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August 2016 Archives

August 1, 2016

Selling England by the Pound

Monday, August 1, 2016

All eyes will be on the Monetary Policy Committee of the Bank of England on Thursday, August 4. The MPC is widely expected to cut interest rates to a record low of .25%. This pending rate cut has already been reflected as savings accounts rates have been cut and promotional rates have disappeared across the United Kingdom. While the interest rate cut is almost a certainty, traders will eagerly be watching any announcement of a quantitative easing program as well as an expected downgraded forecast of the UK economy. The Markit/CIPS UK manufacturing index fell to 48.2 in July from 52.4 in June; a reading below 50 indicates contraction.

Fundamentals

After the surprising outcome of the referendum to leave the European Union, the United Kingdom has been through over a month of unprecedented political and economic turmoil. The political shakeup has resulted in a new prime minister, cabinet, a new government ministry for EU negotiations, mass resignations from the Labour shadow cabinet, and an extremely contentious race for leadership of the Labour Party. Prime Minister Theresa May has walked an extremely delicate line, declining to specify a date when the United Kingdom will trigger Article 50, the two year process for a member state to leave the European Union. The Prime Minster has recently met with Angela Merkel of Germany and Francois Hollande of France to discuss the timing of EU negotiations.

Technical Notes

Turning to the three month continuation chart, we see that the Pound has been in a very narrow trading range after the initial shock of the EU referendum wore off. Still, almost every technical indicator still shows a bearish trend for the Pound. The 20 day Simple Moving Average (SMA) has shown a steep downward trend, just recently leveling off due to the extremely tight recent trading range, and is well below the 50 day SMA. Although resistance is found at the pre-referendum levels of 1.50, that level seems almost impossible to reach and the short term resistance level of 1.35 seems more applicable to traders. Bulls can take some comfort in 14 day Relative Strength Index (RSI) as it is in neutral territory at 47.20

Dale Jennings, Commodity Analyst

August 2, 2016

Dollar Index on Shaky Ground

Tuesday, August 2, 2016

The US Dollar Index started the month of August on a positive note, posting a very modest gain yesterday. This, however, comes after a rough end to the month of July, where the Dollar Index fell sharply after last Wednesday's FOMC rate decision. Traders may have been hoping for a much more positive statement regarding the health of the US economy and, in turn, a more hawkish statement from the Fed. However, this did not happen, which has many currency traders concerned that the Fed may be done raising rates over the next several meetings.

Fundamentals

Federal Reserve Bank of Dallas President Robert Kaplan called for "structural reforms and other fiscal policy" to help jump-start the U.S. economy, which he believes would give the Fed more leeway in raising interest rates on the future. Kaplan also noted that a rate hike in September was still on the table, but it certainly doesn't appear that traders were buying what he was selling. Last week's GDP figures were also disappointing, which led to some of the weakness in the greenback. The US economy only grew at 1.2% in Q2, well short of the consensus estimate of 2.6%. Kaplan's Q&A session seemed contradictory at times. On one hand he noted that a rate increase is not off the table, but also noted that the Fed would remain cautious about raising rates when growth was this sluggish. This week, traders will have plenty of job data to digest with ADP Employment Change, Challenger Job Cuts and Non-Farm Payrolls being released on Wednesday, Thursday and Friday, respectively. This is in addition to the usual Thursday claim data. Other economic reports to watch are Factory Orders on Thursday and, to a lesser extent, Trade Balance on Friday. A strong showing in job data could spark a rebound in the Dollar Index, but negative figures could have a more meaningful impact and present significant downside risk for the US Dollar.

Technical Notes

Turning to the chart, we see the cash US Dollar Index (DXY) breaking through near-term support around the 96.40 level. The index has flirted with the 100-day moving average on the downside and a close below the average could be seen as a setback. The recent closes below the 20-day moving average suggest that a near-term high may be in place. The RSI indicator is now at oversold levels, which may be seen as slightly supportive in the near-term.

Rob Kurzatkowski, Senior Commodity Analyst


August 3, 2016

Yen Rallies as "Helicopter Money" Talk Abates

Wednesday, August 3, 2016

Even with the Reserve Bank of Australia (RBA) lowering interest to a record low of 1.5%, the Australian Dollar rose vs. the U.S. Dollar as yields in the "land down-under" still look attractive to investors experiencing negative yields in Europe and Japan. In addition, traders are starting to believe that the RBA may be nearly done lowering rates as its fights to avoid the impacts of deflation that has plagued nations such as Japan for years. While economists are starting to wonder how effective accommodative monetary policies from the major Central Banks have been in fighting deflation but at least the RBA still has some room to maneuver if necessary without having to resort to the recent "experiment" of negative rates that is becoming all too commonplace of late.

