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January 2017 Archives

January 4, 2017

2017 May not be Welcoming to Soybean Bulls

Wednesday, January 4, 2017

Today's Spotlight Market

Next week begins the yearly commodity index "rebalancing" where funds tied to the major commodity index adjust their portfolios to match the weighting of the particular index. The grain complex is expected to see net-buying during the "re-balancing," with Wheat futures in both Chicago and Kansas City expecting to see the most buying on a percentage basis due to the market's poor performance in 2016. Only Soybean Oil is expected to see some net-selling next week from the index funds, as it was the best performer of the Grains and Oil Seeds complex last year.

Fundamentals

Soybean futures led the Grain markets higher in 2016, posting gains of over 14% last year. Strong demand, especially out of China, likely was the key factor to rising Soybean prices during a year where both Corn and Wheat prices were in the red. Now that 2017 has arrived, traders are asking whether Soybeans can repeat the gains of 2016 or whether Bean bears will regain the upper hand. Relatively high Soybean prices when compared to Corn and Wheat are expected to encourage producers to increase planting this season, which could lead to a sharp increase in Soybean stocks by this fall. While we are in the early part of winter here in the U.S., market participants are turning their focus to weather forecasts for both Brazil and Argentina to help get a reading on the potential size of the South American Soybean Harvest. While there have been some weather concerns -- too dry in parts of Brazil and too wet in Argentina -- overall weather condition have been favorable for potentially record Soybean production out of South America this market year. The demand side for Soybeans still looks positive, with Chinese export demand expected to increase this coming season. However, recent gains in the value of the U.S. Dollar may end up hurting U.S. Soybean exports as buyers look to "cheaper" producers such as South America for their purchases. This scenario could lead to increased production from the U.S. but slower export sales, which could exert pressure on U.S. Soybean prices in 2017.

Technical Notes

Looking at the daily chart for March Soybeans, we note the market is still in an uptrend from the March 2016 lows, despite the 80-cent per bushel sell-off from recent highs. However, prices have now fallen below both the 20- and 200-day moving averages and the 14-day RSI has turned weak, with a current reading of 39.59. The next support level looks to be near the November 2016 low of 983.75, with chart resistance seen near the December 28 high of 1028.25.

Mike Zarembski, Senior Commodity Analyst


January 6, 2017

Winter Rally for Natural Gas Prices Over?

Friday, January 6, 2017

Today's Spotlight Market

Experienced traders in the Natural Gas market typically pay close attention to the March/April futures spread, which is known in the industry as the "widow maker" due to the potential extreme volatility that can be seen in the movement of this spread historically. Since mid-November, the March 17/April 17 spread has moved from a 3-cent March premium to a 24-cent March premium and now back to a 3-cent premium. A look at the spread chart shows the spread now trading near previous support levels, so it will be interesting to see if buying of the bull-spread emerges or if support fails to hold so that the March futures move to a discount to the April contract. If this occurs, it could be viewed as a rather bearish scenario for Natural Gas prices in general in the coming weeks.

Fundamentals

While it is a balmy 8 degrees in Chicago as I type today's newsletter, it appears that Natural Gas traders are starting to throw in the towel on a sustained winter rally for prices. The lead month February futures have fallen over 70 cents over the past several trading sessions, as mid-term weather forecasts have shifted with an increased probability for above normal temperatures for most of the U.S. likely going out through mid-January. According to the Climate Prediction Center, only the Pacific Northwest and parts of the far Northern Great Plains are expected to see below normal temperatures through January 18. Some traders are beginning to believe that Gas draws from storage will not be as heavy as initially anticipated, which could leave more Gas in storage heading into the Gas injection season that begins once spring arrives. Thursday's release of the weekly Energy Information Administration's (EIA) Gas storage report showed that only 49 billion cubic feet (bcf) of Gas was removed from storage last week vs. an expected 79 bcf draw. While Gas storage levels are nearly 11% below last year's levels, we are still near the 5-year average for this time of year. Should weather forecasts prove accurate, we could see below average Gas draws the next few weeks, which could help to further put pressure on winter month futures as long positions are liquidated.

