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September 2016 Archives

September 1, 2016

Oil Ends August on Sour Note

Thursday, September 1, 2016

Crude Oil futures got off to a very hot start in August, but the market sharply turned around and ended the month on a sour note after prices were unable to test previous highs. Last week's comments at Jackson Hole by Fed Chairwoman Janet Yellen were far more hawkish than many had expected. Normally, policymakers release statements blander than a cup of plain Greek yogurt at the meeting, so the tone caught some traders off guard. Oil has also been facing some headwinds on the supply front, as well as the currency markets.

Fundamentals

One of the major reasons for Crude Oil faltering has been the oversupply and the global economy's inability to work down stocks. Yesterday's EIA inventory data showed inventory levels rising by 2.3 million barrels last week, bringing total inventory levels to 525.9 million barrels, which the EIA characterized as "historically high levels for this time of year." Distillate inventories rose by 1.496 million barrels on the week. Gasoline inventories helped push Oil prices lower after the EIA reported a decline of 691,000 barrels on the week. Many traders were looking for a 1.157 million barrel decline. There is some speculation that Saudi Arabia may finally see eye to eye with fellow OPEC members and try to bolster prices due to the upcoming Saudi Aramco IPO. OPEC meets late this month in Algeria, and there has been some suggestion from traders that the group may be able to reach some sort of compromise to curb production after Iran said it would join the meeting. This is, of course, purely speculation. Last week, the Saudi Energy Minister stated that he does not believe that any significant intervention is needed in the Crude Oil market. The US Dollar Index has put some pressure on Oil prices since last week. The Dollar Index remains weak technically, so the impact on Oil prices may be somewhat limited.

Technical Notes

Turning to the chart, we see the October Crude Oil contract trading sharply lower after the spinning top candlestick on August 19. The inability of the Oil market to break the 50.00 mark and test June highs can be seen as a technical letdown. The October contract was at overbought levels on the RSI at the time the market reversed course, but the oscillator is now back in neutral territory.

Rob Kurzatkowski, Senior Commodity Analyst


September 2, 2016

A Tale of Two Countries

Friday, September 2, 2016

First, a quick recap of the August non-farm payrolls released today as the United States heads into Labor Day weekend. 151,000 jobs were created for August, and the unemployment rate remained at 4.9%. Factory orders for July, however, jumped by 1.9%. The mixed economic news will have Fed watchers casting doubt on the possibility of a September rate hike in the United States.

Fundamentals

Turning to the Canadian economy, the aftermath of the costliest natural disaster, the Fort McMurray wildfires in Canadian history continue to affect the Canadian economy. The fires affected the Athabasca oil sands operations in northeastern Alberta, laying another blow to an industry that was already reeling due to the sharp decline in crude oil prices. The province of Alberta is now struggling with a provincial unemployment rate of 8.6%.

At the most recent meeting of the Bank of Canada on July 13, the Bank elected to leave interest rates unchanged at 0.5%. It has been a volatile year in the Canadian economy; the economy grew by 2.4% in the first quarter and then promptly contracted by 1% in the second quarter. For the third quarter, the Bank of Canada is expecting a growth rate of 3.5%. In addition to commodity prices, the Bank of Canada is becoming increasingly concerned about extremely hot housing markets in Toronto and Vancouver. In July, housing prices in Toronto rose by 3.1% and by 2.3% in Vancouver.

Technical Notes

Turning to the 3 month continuation chart, we see some very choppy trading for the Canadian dollar. Trading has oscillated from the support level of .7550 to the resistance level of .7900. While the 20-day Simple Moving Average (SMA) has crossed above the 50-day SMA, current trading shows the 50-day SMA as a short-term resistance point. The averages are close together, and a slight bullish move could easily push the Canadian Dollar above the 20-day SMA, a bullish sign. 14-day Relative Strength Index is a completely neutral at 50.30.

Dale Jennings, Commodity Analyst

September 6, 2016

Dollar Off to Weak Start

Tuesday, September 6, 2016

The Dollar Index is slightly lower to start the week due to uncertainty over Fed interest rate policy for the remainder of the year. Goldman Sachs raised its forecast for a December rate increase to 55% after last Friday's non-farm payrolls report. Morgan Stanley and other large banks have a more tepid outlook, expecting the Fed to stay put on interest rates through the end of the year. The chance of a September rate increase went up, according to Fed Fund futures, after Fed Chair Janet Yellen's speech in Jackson Hole. However, the odds still heavily favor rates staying steady.