Fundamentals

The Japanese Yen has been a strong performer for nearly all of 2016, much to the dismay of both political and Central Bank officials, who have been attempting to weaken the value of the nation's currency in the hopes of stoking inflation. Traders have been buyers of Yen versus both the U.S. Dollar and the Euro as continued hesitation by the Federal Reserve to raise U.S. interest rates and the various financial issues plaguing the European Union have forced the hand of investors to move assets to Japan in the guise of a "safe haven". Even when the Bank of Japan (BOJ) takes "action" to supposedly help stimulate its economic growth, traders have shrugged off any action as not being aggressive enough to satisfy market participants. There is talk that the BOJ will have to finally resort to so called "helicopter money" where the Central Bank provides cash directly to the populous in the hopes of stimulating consumer demand. While the concept of "helicopter money" was made famous by a paper written by the Nobel Prize winning economist Milton Friedman, to show how aggressive monetary policies can help to influence inflation levels, I don't think that Doctor Freidman ever dreamt that such a concept would ever been a possibility for a major Central Bank to even consider but then again we now live in a world where negative interest rate policies are becoming the norm in many parts of the world. While there appears little in the way of economic data that may halt the rise of the value of the Yen in the near term, traders should remember that the Bank of Japan has in the recent past (2011) intervened in the currency market to weaken the value of the Yen. While the value of the Yen is still well below the price levels seen in 2011 that forced the BOJ intervention, trend following traders should keep this possibility in the back of their minds especially in an environment where Central Banks are willing to "experiment" with unconventional tools to try to spur economic growth.

Technical Notes

Looking at the weekly continuation chart for the Japanese Yen futures, we notice prices is a sustained uptrend following what now appears to be a "rounded bottom" chart formation that developed throughout all of 2015. Prices have now decisively moved above previous resistance at 0.9900 and appear set for a test of the 1.0500 price level. The 20-week moving average appears ready to cross above the 200-week moving average, which is viewed by many trend-following systems as a bullish signal. The 14-week relative strength index (RSI) is strong but remains just below overbought levels with a current reading of 65.00. The 2016 high of 1.0131 is seen as the next resistance area for the lead month futures, with support found near the 0.8950 price level.

Michael Zarembski, Senior Commodity Analyst

August 4, 2016

Gasoline Surprise Sparks Oil

Thursday, August 4, 2016

Crude Oil futures bounced off support around the $40 level after the Energy Information Administration reported a larger than expected drawdown in Gasoline inventories. The large product numbers have been weighing heavily on the Oil market in recent weeks due to the anomaly in Gasoline levels. Oil also received a bit of positive news on the labor front, which has helped slow the sell-off. Tomorrow's non-farm payrolls number is in focus and could help influence the near-term direction of the Oil market.

Fundamentals

Yesterday's EIA report showed Crude Oil inventories rising by 1.4 million barrels, versus the analyst estimate of a 1.4 million barrel drawdown. However, this was not the news that moved the Oil market. Gasoline inventories fell by 3.3 million barrels on the week, far exceeding the analyst estimate of a 200,000 barrel drawdown. As mentioned earlier, Gasoline levels were an anomaly, with stocks actually increasing over the summer. This year, Gasoline inventory levels bottomed out in May and have shown month-over-month increases in June and July. Typically, we do not see inventory levels bottoming out until August before rebounding. The ADP reported that businesses added 179,000 jobs in July. While short of June's 287,000 jobs added, the number was a solid showing, but probably not strong enough to compel the Federal Reserve to raise rates in September. This number is a win-win, in a way, for the Oil market, as the job creation was strong enough to stave off demand worries while, at the same time, potentially influencing the FOMC into inaction. Tomorrow's Non-Farm Payroll report is expected to show the overall economy adding 180,000 jobs in July.


Technical Notes

Turning to the chart, we see the September Crude Oil contact bouncing back strongly yesterday after closing below the 40.00 level on Tuesday. There is some support in the this area, which coupled with technically oversold levels may have triggered some short-covering. The Oil market is trading below the major moving averages. If prices are unable to hold around the $40 mark, prices may test support around the 35.00 level or, potentially, January lows.