Technical Notes

Looking at the daily chart for the lead month February Natural Gas futures, we notice prices have given up all of the gains seen since the mid-December rally, which took the lead month contract to over 2-year highs. Now we see that prices have fallen below the 20-day moving average (MA) but are trying to find support near the longer-term 200-day MA. A chart "gap" near the 3.030 price level looks to be the next support level for the February contract, with chart resistance seen at the December 28 low of 3.670

Mike Zarembski, Senior Commodity Analyst


January 9, 2017

It's Hard

Monday, January 9, 2017

Today's Spotlight Market

Although UK Prime Minister Theresa May does not like the term, "Hard Brexit," recent remarks by the Prime Minister seem to indicate that she favors a complete break with the European Union including an exit from the European Customs Union. The Prime Minister stated that the United Kingdom could not hang on to, "bits of EU membership," in an interview with UK cable channel Sky News on Sunday. The Pound Sterling promptly fell as trading opened on Sunday night. The Pound has been volatile ever since the EU referendum in June 2016; The Pound tends to rise on speculation that the UK will remain in the European Customs Union and fall on news which indicates a break from the European Customs Union.

Fundamentals

Last week, the UK was shocked with the sudden resignation of Sir Ivan Rogers, the UK ambassador to the European Union. Although Sir Ivan's term was due to end in October, the sudden resignation letter indicated he didn't believe the UK government has yet decided exactly what it wants to achieve during the exit negotiations. As the Prime Minister has stated a deadline of the end of March to trigger Article 50 and begin the process of leaving the European Union, there isn't much time left for the government to decide on their negotiating strategy. Theresa May has replaced Sir Ivan with another career diplomat, Sir Tim Barrow. There has been little UK economic news to influence Pound trading. In late December, UK consumer confidence unexpectedly rose by one point in December. However, the continued weakness of the Pound is likely to increase inflationary pressure and this could take a toll on consumer confidence going forward, in addition to other indicators of economic health.

Technical Notes

Turning to the 3-month continuation chart, we continue to see bearish signs for the British Pound. The faster moving 20-day simple moving average has again crossed below the slower 50-day SMA. The 50-day SMA seemed to provide resistance and a recent test of that resistance has failed for the time being. 14 day Relative Strength index is a bearish 36.85.

Dale Jennings, Commodity Analyst


January 10, 2017

Will 2017 Bring the End of the Wheat Bear Market?

Tuesday, January 10, 2017

Today's Spotlight Market

2016 was a terrible year for Wheat, as prices fell by over 16% and dipped below the $4 mark for the first time in a decade. Globally, favorable weather conditions led to some large harvests on top of large existing supplies, creating a glut. Traders are left wondering where prices may go from here. Will the four-year bear market in Wheat finally end in 2017? Prices have started the year on a positive note, rebounding back above the 425 level in the March contract.

Fundamentals

World Wheat stocks are expected to end 2016-2017 above the 250 metric tonne mark for the first time ever, according to the USDA. Russian acreage is up 8-10% for the 2017 crop year, suggesting another record crop year and an oversaturated export market. The US is expected to have another bumper crop of the grain this year, and the ongoing strength in the US Dollar may make it difficult for exporters to find trade partners. With the Federal Reserve expected to make a series of rate increases this year, the greenback may continue to trade higher through the year. In 2016, US Wheat production increased by 250 million bushels, despite a decrease in 3.4 million harvested acres. That type of efficiency may prove difficult to replicate . New crop contracts may find a boost from farmers cutting acreage in 2017-2018 due to the price slump. Societe Generale is expecting US farmers to reduce soft red winter Wheat acreage by 5% and hard red winter Wheat by 6%, while hard red spring Wheat may see 8% higher acreage due to the relatively attractive prices. This could result in some narrowing between Minneapolis Wheat and Chicago and Kansas City Wheat contracts down the road.

