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Archive | March, 2010

Currency Market Commentary – 2010.03.24

by Dave Hightower on March 24, 2010

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DOLLAR: The Dollar seems to be getting a distinct bid off renewed concerns that the EU summit that begins on Thursday won’t provide tangible support to Greece. It is also possible that the Dollar is catching a bid because of renewed US/Chinese trade war dialogue. However, in the wake of the initial US/China rift over the vale of the Chinese currency, the Dollar didn’t seem to be at all interested in the trade war threat. Therefore, we suspect that most of the Dollar gains this morning are the result of EU debt issues. In fact, the Euro is very weak against the Dollar this morning, despite Euro zone PMI readings and German Ifo readings that could have been considered supportive of the Euro. Perhaps a downgrade of Portugal overnight is another element adding into the Dollar bulls case. In short, the bear items in the Dollar are being shunted to the sidelines and the bullish items are being fully embraced and that is the hallmark of a bull trending market. In fact, the Dollar might rally today even in the face of slack US economic readings. A big range up extension in the Dollar would seem to leave support on the charts today at 81.60. Perhaps the trade is happy with ideas that the US Fed remains content with low rates and that ultimately a recovery will be entrenched before they pull back on the reins.

EURO: With the Dollar soaring to new highs and the Euro falling to new lows, it would seem like the trade is fully focused on the prospect that Greece will be left hanging on their debt issues. In fact, as mentioned already, the Euro zone saw a series of numbers overnight that could have provided support to the Euro but instead the market is fixated on the Greece threat. Surprisingly the trade is discounting any help for Greece, despite the fact that the EU summit hasn’t even started yet! Perhaps the market is doing its job to force the Germans to step up and provide something for their fellow EU member. In the mean time, the market looks to sell the rumor, but we aren’t sure they will be a “fact” to buy once the EU summit has ended. One has to look to the weekly charts for the next layer of support in the Euro down at 1.3297.

YEN: The June yen has been trampled by an ultra strong Dollar and perhaps because of the potential spillover from a US/China trade flap. In fact, weaker Japanese exports to China recently might suggest that the Japanese economy isn’t feeding off Chinese growth as much as many had expected. The technical damage on the charts would seem to leave little in the way of support in the June Yen until the 109 level.

SWISS: The Swiss National Bank won’t have to worry about intervention anytime soon, as the rug has been yanked out from under the Swiss and the Euro. Apparently the trade is poised to fully factor in no help from the EU for Greece and that in turn means that all fortunes on the continent are reduced. However, the Swiss was facing an all time high versus the Euro overnight and that might in turn create a very negative conundrum for the Swiss economy. Near term downside targeting in the June Swiss is now seen down at 93.00.

POUND: The Pound bulls are lucky today because the Euro, Swiss and Yen are so weak that some of the potential selling pressure on the Pound was avoided. However, the Dollar is so strong that one has to expect a certain amount of follow through selling in the Pound directly ahead. Underpinning the Pound somewhat is the news that some Euro zone numbers were good overnight, but in the event that US numbers are weak this morning, that could prompt a slide in the June Pound down to 1.49.

CANADIAN DOLLAR: The Canadian is caught in a negative commodity/strong Dollar vortex. We also think that the Canadian is temporarily being deflated by a let down in overall macro economic expectations but that doesn’t mean that the long term up trend in the Canadian has ended. In fact, our pick for a key low in the June Canadian is seen down at 96.50 and perhaps the market won’t even be able to make it down to that level, unless the US numbers directly ahead foster distinct concern for US growth patterns ahead.

TODAY’S MARKET IDEAS: It’s all Dollar today, as Euro woes and slack global economic views are currently the mantra of the financial markets.

Bond Market Commentary – 2010.03.24

by Dave Hightower on March 24, 2010

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While we might be giving too much credence to the European economic news overnight, the numbers from that area were markedly better than some expectations and notably better than prior readings and that led some analysts overnight to conclude that adverse weather did serve to weaken activity earlier this year. In other words, adverse weather seemed to hold back the European economy in February and data after that period showed a noted recovery. Therefore, that could lead some to conclude a similar potential economic recovery could be seen in the US, where the Eastern portion of the country (particularly the biggest source of hiring the US government) was impacted by a series of winter storms. Note: Today’s Durable goods and New Home sales reports are still for February and not for March! With a couple Fed members recently suggesting that employment would improve this spring, one begins to get the impression that the next Non-farm payroll, or certainly the one for April will post a noted gain and therefore the recent bullish tilt in Treasuries looks to be challenged in the coming trading sessions.