Rob Kurzatkowski, Senior Commodity Analyst


August 5, 2016

Treasuries Rally Ahead of Jobs Report

Friday, August 5, 2016

In other markets of note, the British Pound is currently testing the lower boundary of its recent trading range following the "Brexit" vote, as the Bank of England (BOE) surprised traders on Thursday by lowering the nation's benchmark interest rate to 0.25% and stating that rates could be lowered even further in the coming months. In addition, the BOE stated that they will expand their version of "quantitative easing" by not only purchasing government bonds, but also by purchasing corporate debt as well. These actions are being taken to help ease any economic slowdown caused by the U.K. preparing to leave the European Union.

Fundamentals

U.S. Treasuries received a boost from the Bank of England (BOE) on Thursday, as an announcement of additional stimulus measures and an interest rate cut added further to the allure of U.S. government debt by investors looking for yield. Treasury Bond futures were trading up 1 19/32 as of this writing, as prices moved closer to the middle of the recent 7+- point trading range the market has been in since late June. Thursday's move was a bit more aggressive than many market participants were anticipating given the release of the July Non-farm Payrolls report this morning. Analysts are looking for U.S. payrolls to have "normalized" last month at a gain of around 170,000 jobs, vs. the wide variance in the data we have seen in May and June. The private sector job report from payroll provider ADP showed that 179,000 jobs were created in July, with the hiring rather evenly divided among small, medium and large size companies. Professional and business related services led in job creation with 59,000 jobs created, while the construction sector struggled with a loss of 6,000 jobs in July. As we like to say here in the office that the "important data is in the details", many traders will be keenly focused on some of the non-headline figures such as average hourly earnings, average workweek and revisions from previous month's data in order to get a clearer picture of the state of the U.S. employment situation.


Technical Notes

Looking at the daily continuation chart for September Treasury Bonds, we notice that prices have become range bound following a move to contract highs made back in early July. Prices are currently flirting with the 20-day moving average but remain well above the longer term 200-day moving average which is currently hovering near the 167-16 price level. Momentum as measured by the 14-day Relative Strength Index (RSI) is showing some modest strength, with a current reading of 54.96. Chart support is seen at the July 21 low of 169-31, with resistance seen at the August 1 high of 174-19.

Mike Zarembski, Senior Commodity Analyst

August 9, 2016

Just a Job to Do

Tuesday, August 9, 2016

Domestic and international economic reports dominated the financial news for the first week of August, traditionally a slow month in equity markets. On Thursday, the Monetary Policy Committee of the Bank of England met and delivered an expected cut in UK interest rates to a record low rate at 0.25% as well as a program of quantitative easing. The Bank of England also reduced their 2017 GDP forecast down to 0.8% from 2.3%.

Fundamentals

Over in the United States, the economic news was much cheerier. On Friday, non-farm payrolls for July were released. The numbers came in much higher than forecast: Payrolls rose by 255,000 jobs in July, while the unemployment rate remained at 4.9%, below the natural rate of unemployment of 5%. In addition, the already strong jobs report for June was revised even higher to 292,000 jobs created. Wages were also higher and are now on an annualized pace of growth of 2.6%. Fed watchers are now viewing the prospect of an interest rate rise as soon as September, although they may hold off until December. The Fed Funds futures are showing about a 40% chance of a rate hike by the end of the year.


Technical Notes

Turning to the 3-month continuation chart, the bulls are clearly in command. 14-day Relative Strength index is a bullish 65.17, but not quite into overbought territory yet. The 20-day Simple Moving Average (SMA) is providing support and recent trading days have seen a close above the SMA. The 20-day SMA is well above the 50-day SMA as well, with a steep upward curve giving more support for the bulls.

Dale Jennings, Commodity Analyst


August 10, 2016

Tech Leads the Way

Wednesday, August 10, 2016

The stock market got a boost yesterday from tech stocks, with several notable players making notable gains. Amazon made a new record high, climbing above its August 1 record close. The massive online retailer has been on a tear since April, rising over 28% over this period. Blue chip Microsoft also posted a new record high, albeit in less spectacular fashion, after breaking out of a consolidation pattern on the daily chart. Alphabet also broke out of a consolidation pattern on the daily chart, while Facebook and Apple held strong.