Fundamentals

Last Friday's non-farm payrolls missed expectations, as the economy only added 151,000 jobs in August. Traders had been looking for an increase of 180,000 jobs. While the figure looks bad on the surface, the shortfall was largely offset by the upward revision of the July figure from 255,000 to 275,000. Traders were a bit concerned by the average workweek falling from 34.4 to 34.3. The nonfarm payrolls report was largely seen as neutral for the Dollar Index. The odds of a rate hike have not changed much and Fed Fund futures are pricing in a 21% and 53% chance of a rate hike in September and December, respectively. The Fed had seemed prepared to raise rates in Jun or July, but the Brexit vote threw a monkey wrench into the central bank's plan. Softening economic data and lackluster job figures have made it difficult for the FOMC to justify a rate increase at this time. Inflation remains in control and there may be some concern among Committee members that a rate increase could put further deflationary pressure on the economy.

Technical Notes

Turning to the chart, we see the cash Dollar Index (DXY) mired in range-bound trading. It seemed as though prices would be able to break through near-term resistance around the 96.00 level. The RSI indicator is still showing overbought levels, which could put pressure on prices in the near-term.

Rob Kurzatkowski, Senior Commodity Analyst


September 7, 2016

Java Prices Jump

Wednesday, September 7, 2016

Speculators have not been aggressive buyers in Coffee futures the past week despite the recent price recovery. The most recent Commitment of Traders report shows non-commercial traders added a paltry 81 new net-long positions during the reporting period ending August 30 which raised their net-long position to 37,689 contracts. Non-reportable traders were actually net sellers of 635 contracts during the same time frame lowering their net-long position to 4,591 contracts. Commercial traders are on the other side of the trade and reduced their net-short position by a modest 555 contracts to stand at 42,279 contracts.

Fundamentals

Coffee bulls have moved off of decaf of late as prices rallied over 15 cents per pound since mid-August as disappointing Robusta Coffee harvests in Brazil and Southeast Asia could lead to improved Arabica Coffee demand. Brazil is expected to see its Robusta production fall by 16% this season which will add to the current supply deficit this season. In addition, a report by the International Coffee Organization showed that July Coffee exports fell by 22% to 7.75 million bags. While lower exports are not usually seen as supportive for prices, analysts note that the lower export totals were due to low supply of beans available for export and not slack demand. Still unknown is the effects of frost damage to the Coffee trees in Brazil which saw a series of minor frost events this winter. The extent of any damage to the trees may not be known until next season, which may force market participants to price in a "risk premium" into the Arabica Coffee futures in 2017.

Technical Notes

Looking at the daily chart for December Coffee, we notice prices staging a sharp rally since the middle of August as a "V" bottom was formed. Prices are now above both the 20 and 200-day moving averages and the 14-day RSI is strong with a current reading of 66.93. The July 15 high at 157.65 remains strong resistance for the December futures, with support found at the August 17 low of 137.85.

Michael Zarembski, Senior Commodity Analyst

September 9, 2016

Euro Jump on ECB

Friday, September 9, 2016

The European Central Bank (ECB) kept rates and other stimulus programs unchanged, citing no immediate threats to the European economy. What had surprised many traders was the central bank's decision to not extend the deadline for the ECB's quantitative easing programs. ECB President Mario Draghi stated "Our program is effective and we should focus on its implementation" in the post-decision press conference. Further, Mr. Draghi said there were no discussions regarding extending the QE program during the meeting.

Fundamentals

During the meeting, the bankers also made adjustments to inflation and growth rates for the Eurozone through 2018. The bank estimated 1.7% growth for 2016, up from 1.6%, but revised down 2017 and 2018 growth forecasts to 1.6%, down from their prior 1.7% estimate. The ECB also expects inflation to remain at 0.2% for 2016, cut its 2017 forecast to 1.2% and kept their forecast of 1.6% for 2018. Given these lackluster figures, the fact that the ECB did not, at the very least, it was somewhat surprising the bank did not discuss extending its quantitative easing program. Central bank watchers will now focus on whether or not Draghi & Co. will announce some sort of extension by year's end. Euro traders will also be keeping a close on the Federal Reserve and its rate policies through year end. Any inkling of hawkish FOMC sentiment could hold back the Euro. The Euro gave back some gains after North Korea conducted its fifth nuclear test, the country's second this year and largest to date. Traders went on the defensive, preferring the relative safety of the Yen and Gold.

Technical Notes

Turning to the chart, we see the December Euro trading in a range centered around the 1.1250 level. The 50-day moving average has acted as support in the near-term. The Euro currently does not show any technical signs that it could be moving out of the range soon.