After a tight consolidation around both sides of 118-00 in the June bond contract recently, that would seem to hint at a slight loss of upside momentum. While we continue to think that residual uncertainty off the US economic outlook in the near term will generally provide the bull camp with ongoing support, we also think that the market is already finding it difficult to put together enough buying fuel to definitively extend the rally that has basically been in place since late December. However, with the market facing another auction leg today and the market yesterday not getting its typical lift off the auction that could mean longer maturities will have to provide even more support prices in the wake of the coming auctions, or some more distinct downside work might be seen on the charts. On the other hand, after seeing the third straight monthly US existing home sales decline in a row yesterday and seeing muted inflation readings last week, one might have expected the bulls to have displayed more dominance over the Treasury market this week.

With $42 billion in 5 Year Notes to be auctioned later today and the poor market reaction to the auction yesterday, the bull camp is in bad need of something weak in the durable goods or new home sales figures or Treasuries could knuckle under and in the process send June bonds back below the 117-00 level. Furthermore, we think that June Notes could easily fall back below 116-24 in the event that any of the US numbers today are better than expected.

Certainly seeing patently weak scheduled data today would catch some players pressing the downside early, but given any additional ammunition from decent data, that could really result in bonds and notes falling back toward the March lows!

Stock Market Commentary – 2010.03.24

by Dave Hightower on March 24, 2010

Below is a sample of our Daily Commentary. To get this comment, and our daily coverage of 15 additional markets and trade ideas, visit futures-research.com for your free 2 week trial!

After seeing another round of new highs in some market measures yesterday the equity market comes into the trade today sitting just below the recent highs. While prices are showing initial weakness in the early US trade, the German and European markets at times overnight were showing minor gains. While the Euro zone saw a better than expected PMI result and the German Ifo readings were also better than expected, there is also some concern about a US/Chinese trade battle and that would seem to leave prospects mixed to slightly negative in the early action. However, a Fed member overnight seemed to reiterate the need to leave US interest rates low and that probably provides a bit of a support to stock prices. While the market would seem to need something positive from the durables and or new home sales to justify the upward track, this market has been able to grind upward even in the face of slack numbers for most of the last two months! With the Fed’s Yellen overnight suggesting that now is not the time to tighten, it is possible that stocks will be able to shake off a slight negative reaction to the US data this morning and attempt to claw out more gains.

S&P 500: Despite the impressive range up extension in the prior trading session, the June S&P would seem to have little in the way of close-in support on the charts until the 1164.80 old high level. Ordinarily the S&P would have distinctly benefited from dovish Fed comments and favorable Euro zone data news overnight, but the market seems to be either partially overbought technically, or perhaps a little concerned about this morning’s new home sales figures. We ultimately think the market will be able to shake off the data this morning, but we can’t rule out some weakness into and perhaps through the data. Therefore we would look to the 1162 to 1164 level as a key pivot point this morning.

DOW: The June Mini Dow sits just below the high forged in the prior trading session. While we suspect that prices will see a bit of a dip in the wake of the scheduled data this morning, we expect the market to discount that weakness as a result of the weather. As suggested already, Fed comments overnight and ideas that Yellen (a policy Dove in some minds) could be offered the Vice Chairmanship at the Fed, would seem to give the bull camp some news to offset any disappointment that might arise in the wake of the US data flows. It is also possible that the trade will see the data today, as the last of the ultra soft data and therefore expectations for better March data ahead could become some sort of carrot for the bull camp. Certainly the market is becoming more overbought especially after the big range up extension yesterday, but there might be little in the way of close in support on the charts until the 10,807 level.

NASDAQ: With the June Nasdaq easily the most overbought (based on COT position readings) and the market already sitting well above the level where the last COT report was measured, one should expect the Nasdaq to lag behind the rest of the market on rallies and lead the rest of the market on any breaks directly ahead. Given the steep upward track in the Nasdaq recently, close-in support isn’t seen until the 1955 level on the charts. With up trend channel resistance not seen until the 1967.85 level.