Technical Notes

Turning to the chart, we see the March Wheat contract trading just above the 425 level. The last 2 times the Wheat contract has tested these levels, it has failed to break through. In the event prices are able to push through, prices may test the 450 level, which can be viewed as minor resistance. If Wheat is unable to break out, prices may continue to channel between 390 and 427. The 200-day moving average is just under 433. Solid closes above the average could validate a breakout from the 427 area. The RSI is near overbought, which may pressure prices a bit.

Rob Kurzatkowski, Senior Commodity Analyst


January 11, 2017

Sugar Prices Resilient Despite Index Fund Selling

Wednesday, January 11, 2017

Today's Spotlight Market

With Crude Oil prices currently hovering near the $50 per barrel level and well above its worst levels seen the last few years, it appeared that Cane ethanol production in Brazil would be improving, especially with raw Sugar prices trading below recent highs. However the expiration of a tax incentive in Brazil could dissuade Ethanol producers from ramping up production this season despite the prospects for higher Oil prices.

Fundamentals

The recent rebound in Sugar prices appears to have some legs, despite some aggressive selling by commodity index funds during the annual re-balancing. During the re-balancing, funds will increase purchases of those commodities that were the worst performers the past year and sell those that were the best performers in order to bring the total weight of each commodity back to the current established weighting for the particular index being tracked. For Sugar, with prices up nearly 30% last year, index funds are expected to be overall sellers of nearly 10% of the average daily trading volume during the re-balancing period. Prices have declined the past few trading sessions from a high of 21.18 in the lead month March contract on January 5 to a low of 20.48 on Tuesday. However we did see prices rebound of the Tuesday's lows and actually closed higher to end the session. Looking at the fundamentals for Sugar we see a market in 2017 that will be in deficit with production expected to be about 3 million metric tons below demand for the 2016-17 season. Traders will continue to focus on outside forces such as the performance of the Brazilian Real and how much Cane production is shifted to fuel production in the form of Ethanol in the coming season both of which could be swing factors in the price outlook for Sugar in the coming months.

Technical Notes

Looking at the daily chart for March Sugar, we notice what may be the formation of a bull call spread the past few trading sessions as prices have corrected from the near-term rally and trading volume has fallen during the formation of the chart pattern. Prices also remain above both the 20 and 200-day moving averages and the 14-day RSI remains strong despite currently hovering below its recent highs with a current reading of 60.69. We see chart support near the January 3 low of 19.58, with chart resistance appearing at the recent high of 21.18 made back on January 5.

Mike Zarembski, Senior Commodity Analyst


January 12, 2017

OPEC Staying True to Their Word

Thursday, January 12, 2017

Today's Spotlight Market

Crude Oil futures had a turbulent trading session yesterday, dropping like a lead balloon when the EIA announced a sizable weekly increase. Prices later rallied on signs that Saudi Arabia is holding up its end of the agreed upon OPEC production cuts. In the past, the kingdom had often exceeded OPEC production quotas, so this could be a sign of unified compliance, defying skeptics. The sell-off in the US Dollar further bolstered the rally in Oil prices.

Fundamentals

Saudi Arabia has reduced its Crude Oil production to less than 10 million barrels a day, exceeding the agreed upon production cut. It had agreed to cut 486,000 barrels a day to 10.058 million barrels a day. Kuwait had also trimmed production by more than it had agreed. OPEC is expecting the combination of falling supplies and increased demand to work down inventories and balance the Oil market by the end of the second quarter. The group will monitor and determine whether additional cuts are necessary the next time they meet in May. The EIA reported a larger than expected build of 4.1 million barrels last week. Analysts had only been anticipating an increase of 1.2 million barrels. While this news was bearish for the Oil market, it served as a minor distraction from the OPEC information that was coming out. The Dollar Index faces a second day of heavy selling pressure this morning. Prices have fallen below the 102.00 level, which could be seen as minor support, and could threaten the 100.00 level. The 100.00 level is major support, both technically and psychologically, and will likely be closely monitored by Oil traders.