Fundamentals

Last week's strong showing on the labor front is good news on the consumer spending front, as more jobs can lead to more discretionary income. Stronger job creation, however, may also sway the Fed to raise rates sooner rather than later. Economists are putting the chances of a US and global recession much lower now, and central banks have been extremely accommodating. Some traders believe the worst may be behind us economically and the worst may also be behind us on the earnings front. Some traders are expecting the corporate earnings recession to end soon. Earnings were down sharply in Q1, but improved in Q2, and this trend is expected to continue. Improving employment and overall economic conditions could be especially impactful for technology stocks, which have been rather lackluster. Even big name, like Apple have failed to inspire with recent earnings, and an economic recovery could be just what the doctor ordered.


Technical Notes

Turning to the chart, we see the September E-mini Nasdaq futures trading making new highs. Since the index is now in uncharted territory, one can only speculate where the market may encounter resistance. The market may find resistance around the 4850.00. One the downside, recent resistance around the 4715.00 level could be interpreted as support. The RSI remains overbought , which could slow prices a bit. It is interesting to note that the RSI and momentum indicators have been moving sideways to lower, while prices have continued to climb. This could mean that prices could be in store for some consolidation or possibly a reversal in the near-term.

Rob Kurzatkowski, Senior Commodity Analyst

August 11, 2016

USDA Report a Highlight for Grain Traders this Week

Thursday, August 11, 2016

The major cash crops in the U.S. are looking nearly picture perfect in much of the Midwest as the weekly crop progress report continues to show high crop condition rating overall. On Monday afternoon the USDA reported that the U.S. Corn crop was rated 74% good to excellent. While the rating did slip 2% from the previous week the conditions are still very good overall. Soybeans were rated 72% good to excellent unchanged from the previous week.

Fundamentals

So far the month of August has been rather uneventful for grain traders as we head into the dog day s of summer. However, we should start to see some excitement as we head towards Friday with the USDA scheduled to release the August Crop Production and Supply/Demand report at 11 am Central Time. The August report is particularly important to traders as it is the first report of the growing season that takes into account actual field observations. Given the reports of overall excellent crop conditions analysts are raising their estimates for production and average yields for both Corn and Soybeans. For Corn, traders are looking for the USDA to increase production to nearly 14.8 billion bushels up about 250 million bushels from the July estimate. Average Corn yields are expected to increase to near 171.0 bushels per acre vs. 168.0 bushels per acre in July. Soybeans are also expected to see increases in both yields and production totals with analysts looking at a Soybean crop of 3.950 billion bushels vs. 3.880 billion bushels in August. Average yields are expected to have increased by nearly 1 bushel per acre to 47.6 bushels per acre. While the production estimates seem to favor the bear camp, the demand side of the picture may give Corn and Soybean bulls something to hang some hope on especially for Soybeans where U.S. export sales have been strong due to less competition from South American producers who experienced disappointing production totals this past season.

Technical Notes

Looking at the daily chart for November Soybeans, we notice prices staging a modest rally off of nearly 4 month lows. Prices appear to have found some modest resistance at the 20-day moving average and the psychologically significant 1000.00 price level. Trading volume has been lighter than average the past several trading sessions which appears to be tied into position squaring ahead of Friday's USDA report. Support is seen at the August 2 low of 943.00, with resistance found at the July 29 high of 1006.00.

Michael Zarembski, Senior Commodity Analyst


August 15, 2016

Dollar Treading Water

Monday, August 15, 2016

Recent economic events have been mixed for the US Dollar, which has resulted in the currency remaining in a holding pattern. The cash Dollar Index (DXY) is smack dab in the middle of the 92.50-97.50 trading range due to traders' indecision regarding the September FOMC meeting. Economic reports from Europe and Japan have also been mixed, offering traders nothing to hang their collective hats on. As a result, the currency markets could be choppy and range-bound in the immediate future.

Fundamentals

Last week's retails sales data was extremely disappointing for traders. The Street was expecting retail sales to rise by 0.4% in the month of July, but the indicator showed sales as unchanged. The University of Michigan's flash Consumer Sentiment Index for August came in relatively flat at 90.4, finishing under analysts' forecasts of a 1.0 gain to 91.0. These shaky indicators come on the heels of a stronger than expected non-farm payrolls number. Many traders are now left to ponder whether there is enough positive data to warrant a rate hike in the September meeting. The bias seems to favor the Fed leaving rates unchanged, which can be seen as negative for the Dollar Index. In Japan, the country's GDP only rose 0.2% over the April-June quarter, versus expectations of a 2.0% increase. This somewhat offsets the negative greenback news. The Abe government approved a 28 trillion Yen (roughly $276 billion) stimulus package earlier this month, so many market observers are hoping the weaker GDP figure is simply a speedbump and remain optimistic over the longer-term.