Grain Hedge Strategies – 2010.03.22

by Terry Roggensack on March 22, 2010

Below is an excerpt from our most recent Newsletter. To receive access to this story, with trade strategies, and our daily coverage of 16 markets, visit futures-research.com for your free 2 week trial!

The USDA March 31st report could have a major impact on all of the grain markets, and grain producers may want to have some option price protection in place ahead of this report. The key variable which could be a surprise is the expectation by the USDA Outlook Forum team that that planted area for 8 major crops for 2010 will come in at just 247.3 million acres, down 1.6 million from last year and down 5.8 million acres from 2008. With traders expecting corn planted area at near 89 million acres and the potential for actual plantings to come in well above this level “if” weather is good, corn producers might consider some price protection ahead of the report.

The wheat market still has ample fundamental reason to go down, but the market may have simply run out of sellers over short term. The USDA’s March 10th Supply/Demand report supplied fresh bearish fundamentals, with an unexpected increase in all-wheat ending stocks to 1.001 billion bushels, the highest level since 1987/88. This included another increase in soft red (Chicago) ending stocks to a very burdensome 207 million bushels. World ending stocks were also raised, and based on the report India appears to be getting closer to restarting exports of wheat. Indications are that they could export a few million tonnes, which would be the highest level of exports in about six years.

In addition to old crop issues, the winter wheat crop is off to a great start, as soil moisture levels in Texas, Oklahoma and Kansas are vastly improved from last year. From the weekly crop conditions report from March 14th, Kansas winter wheat conditions are now rated 63% good to excellent, compared with 60% the previous week and 42% last year at this time. Oklahoma crops are rated 68% good to excellent. Texas conditions are also favorable, with the wheat crop index at 74 vs. 37 last year. Both corn and soybean new crop futures prices appear well above the costs of production as well, so if the weather cooperates, acreage for corn, soybeans and spring wheat could come in well above trade expectations.

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Commodity Outlook – 2010.03.22

by Dave Hightower on March 22, 2010

Over the last month equity and many physical commodity prices have managed to rise consistently without much in the way of classic fundamental justification. On the contrary, if one were looking at the regularly scheduled economic data from the US, one might come to the conclusion that recent gains in equities and commodities were actually made in the face of signs that the recovery was less than robust. However, looking to the market action on March 16th and 17th there would seem to be views that the pace of the global recovery was capable of supporting a host of physical commodity markets. In fact, on March 16th the market was confronted with declines in US Housing Starts and Permits figures, yet equities, copper and energies all seemed to catch a broad-based wave of buying.

From our perspective, the sharp gains forged on March 16-17 were the result of upbeat, anecdotal “global” demand expectations. Certainly a downside breakout in the Dollar provided many commodity markets with a lift, but it did seem as if predictions of strengthening energy prices worldwide gave the markets confidence that economic growth would eventually gain (and sustain) a foothold. Yet another “on-hold” decision by the US Federal Reserve provided an added burst of optimism, but we have to wonder if the promise to hold rates down, even in the face of recovery, isn’t beginning to foster premature inflation.

In looking ahead, we acknowledge the supply side burden that is hanging around the neck of the grain markets, but we are also confident that 6 to 12 months down the road the markets will have found a home for much of that supply. If trade sources are correct in their assumption that grain prices will fall sharply once a certain amount of corn planting is achieved, it could prompt a rebuilding of livestock herds, which in turn should boost feed demand in coming quarters. Furthermore, with oil prices managing to threaten the $85 per barrel level with one economic hand tied behind their back, we think that oil pricing above $90 per barrel could be seen at some point in the coming summer. If oil prices rise above $90 per barrel, it would likely prompt calls for Washington to do something about it, and that “something” might be to raise the ethanol mandate to 15%. So while grains might be a burden to overall commodity prices in the coming weeks, a decline in grain prices provide a key bottom to the market.

With a major financial firm suggesting that the February US Payrolls were likely held down significantly because of a long string of severe US weather in February, we have to think that many physical commodity markets will continue to buy the rumor of a positive US March payroll reading. In fact, one financially based international research entity recently suggested that a similar blizzard in 1996 might have impacted up to 1,000,000 US jobs. While we doubt that type of impact will seen off the February 2010 storms, it is possible that the markets are set up to see a payroll report that would result in a temporary recovery-euphoria event. Unfortunately for the equity markets, it is possible that a favorable payroll reading will result in a noted correction in equities off the fear that a positive jobs reading will cause the US Fed to come off the bench. In our opinion, many commodity markets will be able to extend their upward track in the coming months, especially if a weak Dollar continues to provide a favorable environment.