Rob Kurzatkowski, Senior Commodity Analyst


September 12, 2016

More Beans and Less Corn? Traders Await USDA Report

Monday, September 12, 2016

The following are pre-report estimates for the USDA Crop Production and Supply/Demand report

Corn production: 14.97 billion bushels vs. 15.153 billion bushels Aug.

Corn Yields (ave. per acre): 173.0 average vs. 175.1 Aug.

Soybean production: 4.105 billion bushels vs. 4.06 billion bushels Aug.

Soybean Yields (ave. per acre): 49.5 average vs. 48.9 Aug.

Fundamentals

While there is little doubt among traders and analysts that the U.S. is producing a bumper crop of both Corn and Soybeans, there is some debate as to the actual size of the crop this season. In the August Crop Production report, this is the first report of the season that takes into account actual field surveys, the USDA raised sharply its estimates for average yields to 175.1 bu. per acre for Corn and 48.9 bu. per acre for Soybeans. This in turn raised the bar for production to over 15 billion bushels for Corn and over 4 billion bushels for Soybeans both of which would be records if the government estimates prove accurate. However, some private forecasters believe the USDA may have been a bit too optimistic on the average Corn yields, especially following some private crop tours that reported "disappointing" yields in some parts of the eastern Corn Belt. Unlike Corn, traders are expecting the USDA to raise its production estimates for Soybeans as near ideal weather in August was expected to benefit Soybean yields. While increased production is inherently bearish for beans, U.S. Soybean export demand has been excellent, which has helped to cushion any price slides tied to record production this season. The USDA Crop Production and Supply/Demand reports is scheduled for release today at 11 am Chicago time.

Technical Notes

Today we will look at the new-crop Corn vs. Soybean spread with is normally 2 Corn vs. 1 Soybean. Here we notice that the spread has recovered from its lowest levels made back in late June with the rally stalling near the 300.00 Soybean premium. This is much closer to historical norms. The 14-day RSI confirms the spread has moved towards more neutral levels with a current reading of 43.49. The next support level is seen at a 269.00 Soybean premium, with resistance found at a 339.00 Soybean premium.

Mike Zarembski, Senior Commodity Analyst

September 14, 2016

UK Data Weighing on the Pound

Wednesday, September 14, 2016

This is a busy week for UK economic data. Today, UK inflation numbers came in unchanged at 0.6%, below expectations of 0.7%. Tomorrow will feature unemployment numbers and Thursday will feature a meeting of the Monetary Policy Committee. While the Monetary Policy Committee is widely expected to leave rates unchanged at 0.25%, there will be considerable interest in this week's economic data. The Pound Sterling fell sharply after the results of the EU referendum and economists will be watching to see how the lower Pound influences the economy.

Fundamentals
The UK Parliament has returned from their summer recess and all eyes are on Prime Minister Theresa May's government and their approach to the United Kingdom's negotiations with the European Union and the terms of the exit. Various members of the Conservative government have given conflicting answers as to exactly how, "Brexit means Brexit." One issue is the free movement of people between EU countries. This was a major issue in the debate leading up to the referendum. The second issue is access to the European Single Market. The government will need to decide if they wish to seek access to the single market and if any exceptions to the current single market policy will be made for the United Kingdom.

Technical Notes

Turning to the three month continuation chart, we see that the Pound has continued to trade in a fairly tight range since the results of the EU referendum. The 20 day Simple Moving Average (SMA) and the 50 day SMA have converged. Both of these moving averages are now serving as a support level around the 1.3160 level. 14 day Relative Strength Index (RSI) is at a neutral 48.05

Dale Jennings, Commodity Analyst


September 15, 2016

Currency Traders on Fed Watch

Thursday, September 15, 2016

The currency markets have been extremely choppy in recent weeks, as traders digest ECB and BoE decisions and await next week's FOMC meeting. The central bank rate decisions from across the Atlantic have been mixed for the US Dollar. The most recent European Central Bank (ECB) policy statement did little in the way of actual policy, but the lack of discussion on extending current quantitative easing made the statement appear hawkish. This could be seen as slightly Dollar bearish. This morning, the Bank of England decided to hold interest rates steady, but many believe the statement from the bank is a telegraph that it will lower interest rates sooner rather than later.

