursday, April 28, 2016

The Bank of Japan surprised traders this morning by opting to keep interest rates steady and avoided adding additional liquidity from other sources. This move caught many traders off guard, which resulted in the Yen rallying well over 200 ticks through early morning trading. The Yen has already been a favorite among defensive traders, who view the currency as a safe haven instrument. Holding steady could add further appeal to defensive traders.

Fundamentals

The initial knee-jerk reaction to the BOJ's decision to keep rates steady has been one of skepticism. BOJ Governor Haruhiko Kuroda has been dragged in front of the Japanese parliament 32 times since the central bank went with a negative interest rate policy. There have been rumblings that Prime Minister Shinza Abe may have felt the bank's policies undermined his own economic policies. Banks have been extremely displeased with the negative interest rate policy, which directly hurts their bottom lines. Kuroda insisted that bank profits had no bearing on his decisions, which traders may take with a grain of salt. Barring an unforeseen turnaround in the Japanese economy as well as deflationary pressure, it seems as though the BOJ will have to dive into deeper negative rate territory at the next meeting. Q4 GDP was an annualized -1.1% and the first 2 quarters of this year are expected to show little or no growth. Additionally, and possibly more importantly, negative rates have failed to stem the tide of deflationary pressure. Core CPI fell by 0.3% in March. Deflationary pressure has more potential to wreak havoc on the Japanese economy far longer than a bad quarterly GDP future. The Yen's strength has been one of the economy's weaknesses and many feel that the BOJ will be forced to act to cheapen the currency. The Yen has lowered the cost of imports, but has hurt the corporate sector by making exports more expensive. Given the mixed results of previous currency interventions, the BOJ may use intervention as an absolute last resort.

Technical Notes

Turning to the chart, we see the June Japanese Yen futures trading back above minor support at the 0.9000 level. Prices have held above the 50-day moving average. The average happens to coincide with support, suggesting a failure to hold here could result in further price weakness. The 0.8750 support level can be seen as fairly significant. Violating support here could result in declines to the mid to low 0.8000's.

Rob Kurzatkowski, Senior Commodity Analyst

April 29, 2016

Will Sugar Price Rally Sour?

Friday, April 29, 2016

Sugar futures are the only major product of the "Softs" that saw a decline in the large speculative net-long position the past week. The most recent Commitment of Trader's report shows non-commercial traders shed 1,300 net-long positions during the reporting period that ended April 19. This decline was more than offset by an increase in the net-long position by small speculators, who added 4,570 new-net long positions during the same time period. Commercials continue to take the other side of the speculative trade, adding an additional 3,269 new net-short positions last week.

Fundamentals

Sugar futures have rallied off recent lows the past several weeks on concerns that the market would return to a deficit this season. However, the rally may be facing some headwinds, as dry weather in Brazil, the world's leading Sugar cane producer, has allowed producers to get a good start to the harvest for the 2016-17 season. Brazilian Sugar production soared by well over 200% year over year in April, as Sugar mills have taken advantage of the dry weather and more favorable prices for Sugar to ramp-up production. The Brazilian Sugarcane Industry Association known as Unica, has announced its initial production forecast for Center South Cane production. For the 2016-17 season, Unica expects production to total between 33.5 and 35.0 million metric tons. This is well above the 31.2 million metric tons produced in the 2015-16 season. While Brazil's Sugar production appears on the upswing, production in India's top producing region is expected to fall sharply, as extremely dry conditions could see production down over 30% this season. The wild card is whether India will be a net-Sugar importer this season, which if true, could see analysts revising their estimates for any global Sugar supply deficits this year.

Technical Notes

Looking at the daily chart for July Sugar, we notice prices beginning to consolidate just below the recent highs made back in March. The market is still generally in a bullish trend, as prices remain above both the 20- and 200-day moving averages. The 14-day RSI has begun to level-off from much stronger momentum readings the past several sessions and is now reading a more neutral 55.94. Chart support is seen at the April 20 low of 15.01, with resistance found at the April highs at 16.09.

Mike Zarembski, Senior Commodity Analyst