Cattle Strategies – 2010.03.22

by Terry Roggensack on March 22, 2010

In our January special report, we reviewed the bullish setup for the livestock markets for 2010. The rally has come even faster than we anticipated, with the solid uptrend during February and March driving the nearby cattle futures to their highest level since September 2008. A combination of weather, improving consumer beef demand (back to a more normal level) and a massive influx of outside money into livestock futures and options helped to drive the market higher. The decline in the feedlot supply along with the lower slaughter weights (due to weather) has helped to supply solid fundamental support for the market. We are looking at a significant improvement in consumer demand over last year, with a tightening supply and the prospects for improving export demand ahead.

With the cattle market’s overbought technical condition and the possibility that there will be a short term setback in demand if the weather in late March is not as “spring-like” as expected, we could see a correction which would be a buying opportunity. As of March 16th, the cattle market had seen new all-time highs in open interest in 11 of the previous 12 trading sessions. The enclosed chart shows the non-commercial net long position from the Commitment of Traders report. (Non-commercials are generally considered fund traders.) After staying in a range of net short 15,000 to net long 75,000 contracts for 14 years, this group has suddenly expanded its net long position to a record 118,776 contracts. Will the mini-bubble burst or will the market continue to attract new buying interest? Commodity index funds have recently increased their net long position to 134,000 contracts, but this is still well short of their record of 156,752 contracts that they set in June 2008.

Part of the reason for a seasonal tendency for the market to push higher into May each year is the seasonal burst in beef demand when the spring comes to the Midwest and the East Coast and barbecue season begins. This normally occurs in a period when beef production is also on the rise. Beef production usually increases from the first to the second quarters of the year, but for 2010 the increase is expected to be the smallest of the past ten years. This would suggest that the upward pressure to be stronger this spring than normal. The Cattle on Feed report that is to be released on March 19th (after this writing) is expected to show the March 1st On-Feed supply at a 7-year low, down a little more than 3% from last year.

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Energy Market Commentary – 2010.03.19

by Dave Hightower on March 19, 2010

Below is a sample of our Daily Commentary. To get this comment, and our daily coverage of 15 additional markets and trade ideas, visit futures-research.com for your free 2 week trial!

CRUDE OIL MARKET FUNDAMENTALS: May crude oil has continued to fall back overnight on profit taking after the market failed earlier in the week to push above last week’s high. The market still seems to hold the underlying view for fuel demand to improve and low refinery operations to tighten fuel supplies this year. But up at these high price levels, crude oil also seems to need an additional bullish catalyst to support a run back to the January high. The last COT report showed funds were already holding a near record net long position in crude oil and so far the market has lacked strong enough fundamental news or outside market influences to inspire fresh buying interest at these high levels. The Dollar has been a very strong influence on oil price direction and it looks as if a large portion of the selling in crude oil this week has been currency connected. In fact, oil has fallen back overnight as the dollar has gained on safe haven demand tied to concerns Greece will have to tap the IMF for loans since financing from the EU now seems less likely which has investor’s scaling back risk at crude oil’s expense. Some of the profit taking in crude oil also seems to be tied to expectations for crude oil supplies to continue to grow, which the EIA reported to be up for the seventh straight week last week, as refiners keep operating rates low and as OPEC continues to supply over quota. OPEC left output levels unchanged at their meeting this week leaving room for further quota slippage which has fallen to about 53%. A tanker tracking company has OPEC export rising by over 60,000 barrels per day in the month out to April 3rd. Concerns that China will tighten liquidity more aggressively to contain inflation and rumors that the Fed may soon hike the discount rate again also seem to be undermining oil market sentiment a bit. Also, the economic news flow this week wasn’t strong enough to support a more optimistic view for oil demand to recover which will be needed in order to lift May crude oil beyond the $83.50 price level. With no major economic reports today, oil price direction will be guided by technical chart signals and outside market influences. The early selling bias in crude oil can certainly be tied to the strength in the Dollar and with May crude oil breaking below yesterday’s low, a slide back to test support at $81.16 seems possible if the Dollar gains upside traction this session. But the extent of the break in crude oil will likely depend on the currency action and if for some reason the dollar reverses course to the downside, don’t be surprised to also see crude oil quickly recover.