Fundamentals

There is a slew of economic data this morning, including claims data, retail sales and PPI. This is the last retail sales report ahead of next week's FOMC meeting and can be seen as especially important. If retails sales remain lackluster - the consensus is -0.1% from July - the Fed may be extremely hard pressed to raise rates in September. The street is also looking for a very mild PPI report, with traders looking for 0.1%. This is well below the Fed's target and one can make the case for a continuation of a low interest rate environment. If numbers come in near expectations, it would be difficult to see the Fed raise rates next Wednesday, which can be viewed as negative for the Dollar Index.

Technical Notes

Turning to the chart, we see the cash US Dollar Index continuing to consolidate between the 94.00 and 96.00 levels. The Dollar Index could remain range-bound for the foreseeable future, as there are no technical signs pointing to a possible breakout the oscillators are giving neutral readings. The momentum indicator, is, however, showing some positive divergence from the RSI, which can be seen as slightly positive in the near-term.

Rob Kurzatkowski, Senior Commodity Analyst

September 16, 2016

Is the Sleepy Wheat Market Ready to Awaken?

Friday, September 16, 2016

Globally, the Wheat market is a mixed bag with favorable growing condition in Australia this season causing traders to raise their production forecasts. While in France, Wheat exports fell to 10-year lows as disappointing production totals and quality concerns force normal importers of French Wheat such as Algeria to search elsewhere for their needs. While Russian Wheat production is expected to be at a record high of 72 million metric tons this season, quality concerns and global competition may keep exports below earlier estimates.

Fundamentals

Wheat futures have largely been ignored by grain traders the past few months as slumping prices and low volatility levels induced traders to focus their attention on Corn and Soybeans. However, with prices for the lead month futures near 10-year lows, one has to ponder what catalysts will finally awake this sleepy market. Low Wheat prices may discourage producers from planting Winter Wheat this coming season, especially in more marginal growing areas where production costs would exceed current market prices. U.S. Winter Wheat plantings were already at historically low levels in 2016 at 36.54 million acres and some analysts expect even less acreage will be planted for the 2017 harvest. Traders following the Wheat vs. Corn spread will note that the Wheat price premium to Corn is near the lower end of the price range seen the past 3-years. This could make Wheat potentially attractive for animal feed especially if producers decide to store more Corn instead of selling it at current prices once the harvest begins.

Technical Notes

Looking at the daily chart for December Wheat futures, we notice prices briefly dipping below psychological support at 400.00 before a brief short-covering rally tied to bargain hunting buy sent prices as high as 411.00 before fresh selling pressure emerged. Prices also failed to test the 20-day moving average during the recent short covering rally, so this technical indicator should be closely watched to see if it will continue to deflect any upcoming rally attempts. The 14-day RSI remains weak with a current reading of 36.61. The contract low of 386.75 made back on August 31 is currently seen as strong support for the December contract with near-term resistance found at the September 13 high at 411.00.

Michael Zarembski, Senior Commodity Analyst


September 19, 2016

Equity Markets set to Resume Rise?

Monday, September 19, 2016

After a summer which saw the United States equity markets in a lull with almost no volatility, trading since the Labor Day holiday has been marked with a sharp increase in volatility. The spot CBOE Volatility Index spiked as equity markets reacted to a sharp fall in crude oil prices, concerns about the United Kingdom's plan for withdrawal from the European Union, and the upcoming central bank meetings of the US Federal Reserve and the Bank of Japan.

Fundamentals

Since the Federal Reserve last met, economic data in the United States has been mixed. In August, consumer prices rose by 0.2% overall and 0.3% if energy and food costs are excluded. Job gains for August showed 151,000 jobs added, slightly below the expectations of 180,000. However, August follows very good numbers for June, with a revised figure of 271,000 jobs added and July, with a revised figure of 275,000 jobs added. The second estimate of United States second quarter came in at an annual rate of 1.1%. Fed Fund Futures are indicating only a 15% chance of a rate increase at their upcoming meeting, but even if a rate increase isn't delivered in September, the wording of the statement will be of interest to traders as all eyes will be focused on a potential December increase.

Technical Notes

After spending most July and August in bull market territory, bearish technical signs have hit the e-mini S&P contract. The 20 and 50 day Simple Moving Averages have converged, with the 20 day SMA showing a sharp downward slant. The 20 day SMA has crossed below the 50 day SMA, although there is almost no divergence between the two SMAs. However, the September bearish pullback has still left the e-mini contract trading well above the support level of 1811. 14 day Relative Strength Index is a fairly neutral 45.82.