Technical Notes

Turning to the chart, we see the cash Dollar Index (DXY) remaining range bound . Prices have spent the past month and a half plus in the upper half of the 92.50-97.50 range. The Dollar Index could remain range bound for the foreseeable future , unless it can break out of either of these barriers. The RSI indicator is near oversold levels, which could be seen as somewhat positive in the near-term.

Rob Kurzatkowski, Senior Commodity Analyst

August 17, 2016

The Calm Before the Storm?

Wednesday, August 17, 2016

Tuesday saw a huge slew of economic data being released but overall little that may hold sway on Fed officials in regards to a change in interest rate policy at the September Federal Open Market Committee Meeting (FOMC). Consumer prices (CPI) for July were unchanged which match analyst's estimates. Striping out the volatile food and energy sectors the CPI was up a modest 0.1% due to a 1.6% decline in energy prices. U.S. Housing starts were up 2.1% in July, with bucked the consensus for 0.8% decline. U.S. Industrial Production also produced a moderately positive surprise rising 0.7% last month, while July Capacity Utilization also was higher rising be a larger than expected 0.5% to 75.9% in July.

Fundamentals

The U.S. equities market has been rather tame the past 6 weeks as it appears that investors and traders are on an extended "holiday" this summer. However, similar to the Atlantic Hurricane season which tends to peak in September, one has to wonder whether market participants are becoming too complacent as September approaches. The so called "fear indicator" as measured by the volatility index or VIX is currently hovering near its lowest levels of 2016 as the S&P 500 index has been in a slow grind higher since mid-July and daily trading ranges have narrowed. The last time the VIX was near current levels was nearly one year ago in early August when the index fell below 11.00. While we must disclose that past performance is not an indicator of futures results, it was only a few weeks later in 2015 when we saw the VIX spike above 50 as the S&P 500 fell by over 200 points in a weeks' time. While few analysts expect anything like the extreme move we saw last year, traders should keep in mind that we are heading into the home stretch of a contentious Presidential election as well as an important FOMC meeting in September where some traders believe the Fed may actually consider raising interest rates should economic data warrant while the market is only currently pricing in an 18% chance of a rate hike at the September meeting according to Fed Funds futures. Traders may wish to enjoy the quiet while it lasts as just like the Atlantic Hurricane season, the equity markets may start to see some rougher waters as September approaches.

Technical Notes

Today we are going to switch thing up a bit and show a two-year chart for the VIX itself and overlay with a term structure graph of the VX futures. For the VIX index we note that current levels are just above the lowest levels seen the past two years and in the past we have seen some price "spikes" that occurred following prolonged periods of low VIX readings. VX futures are normally in what is referred to as a contango where more deferred month contracts trade at a premium to nearby expiration months, this is important to note for traders who are looking to hold a position in a longer-term futures expiration in anticipation of an increase in volatility that more deferred months will normally trade at a potentially large premium to the spot index during normal market conditions and any "spike" in near-term volatility may not produce a similar price move in more deferred contract months. The term structure is illustrated in the price of the 6 month spread from the soon to expire August 2016 contract vs. the February 2017 futures. As of this writing the Feb 2017 futures is trading at a nearly 7 point premium to the Aug 2016 contract which with expiration scheduled for this morning is currently trading near the cash index. So if volatility levels were to remain steady for the next 6 months, the long holder of the Feb 2015 futures would see the 7 point premium diminish as the contract moved towards conversion to the spot index at expiration. Near-term chart support for the cash VIX is seen at the recent low of 11.02 made on August 9, with near-term resistance seen at the August 2 high of 14.24.

Mike Zarembski, Senior Commodity Analyst

August 18, 2016

Gold Grind Continues

Thursday, August 18, 2016

Gold futures continue to trade in a choppy, sideways pattern, unable to find a near-term direction. Like many markets, Gold futures have been somewhat quiet ahead of September, when trading activity is likely to pick up. Traders are also awaiting the September FOMC meeting, although there is an extremely low expectation that the central bank will make any tweaks to its monetary policy.