Technical Notes

On the continuous Crude Oil chart, we see the lead month February futures contract trading back above the 52.00 level overnight. To gain sustained momentum, Oil prices may need several solid closes above the 54.00 mark. Prices are also trading back above the 20-day moving average. The oscillators are currently sitting in neutral territory.


Rob Kurzatkowski, Senior Commodity Analyst

January 13, 2017

Gold Price Recovery Stymied by Strong U.S. Dollar and Interest Rate Concerns

Friday, January 13, 2017

Today's Spotlight Market

While speculative accounts both large and small are holding an overall net-long position in Gold as well as the entire Precious Metals sector, we have seen some rotation from Gold into Silver recently by commodity funds. The most recent Commitment of Traders report shows that non-commercial traders lowered their net-long Gold position by 1,067 contracts during the reporting period ending January 3. This brings the overall net-long position by large speculators to 90,118 contracts. Silver, however' saw a net-increase of the net-long position by 2,298 contracts during the same period to stand at 61,085 contracts. One theory to this shift could be that traders are expecting stronger economic growth which, if accurate, could tend to favor the more industrial of the Precious Metal's sector such as Silver and Platinum.

Fundamentals

Gold bulls have seen a modest rebound in prices the past several weeks as short-covering buying has emerged as prices are attempting to form a near-term bottom. However, the sustainability of any price recovery is uncertain, as the market is expected to face several headwinds. The big two factors being noted by analysts are how the U.S. Dollar will perform as well as the outlook for U.S. interest rates in the coming months. The "greenback" has been on an upward climb since October of last year as traders and investors moved into the Dollar on the belief that the U.S. economy had the potential for stronger growth than other major economies which, in turn, ties into our second major factor which is the potential for higher interest rates. Stronger economic growth may provide the opportunity for the Federal Reserve to begin to move more "aggressively" in its goal of "normalizing" interest rates beyond the "one and done" we have seen the past two years. Should the value of the Dollar continue to rise and/or interest rates move higher, both factors are generally viewed as a negative for Gold price. Analysts who follow the movement of assets into and out of the Gold ETF's note that we are still seeing an outflow from investors from the major Gold ETF's, so it appears that market participants remain hesitant to shift assets back into Gold anytime soon.

Technical Notes

Looking at the daily chart for December Gold futures, we notice what may be a reversal pattern forming from the recent rally that took Gold prices to nearly 7-week highs on Thursday, but saw prices give up the gains by the end of the session. While prices are holding above the 20-day moving average, the market is still well below the 200-day moving average, which is currently near the 1274.00 price level. While the 14-day RSI remains strong, with a current reading above 60, we may start to see this momentum indicator turn lower unless a new-multi-week high is made to end the week. The November 16 high of 1236.10 now appears to be the next major resistance level for the February contract, with chart support seen at the January 5 low of 1163.60.

Mike Zarembski, Senior Commodity Analyst


January 18, 2017

Grain Markets Awaken from Winter Hibernation

Wednesday, January 18, 2017

Today's Spotlight Market

Large speculators were heavy buyers in the Grain and Oil Seed complex the past week according to the most recent Commitment of Traders report. For the entire complex, non-commercial traders added over 88,000 new net-long positions across all the major products in the grain complex, with only Soybeans and Oats seeing any overall net-selling during the reporting period ending January 10. Large speculators were already heavily net-long Soybeans coming into the week, so the net-selling may have been ties to some liquidation of inter-commodity spreads, especially against the Chicago Wheat contract which was generally viewed as the weakest member of the complex.