Dale Jennings, Commodity Analyst


September 20, 2016

Glut Outweighs OPEC

Tuesday, September 20, 2016

Crude Oil futures are at the lowest level in six weeks, as the oversupply and consumption fears have outweighed potential OPEC action. The Oil group has been weighing a production freeze to stabilize prices. Even if the group is able to reach an accord, many traders have doubts that the production freeze would do much to eat away at the global glut. Tomorrow's FOMC rate decision may cause some volatility in the currency markets, which may spill over into commodities. Traders are not expecting the central bank to raise interest rates at this time, but the focus will be on the tone of the Committee's policy statement. A hawkish tone could put some additional pressure on the already staggering Oil market.

Fundamentals
Comments from OPEC Secretary-General Mohammed Barkindo indicated that the group is close to reaching a deal to freeze output levels for up to one year, which is much longer than many had previously expected. However, there are indications that member states have been increasing their exports, which could mean the deal is little more than lip service. Saudi exports for July climbed to 7.622 million barrels a day from 7.456 million barrels a day in June. Even in the event of a freeze, global consumption is not meeting the global production of 94 million barrels a day. Traders will be paying close attention to this afternoon's American Petroleum Institute (API) report as well as tomorrow's Energy Information Administration (EIA) numbers. Last week's huge drawdown was largely attributed to Tropical Storm Hermine affecting imports. Traders are bracing for a potentially large inventory build this week.

Technical Notes

Turning to the chart, we see the November Crude Oil contract trading in a wedge/triangle pattern. A breakout from the pattern could determine the near-term direction for the Oil contract. The RSI is toward to oversold end, which could be a slight positive in the near-term.

Rob Kurzatkowski, Senior Commodity Analyst

September 21, 2016

September Rate Hike on the Table? Yes or No?

Wednesday, September 21, 2016

Market participants are starting to lean towards the announcement of a Federal Reserve rate hike this year but not necessarily following today's conclusion of the 2-day Federal Open Market Committee meeting (FOMC). Fed Funds futures traders are currently pricing in a 15% chance of a 25 basis point increase in the target rate following today's Fed meeting as of this writing. The odds increase greatly looking out towards the December FOMC meeting where futures are pricing in a 60% probability of a rate hike. The December meeting also occurs following the U.S. Presidential election so many analysts believe that the Fed may wish to wait until the election is over prior to taking any action on interest rates this year.

Fundamentals

Traders will get one more summer fling in the guise of whether the Federal Reserve will hike interest rates following the conclusion of the 2-day Federal Open Market Committee meeting (FOMC) later this morning. While on the surface it appears that the Fed is ready to start raising interest rates to begin to move towards are more "normalized" interest rate environment, mixed signal from both domestic and global economic indicators are causing Fed officials to remain overly cautious on implementing an actual rate increase. On top of the economic data, the Fed also has to be aware of the potential political implications of any action especially with the hotly contested Presidential election less than 2 months away. While the Fed is supposed to be non-political in its actions, they are still subject to criticism from either side of the political spectrum on having a bias in whatever action they take. So while a majority of the voting members may believe that the economy is sufficiently strong enough to absorb a rate hike now, it may be more politically expedient to wait until after the U.S. elections in early November before actually raising rates. That being said, the Fed may "compromise" with market participants by holding back on a rate hike in September but stating rather definitely that barring a major downward shift in the global economy that a rate hike is all but imminent in December.

Technical Notes

Today we will take a look at the daily continuation chart for 10-year Note futures. We notice prices struggling to hold above the 200-day moving average. This is the first time this long-term trend indicator has been tested since January of this year with a weekly close below this indicator a potential signal that the recent uptrend may be nearing an end. The 14-day RSI has weakened but is holding above oversold levels with a current reading of 40.51. We see solid chart support at the September 13 low of 129-26 and near-term resistance at the September 7 high of 131-18.

Michael Zarembski, Senior Commodity Analyst

September 23, 2016

Something for "Everybull" in FOMC Statement

Friday, September 23, 2016

While the Federal Open Market Committee meeting was most definitely the "highlight" for traders so far this month, the most important Central Bank statement may have come out of Japan, where Bank of Japan (BOJ) Governor Haruhiko Kuroda announced some new innovations to help jumpstart the nation's economy. Among the biggest change was the targeting of both the long and short end of the yield curve. While the BOJ noted the benefits for businesses on keeping interest rates low or even having rates go negative, the BOJ was concerned about the longer end of the curve. So to help assure its policy to keep borrowing costs low, the bank has set a target of keeping the benchmarked 10-year government bond at a zero yield. While Central Banks generally have influence on short-term interest rates, the targeting of longer term rates is a novel approach that the BOJ may undertake as it attempts to create some inflation in its stagnant economy.