Fundamentals

The US Dollar Index has fallen to its lowest levels since late June on the diminished expectations of Fed action in their remaining meetings this year. Fed Fund futures are pricing in a 9% chance of a rate increase for the September, while the odds of an increase in December fell to 46%, down from 53% just a day earlier. Gold has found support from the weaker greenback, however the enthusiasm could be tempered by uninspiring economic data in the US and overseas. Japan's flat GDP growth and weaker retails sales in the US have cast doubt over global economic growth, which limits Gold's potential as an inflation hedge.

Technical Notes

Turning to the chart, we see the December Gold contract forming a wedge/triangle pattern. Given the preceding move higher, this suggests an upward breakout bias from the pattern. An upward breakout would suggest that prices could test the 1400 level. A downward breakout suggests prices could test near-term support around the 1320 level and, possibly, the 1300 mark. The oscillators are giving neutral readings and offer no hint at the near-term direction of the market.


Rob Kurzatkowski, Senior Commodity Analyst

August 19, 2016

U.S. Corn Producers May Benefit from Brazilian Crop Woes

Friday, August 19, 2016

Large speculators have finally thrown in the towel on the net-long position they have been holding for months and have now become overall net-short Corn according to the most recent Commitment of Traders report. During the reporting period ending August 9, non-commercial traders added over 40,000 new net-short positions in Corn futures, which took their overall position to a net-short 18,790 contracts. Small speculators, which were already net-short Corn for several weeks were covering some of this position reducing the net-short position by over 9,000 contracts. Commercial traders continue to by the dips in the market and added nearly 31,000 new net-long positions the past week.

Fundamentals

While U.S. Corn production is expected to be at record levels this season, our export competitors in South America are not so fortunate. The Brazilian government crop agent known as Conab reports that the second Corn crop will fall short of previous estimates, declining by nearly 500,000 metric tons to 42.59 million metric tons this season. This cut combined with a rather disappointing first crop is expected to cut Brazil's overall Corn production to 68.48 million metric tons this season. For comparison, last year's output totaled 84.67 million metric tons. The decline in production has caused Brazilian Corn prices to soar as local livestock producers scramble to obtain supplies. In fact, Brazil has been a buyer of Corn from both Argentina and Paraguay to help meet domestic demand. Analysts believe that the U.S. will see increase Corn exports due to tight supplies in Brazil, which could help to place a floor on U.S. Corn prices despite a record harvest. Here in the U.S., additional Corn demand may come from the Ethanol industry which is experiencing record production totals. While the Corn demand picture is starting to turn bullish, producer hedge selling pressure may begin to emerge in the coming weeks especially if the record production estimate from the USDA appears to be accurate. This may help to curb any significant price rallies that may develop going into the 4th quarter of the year.

Technical Notes

Looking at the daily chart for December Corn futures, we notice prices made a "reversal" last Friday following the release of the USDA August Crop report. Since contract lows of 322.50 were made on Friday, prices have rallied nearly 20-cents on what appears to be short-covering buying. The market is now trading back above the 20-day moving average for first time since late June when the late-spring/ early summer price rally came to an end. The 14-day RSI has turned upward from oversold levels and is now reading a more neutral 41.69. The July 21 high at 348.50 is seen as the next near-term resistance level for the December futures, with near-term support found at this past Friday's low of 322.50.

Michael Zarembski, Senior Commodity Analyst


August 24, 2016

Supplies Outweigh Iran Overtures

Wednesday, August 24, 2016

Crude Oil futures are lower in early trading after yesterday's American Petroleum Institute (API) reports showed a surprise build in inventory levels. Traders will be waiting for today's Energy Information Administration (EIA) report to see if it has similar results to the API. The Oil market has strongly rebounded during the month of August after floundering for much of July. Oil had risen close to $10 during the month, so it is not entirely unexpected for traders to use the supply build as a reason to take some profits off the table. With driving season wrapping up with Labor Day, traders will likely be playing close attention to Gasoline supplies.

Fundamentals

Crude Oil futures were stronger yesterday prior to the API report on speculation that Iran may work with other OPEC members to bolster Oil prices. Iran sent a letter to the group indicating that it will be attending the informal September meeting in Algeria. Some traders viewed this as a potential overture that the country may be willing to comply with a production freeze. However, many remain skeptical that OPEC will be able to curtail Oil output significantly. Iraq's Prime Minister indicated on Tuesday his country had not yet reached its full Oil market share, suggesting the government would not curb output as part of any OPEC agreement.