Fundamentals

The Grain and Oilseed markets have apparently broken out of their winter doldrums the past few trading sessions, as a price correction in the U.S. Dollar bull market as well as weather concerns in South America have peaked traders' interest. The U.S. Dollar index has fallen to its lowest level in over 5-weeks as of this writing, as traders are starting to see some better economic data out of Europe as well as some short-covering buying emerging in the British Pound following hard-exit Brexit comments from U.K. Prime Minister Theresa May, and also some stronger than expected inflation data. A weakening U.S. Dollar is generally viewed as supportive for commodity prices, as it makes Dollar-traded commodities cheaper for non-Dollar users. More specific to the grain sector, heavy rains in parts of Argentina were seen as supportive for both Corn and Soybeans, although traders are still looking for strong production totals from both Brazil and Argentina unless unfavorable weather conditions persist. Wheat futures rallied following the USDA report that showed U.S. Winter Wheat seeding fell to the lowest levels in over 100 years. This sparked a bout of short-covering buying, although analysts likely will temper the bullish enthusiasm by noting both current large global and U.S. Wheat inventories as well as stiff export competition from the Black Sea region. So now that the grain complex is back on traders' quote screens, the real anticipated grain market data will not arrive until March, when the USDA reports its commodity market outlook as well as the notoriously volatile release of prospective plantings report at the end of March.

Technical Notes

Today we are going to take a quick look at the daily continuation chart for the past 12 months for the Soybeans vs. Chicago Wheat inter-commodity spread in a 1 Soybean vs. 2 Wheat contract ratio. On this chart, we really notice how well Soybean prices have outperformed Wheat prices the past year. I have drawn in the longer-term uptrend line as well as the intermediate-term trend line to show where chart support levels may occur. The intermediate term trend (in blue on the chart) drawn from the July 2016 low has acted as a particularly good gauge of chart support the past several months. One could argue that since December the spread has been forming a bull-flag technical pattern that represented a near-term correction in what may be a longer-term trend favoring Soybeans over Wheat. Momentum as measured by the 14-day RSI has also started to get stronger, with a current reading of 56.33. Support for the spread is seen at a 145.00 Soybean premium, with resistance seen near a 218.00 Soybean premium.

Mike Zarembski, Senior Commodity Analyst


January 20, 2017

China and Trump Seen as Major Influences for Copper Prices in 2017

Friday, January 20, 2017

Today's Spotlight Market

Copper traders will be eagerly awaiting economic data out of China, the world's largest consumer of the red metal, scheduled to be released early Friday. Expected data includes Business Sentiment Indicator for January which is forecasted at 55.26 and is below the 55.90 reported in December. We also have YoY Industrial Production for December which is forecasted at +6.3%, as well as YoY GDP Q4 which is expected to remain stable at 6.7%. Any major variances from the estimates could trigger volatile price moves for Copper to end the week.

Fundamentals

After being range bound for most of 2016, we have seen Copper prices trend higher starting at the end of the year, as signs that Chinese Copper demand was increasing and on concerns that global inflation may rise in 2017. A forecast by Barclay's metal analysts has global Copper demand rising 3%, and at the same time they noted that production issues at several Copper mines would help to tighten supplies in the near-term. In addition, U.S. President Elect Donald Trump has spoken often about working with the U.S. Congress on a major infrastructure bill which, if implemented, could see a significant increase in demand for industrial commodities such as Copper. The recent price strength in Copper is more impressive given the overall strength in the value of the U.S. Dollar, which analysts generally view as a bearish catalyst for commodities prices in Dollars, as it makes them more expensive for non-Dollar users. While we have seen the "greenback" weaken slightly to begin 2017, the value of the U.S. Dollar index is still up sharply when compared to a year earlier. Large speculators apparently remain bullish on Copper, with the most recent Commitment of traders report showing that non-commercial traders added an additional 3,259 new-net-long positions during the reporting period ending January 10. This brought the overall net-long positon to 47,633 contracts. Commercial traders are generally on the other side of the large spec's position, having added an additional 3,161 new-net short positions during the same timeframe. Traders could expect to see Copper prices become potentially more volatile in the next couple of weeks as traders wait and see what statements are made from the White House once Mr. Trump takes over the Oval Office as well as a reduction in liquidity by Asian traders being on a week-long holiday for the celebration of Chinese New Year's that begins on January 28.