GASOLINE: April gasoline has also come under profit taking pressure overnight tied to the strength in the dollar and as traders book profits at high levels after another failed attempt to push through the $2.3150 price level. Some traders are likely disappointed that gasoline has been unable to follow through higher despite an improving fundamental setup with the EIA reporting a larger than expected decline in fuel stocks, a jump in product demand and low refinery operations that could continue to tighten fuel supplies this spring. The market had certainly become overbought on the run up above the January high this week and with the combined speculative net long position in gasoline likely close to a record level, the market is likely in need of a fresh bullish catalyst to draw in more buyers up at these high prices. The selling in gasoline this morning looks to be mostly currency connected and if the Dollar gains upside traction this session it could be enough to pressure April gasoline below the $2.28 support level which could then trigger more extensive chart based selling. But while gasoline looks vulnerable to short-term currency based price weakness, we also suspect buying interest will appear at low price levels. Eventually we see the gasoline market resuming its uptrend on expectations for rising fuel demand during the spring/summer driving season and low refinery operations to tighten supplies. Support for April gasoline under $2.28 comes in at $2.2719 then at $2.2587 and below there at $2.2454.

HEATING OIL: Heating oil has also come under profit taking pressure in the overnight trade and the market may be the most vulnerable to a steep set back in prices. A stronger Dollar has inspired traders to take profits in heating oil as investors seek safer havens and scale back risk. Heating oil has the weakest fundamental backing in the complex with distillate stocks still at a record high for this time of year despite seven straight weeks of declining inventories while distillate demand remains below year ago levels. Therefore, it’s not too surprising to see a selling bias in this market take hold since speculative buying interest has been undermined by a stronger Dollar and given April heating oil’s technical failure earlier this week to push above last week’s high. Look for more aggressive chart based selling if April heating fails to hold support at $2.10 which will leave the market vulnerable to a break back to the $2.08 to $2.06 price range.

TODAY’S ENERGY MARKET GUIDANCE: Given the Dollar’s strong influence, oil markets will be vulnerable to a significantly deeper price correction if the dollar gains upside traction this session.

Precious Metals Commentary – 2010.03.19

by Dave Hightower on March 19, 2010

Below is a sample of our Daily Commentary. To get this comment, and our daily coverage of 15 additional markets and trade ideas, visit futures-research.com for your free 2 week trial!

OUTSIDE MARKET DEVELOPMENTS: The strength of the Dollar against European currencies, particularly the British Pound, has put precious metals prices under moderate pressure into the US Friday opening. Comments made overnight by an EU commissioner saying that the Greece situation has not been resolved yet, would seem to be behind the action in the currency markets. However, some metals traders have suggested recently that EU debt concerns were actually a source of buying support but that angle doesn’t seem to be in vogue this morning. News that the Greeks may sidestep the EU and appeal for help directly to the IMF could be seen as a back stop against a full return to runaway EU debt concerns. With no U.S. economic releases this morning, the markets might be left with the low inflation/muted growth view that was established earlier this week. However there is a triple witching expiration facing the US equity markets today and the expectation of a weekend vote on US health care reform and those two factors alone could serve to increase volatility in a number of commodity markets.

GOLD MARKET FUNDAMENTALS: April gold comes into the opening today under modest pressure, but still above this week’s lows. While there were reports of record gold production from a smaller producer overnight, the weakness in gold prices this morning appears to be the result of outside market influences, instead of classic supply and demand side developments. Therefore, the gold market probably won’t see much in the way of fresh selling interest from overnight news of higher Indian gold production in the ten months following April of 2009. The tech traders are noting a 21 day moving average at $1,118.80 today, as that level is just below the early Friday morning trade action. With the lack of scheduled US data flow today, the gold trade is likely to take a large measure of direction from either the currency markets or from US equities.