Technical Notes

Turning to the chart, we see the October Crude Oil contract breaking through resistance around the 47.50 level before reversing course and falling back in early trading. Failure to hold this average could be seen as negative in the near-term Technically, this can be seen as a small setback. If prices are unable to hold 45.00, the Oil market could test 40.00 or, possibly, the 30.00's. The RSI indicator came into the session overbought, which may have contributed to the price declines.

Rob Kurzatkowski, Senior Commodity Analyst

August 25, 2016

Natural Gas Rallies as "End of Summer" Heat returns

Thursday, August 25, 2016

It's a battle of large speculators and commercial traders in the Natural Gas market, as both sides continue to add to their existing net-positions. The most recent Commitment of Traders report shows that non-commercial traders added nearly 20,000 new net-short positions during the reporting period ending August 16. This brings the overall net-short position to just over 136,500 contracts. Commercial traders, on the other hand, added over 23,500 new net long positions during the same timeframe, which brought their overall net-long position to over 101,000 contracts.

Fundamentals

The Labor Day holiday here in the U.S. is viewed by many as the unofficial end to summer, and if weather forecasters are correct, it could be quite warm for a large swath of the country. The Climate Prediction Center in its 8 to 14 day outlook has nearly ¾ of the U.S. at above or well above normal temperatures through September 5, with only the northwest portion of the U.S. expected to see normal or below normal temperatures during this period. This "heatwave" should produce increased electricity demand used for cooling, which in turn should boost the demand for Natural Gas, as it is the preferred fuel for many power producers. On top of the looming heat wave, we are entering the peak of the Atlantic Hurricane season, and the National Hurricane Center is currently monitoring two named storms out in the Atlantic in what is expected to be an active storm season. While Natural Gas production in the Gulf of Mexico is not as important as it once was prior to the fracking revolution that has occurred, any gas production issues will be supportive to prices, which have already rebounded off the 2016 lows made back in March.

Technical Notes

Looking at the daily chart for October Natural Gas futures, we notice prices have been in a modest uptrend the past several trading sessions, following a sharp sell-off earlier this month. Prices have rebounded above the 20-day moving average, and we are starting to see trading volume increase as prices move higher. The 14-day RSI has turned neutral, with a current reading of 57.87. The high made on July 29 at 2.947 looks to be the next resistance level for the October futures, with support seen at the August 12 low at 2.580.

Michael Zarembski, Senior Commodity Analyst

August 26, 2016

Sugar Rally Resilient Despite Large Brazilian Production

Friday, August 26, 2016

Fundamentals

Sugar futures have been one of the best markets for trend following traders this year, as prices have been in a sustained up-move since February. This performance has garnered the attention of large speculative traders who have amassed a huge net-long position in the Sugar market while adding to positions as prices move higher. While these systematic traders likely rarely look at a market's fundamentals to base their trading decisions, those of us who like to know the supply and demand picture of the markets may see some potential headwinds for the bullish trend coming out of Brazil, where the 2016-17 season's production is forecast to be 6.5 million metric tons higher than last season's output. India is expected to see adequate monsoon rains this season, which if accurate should allow production to come in close to the 23 million metric tons analysts are forecasting. The only major fundamental factor supporting Sugar's futures price is the expected supply deficit this season, which is due to robust demand and disappointing production the previous year. While some traders do not see the deficit disappearing, despite large production totals this year, current cash prices may encourage producers to increase production, which could be the ultimate factor that ends the current bull market run.

Technical Notes

Looking at the daily chart for October Sugar futures, we notice what has the potential to be a double-top formation. This generally bearish technical pattern would need to be confirmed by the market closing below chart support seen at the July 29 low at 18.71, preferably on higher than average trading volume. This pattern would be invalidated on a close above the most recent high made back on June 30 at 21.22. Prices remain above both the 20- and 200-day moving averages, but momentum as measured by the 14-day Relative Strength Index (RSI) has started to move lower and is back in neutral territory with a current reading of 57.22. Near-term support is seen at 19.50, with near-term resistance found at 20.94.