Fundamentals

Both Equity and Bond bulls found something to like in the statement released following the 2-day September Federal Open Market Committee meeting that ended on Wednesday. For Treasury traders, the Fed left interest rates unchanged and comments from Fed Chair Janet Yellen following the interest rate announcement were viewed by many market participants as more cautious regarding a rate hike by the end of 2016 than originally feared. Bond futures which have sold off over 5 points the past two weeks have recovered nearly half of recent losses the past two days as a short-covering rally is commencing following the FOMC meeting. Equity market bulls were even more exuberant especially the more volatile indices like the Nasdaq 100 and Russell 2000 which are now trading at or near all-time highs. While the Fed seemed to indicate that the era of very accommodating monetary policies has some time to run further, equity traders will most likely start to turn their attention away from the Fed and back to other economic indicators such as how corporate earnings are faring as well as inflation and labor data to help create a clearer picture on how long the Fed and other global Central Banks are willing to "do no harm" to what many still believe is a fragile global economic environment.

Technical Notes

Looking at the daily continuation chart for the Nasdaq 100 futures, we notice prices breaking out to the upside to new all-time highs following the Fed announcement that interest rates will remain unchanged for now. While the Nasdaq is the best performing of the major U.S. stock index futures, we note that trading volume was only modestly higher on the move to new highs and we have a bearish divergence forming in the 14-day RSI as this momentum indicator has failed to make a new high. Chart support is seen at the September 12 low of 4629.00, while resistance is difficult to determine as prices moved into uncharted territory , we look to round numbers such as 4900.00 and 5000.00 as psychological resistance targets.

Mike Zarembski, Senior Commodity Analyst

September 26, 2016

Politics Pressures the Euro

Monday, September 26, 2016

The next meeting of the European Central Bank will be held on October 20. As of now, interest rates are at a negative rate of 0.4%. At the last meeting in September, the ECB lowered their 2017 and 2018 growth forecasts from 1.7% down to 1.6%. In a slightly more positive note, the growth forecast for 2016 was raised from 1.6% to 1.7%.

Fundamentals

The remainder of 2016 and 2017 will see several political events with potential influence over the Eurozone. The United Kingdom may invoke article 50 in 2017, triggering a two year timeline in leaving the European Union. However, as of now, the governing Conservative Party in the United Kingdom appears to be split over a 'hard' or 'soft' Brexit. Recent pressure on the British Pound has traders leaning towards the 'hard' Brexit. A 'hard' Brexit could mean no deal at all between the UK and the EU. A 'soft' Brexit could mean the UK retaining access to the European Single Market and potentially obtaining Single Market access similar to Norway. UK policymakers will have to determine if they wish to negotiate access to the European Single Market and if the EU and UK can compromise on the politically sensitive topic of the free movement of people. In addition, there are elections in France and Germany in 2017 which could add to the uncertainty surrounding the EU withdrawal negotiations.

Technical Notes

Turning to the three month continuation chart, we see that the Euro has made a bullish run lately. The 20 day Simple Moving Average (SMA) was a previous point of resistance and is now providing support. The 20 day SMA is also above the 50 day SMA, another bullish sign. Resistance will be found near the 1.145 level, reached right before the European Union referendum. 14 day RSI is a neutral to bullish 57.90.

Dale Jennings, Commodity Analyst

September 27, 2016

Gold Falls on Status Quo

Tuesday, September 27, 2016

Gold futures are lower this morning, following last night's Presidential debate. The Dollar and index futures rallied following the debate, which has put pressure on Gold prices. Clinton was viewed by many as the winner of the debate, which was seen as positive for the Mexican Peso and Canadian Dollar, as well as the US Dollar. Mrs. Clinton is seen by many investors as the status quo candidate and traders do not expect a major policy shake-up from the current administration. Mr. Trump has been highly critical of current Fed Chair Janet Yellen for the Fed's continued low interest rate policy, which has contributed to the strength of the stock market. One can argue that stocks have become a bit too reliant on low rates.

Fundamentals

Global economic cues point to disappointing growth in the near-term, which decreases Gold's appeal as an inflation play. The situation with Deutsche Bank remains a major concern for the markets. After facing a $14 billion fine from US regulators, the bank may require additional financing in order to remain afloat. Chancellor Angela Merkel has made no indication that the German government would be willing to step in and bail out the bank. Just because it is "too big to fail" does not mean that Deutsche Bank will not fail. The US subsidiary of the bank had already failed a Federal Reserve stress test in June. The bank failing could be seen as bearish for Gold. The economic impact could be a drag on the fragile European economy and could weigh on the Euro versus the US Dollar. There is very limited contagion risk due to the fallout, which may not have traders flocking to defensive Gold plays.