Technical Notes

Looking at the daily chart for March Copper futures, we note that prices have become rather volatile following a steep price rise that began in early November that have sent prices nearly 50-cents per pound higher in about 2-weeks' time. Since that time prices have swung within an approximately 30-cent price range and are now holding near the mid-point of the recent price consolidation. Copper bulls still have the upper hand, as prices remain above both the 20 and 200-day moving averages; however we have started to see momentum turn a bit weaker, as the 14-day RSI has moved towards a more neutral reading of 56.23 as of this writing. Chart support appears near the November 15 low of 2.4350, with chart resistance seen at the recent high of 2.7530 made back on November 28.

Mike Zarembski, Senior Commodity Analyst


January 24, 2017

Dollar Direction?

Tuesday, January 24, 2017

Today's Spotlight Market

After a strong rally at the end of 2016, the Dollar Index has turned downward. Traders are balancing some of the potential impacts of the incoming Trump administration with the December statement by Fed President Janet Yellen. In December, the Fed made its second rate increase in ten years, raising rates to 0.50%.

Fundamentals

Dollar bulls were probably excited to see the forecast for three Fed rate increases in the Fed's December statement, which was an increase from two rate increases forecast in September. However, some of the policies stated by the incoming Trump administration may temper dollar optimism. Trump has announced that he intends to pull the United States out of the Trans Pacific Partnership. This is largely symbolic, as the TPP was never ratified by Congress and former President Obama abandoned attempts to encourage its ratification. President Trump has also indicated that he wants to renegotiate NAFTA (North American Free Trade Agreement.) Since NAFTA has been in effect since 1994 and both Canada and Mexico are important trading partners, any substantial changes to the trade deal could pressure the Dollar Index. Finally, an increase in inflation in the UK could cause the Bank of England to raise rates earlier than anticipated, potentially strengthening the Pound.

Technical Notes

Turning to the 3-month chart of the Dollar Index, we see some bearish signs which have been confirmed with high volume. The slope of the 20-day simple moving average ("SMA") has turned sharply downward and is threatening a bearish cross below the slower 50-day SMA. The 20-day SMA previously seemed to serve as support level. It briefly provided resistance once prices broke under the 20-day SMA. Now, it is the 50-day SMA which seems to be providing resistance.

Dale Jennings, Commodity Analyst


January 25, 2017

Live Cattle Prices Rebound Following 6-year Lows

Wednesday, January 25, 2017

Today's Spotlight Market

Large speculators were busy adding additional net-long positions to an already heavily long position according to the most recent Commitment of Traders report. During the reporting period ending January 17, non-commercial traders added 3,449 new net-long positions to bring the group's overall net-long position to 124,703 contracts. Both commercial and non-re-portable traders were on the other side of the large specs long position having increased their overall net-short positions by 2,327 contracts and 1,710 contracts respectively.

Fundamentals

Live Cattle futures have started the New Year on a positive note as prices have rebounded off of 6-year lows made in October of last year. While prices remain well below the record highs seen back in 2014, lower beef-prices have spurred an increase in retail demand for "red meat" which had meat packers more willing to pay higher prices for market ready cattle to ensure adequate supplies. Trend following traders are adding to long positions as prices move higher and those who follow the fundamentals note that futures prices in both Feb and April are trading below cash market prices which is adding some support for futures despite a 20-dollar per hundredweight rally from the October lows. One concern by Cattle bulls (pun intended) is that packer profit margins are currently negative and there may be a drop-off in wholesale demand for cattle and in turn see lower bids from end users should retail beef demand begin to slow. Traders will have two key reports to help gauge the size of the Cattle herd in the next several days. First up is Friday's release of the monthly Cattle on feed report due out at 2 pm Central time followed shortly by the annual USDA Cattle Inventory Report scheduled for Tuesday, January 31.

Technical Notes

Looking at the daily chart for April Live Cattle futures, we notice the uptrend that begins following the October 2016 low is still in place as prices remain near 10-month highs. Prices remain above both the 20 and 200-day moving averages but we are seeing the 14-day RSI begin to turn lower after a quick move into overbought levels. However this momentum indicator remains strong with a current reading of 61.28. We see near-term chart support near the January 12 low of 115.050, with near-term resistance found at the recent high of 120.325 made back on January 19.