SILVER MARKET FUNDAMENTALS: May silver is showing some initial weakness in the early morning Friday trade. In fact, May silver has already managed to take out the lows of the last two trading days and at times this morning the silver market has also tracked below the 100 day moving average of $17.27. While silver exchange stocks have seen a series of modest builds this week, it would not seem like silver prices are being pressured this morning because of bearish physical supply news. Similarly, most traders doubt that news of lower US silver production for November 2009, versus October of 2009, from the US Geological Survey is being seen as a noted negative for silver prices today. While copper prices are higher this morning, weakness in energy prices and other physical commodity prices would seem to leave the outside market influence on silver mixed to slightly negative. In the end, a lack of scheduled US economic data today could mean that silver prices are destined to take a lot of direction from equities and from the currency markets.

PLATINUM: The platinum market is already seeing a partial breakdown on the charts this morning. Clearly platinum was technically overbought and perhaps in retrospect somewhat fundamentally overbought around this week’s highs. In fact, while the global economic outlook remains positive (with stories of an extremely tight Chinese labor market) the progression in the US recovery has been highly suspect. Up trend channel support in the April platinum market is seen at $1,606 toda, with the bear camp in the driver’s seat.

Cotton Market Commentary – 2010.03.17

by Terry Roggensack on March 17, 2010

Below is a sample of our Daily Commentary. To get this comment, and our daily coverage of 15 additional markets and trade ideas, visit futures-research.com for your free 2 week trial!

The market fell overnight despite a somewhat firmer tone in commodities and a slightly weaker tone in the dollar. This followed a significant rally into resistance yesterday that was supported by investor buying and rallies in a number of commodity and equity markets. The Fed’s indication that it will keep rates low is said to be boosting economic sentiment around the world, as is a decision by the Bank of Japan to expand a key lending program. Consumer news is on the light side this week. Traders will be focusing again on the weekly Jobless Claims number that is released on Thursday. Last week’s report showed a bigger than expected drop in claims, and the market needs to see if this is an aberration. The African Cotton Association said yesterday that the continent’s total production will increase nearly 18% to 1.178 million tonnes in 2010/11. The lack of other news this week should keep the focus on the Prospective Plantings report due out on March 31st along with weather and tomorrow’s weekly Export Sales report. Yesterday’s rally took the May contract to its highest level since last Tuesday, the day before the USDA’s March supply and demand report was released. Much of the gain was erased into late morning, but prices recovered to near the early highs prior to the close. Stocks registered for delivery against the ICE No. 2 cotton contract declined slightly yesterday for the first time in weeks to 701,288 running bales from the previous day’s total of 703,251 running bales.

TODAY’S GUIDANCE: Cotton tested its next major resistance area at 82.00 in the May contract yesterday. We still look for this area to hold for the short term, although continued weakness in the dollar could bring a wave of additional capital into commodity and equity markets that would lift cotton as well. First support in the May contracts is at 79.82 to 80.10 with next support near the recent low at 78.70. Next resistance is near 82.40 to 82.50 and then near 83.00 to 83.12.

Coffee Market Commentary – 2010.03.17

by Terry Roggensack on March 17, 2010

Below is a sample of our Daily Commentary. To get this comment, and our daily coverage of 15 additional markets and trade ideas, visit futures-research.com for your free 2 week trial!

The coffee market managed to hold support this week (unlike other soft markets) and seems to be in a position to see some upside over the short-term. Traders remain concerned with the potential for a large crop from Brazil this year but the short-term cash fundamentals still look relatively tight and the Brazil harvest does not get going for another few months. Vietnam is in the process of developing their government-backed stockpiling plan which will eventually hold 200,000 tonnes of coffee off of the market and in storage. Producers seem reluctant to sell at lower price levels. Vietnam has exported 522,600 tonnes for the October to February time frame, down 2.4% from last year. May coffee finished higher yesterday, but well within the range of the previous two sessions as weakness in the Dollar helped to support prices. Outside market forces are supportive to the coffee market today with higher gold and energy markets and a weaker US dollar and this may help spark some buying support. Daily ICE certified deliverable coffee stocks were up 2,843 bags to 2.681 million with 33,845 bags pending review.

TODAY’S GUIDANCE: The two-day break failed to do significant technical damage to the coffee market and the base-building process seems to be on-going. A move over 133.90 will be necessary for May coffee to assume a near-term low is in place which will leave 136.90 and 139.60 as upside targets. Support comes in at 131.70 and 130.10.

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