Technical Notes

Turning to the chart, we see the December Gold contract continuing to trade in a tight, sideways trading range. It appears that the chart could be forming a wedge pattern. A breakout from the wedge could result in increased volatility. Prices are trading about the 100-day moving average. Failure to hold the average could be seen as bearish for prices in the near-term.

Rob Kurzatkowski, Senior Commodity Analyst

September 28, 2016

Wheat Traders Focusing on Quality not Quantity

Wednesday, September 28, 2016

Cash market traders noted that Egypt, the world's largest wheat importer, has finally made a purchase of 240,000 metric tons of Wheat from Russia, its first purchase in a month. Egypt's recent policy on not accepting Wheat containing any traces of ergot, a common fungus, has made sellers reluctant to offer Wheat cargos in fears that it will get rejected. Normally a small amount of the fungus is considered acceptable in Wheat as it is not considered harmful for human consumption in very small quantities. While Egypt recently amended its total ergot ban and now will allow up to 0.05% in its Wheat purchases, the major cash grain houses have priced in a premium for Wheat offered to Egypt to account for any potential change in policy and the expenses involved in a rejected shipment. It remains to be seen how long Egypt can sustain its Ergot policies, especially if it is forced to pay up for its tenders while its much needed foreign reserves continue to dwindle.

Fundamentals

Wheat futures have been largely under the radar for most traders the past few months as prices have been in a consolidation phase. However, for those traders who have been following the 3 U.S. Wheat futures markets closely already know, the real activity has been in the inter-commodity Wheat spreads. Here there has been a sharp rally in the higher protein Hard Red Spring and Hard Red Winter Wheat contracts when compared to the Soft Red Winter Wheat variety. While Wheat supplies are more than ample globally, high quality milling Wheat is becoming scarce and buyers have to pay a much higher premium to secure supplies. There are now concerns that wet weather conditions in the "bread basket" of Canada may affect the quality of the Spring Wheat harvest which has sent the Minneapolis Spring Wheat futures to a one dollar plus premium to the soft winter Wheat variety traded in Chicago. In fact, this spread has risen by just over 70 cents per bushel since June, in what one can describe as a rather orderly upward trend. While the "quality" premium appears to remain through the Spring Wheat harvest, lower quality Wheat prices may also find some support from the feed side of the trade as feed prices are now very competitive with that of Corn and livestock producers may increase purchases of Wheat and help relive producers of some of the burdensome supplies of lower quality Wheat that is currently held in storage.

Technical Notes

Looking at the daily chart for the December Minneapolis vs. Chicago Wheat spread we notice that the market was in a consolidation phase until about mid-March of this year when the 20-day moving average (MA) crossed above the longer-term 200-day MA. During this first leg of the up-move, the spread went from about a 40-cent Minneapolis Wheat premium to about a 65-cent premium in early May before a 4 week long correction saw prices decline to just under a 30-cent Minneapolis premium in early June. In hindsight, this sell-off turned out to be a bear trap that was sprung on weak longs as the spread rebounded sharply since that time to briefly trade above a 1-dollar premium on Monday of this week. The 14-day RSI is strong but remains just below overbought levels with a current reading of 64.74. 104.50 Minneapolis premium, which was the high trade for the spread on Monday, looks to be resistance for the spread, with chart support seen at an 80.75-cent Minneapolis premium.

Mike Zarembski, Senior Commodity Analyst

September 29, 2016

Oil Surges on OPEC Accord

Thursday, September 29, 2016

Crude Oil prices surged after OPEC reached a deal to curb the group's output in order to stabilize prices. Futures are slightly lower this morning, as traders take a more cautious approach due to the specifics of the deal not yet being released. There is also the question of how much each member country will be allowed to produce under the deal, which will not be decided until the cartels next formal meeting in November. The deal essentially restores OPEC's production ceilings that were abandoned around a year ago. While the Oil market got a boost for the first OPEC deal in 8 years, yesterday's news leaves more questions than answers.