Mike Zarembski, Senior Commodity Analyst


January 27, 2017

Lean Hog Prices at 7-month Highs but Strong Resistance Looms Above

Friday, January 27, 2017

Today's Spotlight Market

Cattle traders will stay late today as the USDA is scheduled to release data for its monthly Cattle on Feed (COF) report which is scheduled for release today at 2 pm ct. Average trade estimates for the January COF report are as follows:

Cattle on Feed as of January 1: 99.0%

Cattle placed on feed in December: 108.4%

Cattle Marketing in December 106.7%

Fundamentals

Similar to the Live Cattle market we covered in Wednesday's Xpresso, the Lean Hog futures market is also in the midst of an uptrend, with the lead month February contract trading at 7-month highs. Higher pork cut-out values, strong demand for Bacon, and some weather concerns in parts of the Midwest have been cited as catalysts for the recent price gains. Hog futures received some bullish news following the release of the USDA monthly cold storage report earlier this week which showed a sharp decline in YoY frozen pork inventories, as well as a record low for year-end pork belly inventories. Solid near-term demand has seen traders moving into bull-spreads, with the February price discount to both April and June futures starting to narrow since the beginning of the year. To keep the bullish momentum, Hog traders likely will need to see retail pork demand remain strong, as any decline in meat packer profit margins and slower demand could trigger a slowdown in slaughter rates and, in turn, allow end-users to be less aggressive in their bids for market ready hogs.

Technical Notes

Looking at the daily chart for February Lean Hog futures, we notice prices staging a brief "breakout" from the recent price consolidation on Wednesday, only to see a technical "price reversal" on Thursday as the market closed sharply lower following a move to new 7-month highs. While prices still remain above both the 20- and 200-day moving averages (MA), we note that the 20-day MA has acted as a near-term support level the past couple of weeks, and traders may want to keep a close eye on price activity when approaching this short-term indicator. We also note that Wednesday's price breakout occurred on relatively moderate trading volume, which could be an indication that Wednesday's rally was nothing more than a "bull trap" sprung on momentum based trading systems. We also note the 14-day RSI is signaling a bearish divergence, as this momentum indicator was already turning lower despite Wednesday's rally. Thursday's high of 68.000 now appears to be the next resistance level for the February futures, with support seen at the December 27 low of 62.150.

Mike Zarembski, Senior Commodity Analyst


January 30, 2017

Parliament Votes on Brexit

Monday, January 30, 2017

Today's Spotlight Market

The United Kingdom Supreme Court ruled last week that Parliament must have a say in the decision to trigger Article 50 which would begin the two year negotiating process for the United Kingdom to leave the European Union. This has set up for yet more contentious political debate in the United Kingdom as the proposed end of March date for triggering article 50 approaches.

Fundamentals

As of right now, there is no doubt that the UK Parliament will vote in favor of triggering article 50. However, there have been disagreements among members of the opposition Labour Party which have resulted in a second round of resignations from the Shadow Cabinet. In addition, Prime Minister Theresa May is facing pressure from the leaders of the devolved nations of Scotland and Wales who are opposed to a 'hard Brexit' which would include leaving the European Common Market in addition to the European Union. Recent economic data, which is now six months after the referendum, has shown stronger than expected GDP growth for the fourth quarter of 2016, coming in at a growth rate of 0.6%. However, inflation continues to be a threat. In December, the UK Consumer Prices Index rose to an annual rate of 1.6%. The Pound has dropped since the referendum vote, causing higher consumer prices. Higher inflation could force the Bank of England to consider raising interest rates.

Technical Notes

Turning to the 3-month continuation chart, we see a recent bullish breakout and a possible reversal. The recent breakout showed trading breaking through both the 20-day and 50-day simple moving averages. As is common, the previous resistance level at the 50-day SMA has now become support. With the potential reversal in recent days, traders may be watching to see if the 50-day SMA support level holds. 14-day RSI is a neutral to bullish 55.99.

Dale Jennings, Commodity Analyst