Mike Zarembski, Senior Commodity Analyst


August 30, 2016

Yellen Speech a Downer for Gold

Tuesday, August 30, 2016

Gold futures rebounded a bit to start off the week, after suffering the largest weekly loss in over a month. The losses could largely be attributed to comments from Fed Chair Janet Yellen at Jackson Hole, which had a far more hawkish tone than traders had expected. Yellen said the case for a Fed rate increase had strengthened in recent months, but would remain dependent on what incoming data says about the U.S. economy. This caused the US Dollar to firm up and sunk Gold prices. There seemed to be a bullish consensus among traders prior to the policy statement, but we are now left with more indecision.

Fundamentals

Despite the hawkish tone to Yellen's speech, traders are not expecting the Federal Reserve to raise interest rates in September, while the odds of a December rate increase remain a coin flip. All eyes will be on the Fed's policy statement in September, which may offer clues as to how the FOMC will close out the remainder of the year. Traders will also be looking for clues this Friday, when the U.S. Bureau of Labor Statistics releases its non-farm payrolls data. A strong showing from the report could be seen a negative for Gold prices and could result in further advances in the US Dollar Index. Jewelry demand for Gold has been extremely sluggish, adding to the metal's woes and resulting in investment being the only real driver on the demand side of the equation.

Technical Notes

Turning to the chart, we see the December Gold contract breaking out of a triangle/pennant pattern to the downside. Prices may come down to test support around the 1300 mark, which can be seen as a fairly significant near-term support level. The 20-day moving average may be on the verge of crossing the 50-day moving average on the downside, which could be seen as bearish.

Rob Kurzatkowski, Senior Commodity Analyst

August 31, 2016

What is the "Cure" for Low Commodity Prices?

Wednesday, August 31, 2016

Normally lower prices for feed grains such as Corn are viewed as beneficial for the Livestock sector, however market forces are also weighing on both Hog and Cattle prices of late. Large supplies of both beef and pork have kept prices on the defensive, and while the fundamentals for pork prices are starting to improve, continued weakness in the Cattle market has prevented any meaningfully rallies from occurring. However, with lead-month Live Cattle futures trading at a large discount to cash prices and technical indicators like the 14-day RSI reaching oversold levels, a short-covering rally in Cattle futures may spillover to the Hog market, where the fundamentals are starting to become supportive for a price rally.

Fundamentals

Grain market prices continue to tumble, as the prospects for a record U.S. Corn and Soybean harvest and a rejuvenated U.S. Dollar are helping to support the bearish cause. In fact, many commodity prices are taking it on the chin the past several trading sessions, on what some may argue was a case of buyer's remorse by large speculative commodity funds. A look at the most recent Commitment of Traders (COT) report shows non-commercial traders (usually large funds or speculators) were aggressive buyers across a broad spectrum of markets and, in particular, the grains, energies and the major softs like Coffee, Cocoa, and Sugar. The COT report was for the reporting period ending August 23, which was just prior to Fed Chairwomen Janet Yellen's speech at Jackson Hole, where many market participants interpreted that the Fed may indeed consider an interest rate hike as early as the September Federal Open Market Committee Meeting. This possibility, while still remote, has given new life to the "greenback," which acts as a weight on commodities that are priced in Dollars, as it makes them more costly for non-dollar buyers. The effects of a strengthening Dollar and potentially record production are a double whammy for the grain markets in the U.S., where export sales are vital for producers. New-crop Soybean prices have fallen over 70 cents the past week and appear set for a test of 1-month lows. Corn prices have fared even worse, with the September contract moving ever closer to the $3 price level. Ironically, it may be the Wheat market, where funds have already been net-short for some time, that may be the signal for a near-tem bottom. While Wheat has drawn little in the way of bullish interest for months, any signs of short-covering buying could be the catalyst for a major low being in place for the entire complex. While we have not yet seen any signs of a bottom for Wheat, traders may wish to remember the old adage that the "cure for low prices is low prices," and the grain complex may be in the process of reaching price levels that could spur renewed buying interest, even with a stronger Dollar as a headwind.

Technical Notes

Looking at the weekly continuation chart for Chicago Wheat futures, we notice prices plunging to lows not seen since 2006, as psychological support at 400.00 failed to hold. We note that the 14-week RSI is hovering just above the 30 level, which many technicians view as in indicator of oversold market conditions. We do notice very few occasions the past 10 years where the RSI has fallen below 30, and when it did, a short-covering rally was soon to follow. The September 2006 low of 387.50 looks to be the next support level for the lead month December futures, with chart resistance found at the July 2016 high of 451.75.

Michael Zarembski, Senior Commodity Analyst