Fundamentals

Depending on the source, the production cut would be in the neighborhood of 700,000 to over 1 million barrels a day. Traders will be curious to see what kind of deal was reached with Iran to get the country on board with the agreement. Iran has suffered years of sanctions and is trying to recoup for some of that lost time. Oil ministers from Iran and Saudi Arabia have frequently clashed at previous meetings, but both countries have seemed to soften their tone. Saudi Arabia had previously stated that it would only cut production if other OPEC and non-OPEC countries followed suit. Saudi Energy Minister Khalid al-Falih, changing his tone a bit, said on Tuesday that Iran, Nigeria and Libya would be allowed to produce "at maximum levels that make sense." Traders are a bit concerned that if these nations were given concessions, it would open the door for other members to maybe cheat the cap a bit, making the deal ineffective. Saudi Arabia and Iran both face economic issues at home, Saudi Arabia probably more so than Iran, so it is in both countries interest to produce as much Oil as possible, even at lower prices levels. Iranian production has been around 3.6 million barrels a day, which is at pre-EU sanction levels, but the country has voiced its intention to increase that figure to around 4 million barrels per day.

In the US, the EIA showed another large weekly drawdown of 1.9 million barrels for the week yesterday. Despite the decline, the EIA emphasized that inventory levels remain unusually high for this time of year. This was more sizable that the API's 750,000 barrel draw reported on Tuesday. Gasoline inventories rose by 2 million barrels over the week, which put pressure on Oil prices prior to the OPEC announcement. Refineries were operating at 90.1% of capacity, down on the previous week. US refineries processed an average of 16.3 million barrels every day, producing 9.6 million barrels of gasoline and 4.7 million barrels of distillate, which were both weekly declines.

Technical Notes

Turning to the chart, we see the November Crude Oil contract continue to trade in a relatively tight trading range around the 45.00 mark. It appears as though the contract may be breaking out of the triangle/wedge pattern on the daily chart. It will be interesting to see if the market gets some follow-through. If a breakout is confirmed, the measure of the move suggest prices may test levels around the 51.00-52.00 level, which is slightly above resistance at the 50.00 level. The oscillators are currently sitting in neutral territory.

Rob Kurzatkowski, Senior Commodity Analyst


September 30, 2016

Will Harvest Lows Come Early for Corn and Soybeans?

Friday, September 30, 2016

Later this morning, traders will get an update from the USDA on the size of U.S. grain and Soybean inventories with the release of the Quarterly Grain Stocks report at 11 am Chicago time. Analysts estimate 1.75 billion bushels of Corn and 202 million bushels of Soybeans on hand as of September 1. While both estimates are above year ago levels, any significant upward revisions may have an oversized impact on prices this season given the prospects of a record harvest.

Fundamentals

While there are very few traders that will question whether the U.S. will produce a record Corn and Soybean crop this season, we are seeing holding above recent lows just as the harvest begins. Wet weather condition especially in parts west of the Mississippi river has kept many producers out of the fields so far this harvest season. In its weekly crop progress report released each Monday afternoon, the USDA reported that only 15% of the U.S. Corn crop has been harvested vs. trade expectations of 20%. On average about 25% of the crop is usually harvested by this time. Only 10% of the Soybean crop has been harvested according to the USDA, which is the slowest start in nearly 5-years. Given the late start to the harvest, mid-range weather forecasts will be closely watched by traders to see where the windows of opportunities are for producers to make some good headway on getting the crop into the bins. The National Weather Service (NWS) 6 to 10 day forecast has above normal temperatures for the entire Midwest as well as below normal precipitation for the Eastern Corn belt. This should allow ample opportunities for harvesting in Illinois, Indiana, and Ohio. The western Corn belt is another story as the NWS has above average precipitation chances for Iowa, Wisconsin, Minnesota, Missouri, Nebraska and the Dakotas going out until nearly mid-October. Parts of this area are already reeling from huge rainfall amounts the past two weeks with many areas experiencing damaging floods. So while grain producers east of the Mississippi River could see harvest wrap up quickly, it could be a long Fall harvest season for Western grain producers.

Technical Notes

Taking a look at the new-crop Soybean vs. New-Crop Corn spread in a 1X2 ratio, we notice a triangle pattern forming on the daily chart. This technical pattern signals a market that is in a consolidation phase as price ranged get ever tighter. This morning's report could be a catalyst for a potential breakout of the recent trading range especially if a sharply higher or lower price move is accompanied by a large increase in daily trading volume. We should also note that the 20-day moving average has recently crossed below the 100-day moving average which is considered a bearish indicator by many technical analysts. Momentum as measured by the 14-day moving average is rather neutral with a current reading of 46.74. We see chart support for the 1SX16 vs. 2CZ16 spread at a 247.50 SX16 premium and chart resistance at 310.25 SX16 premium.

Michael Zarembski, Senior Commodity Analyst