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Currency Commentary – 2009.08.17

by Blog Admin on August 17, 2009

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DOLLAR: Not surprisingly the Dollar is catching a distinct flight to quality bid this morning. In addition to ideas that global equity prices were ahead of reality, the market seems to have seen a downshift in economic readings, with the US retail sales report and Michigan sentiment readings late last week being joined by a slack UK private housing report and lackluster attitudes toward the Chinese recovery in the overnight headlines. Apparently the currency markets are uninterested in suggestions from Japan that they are poised to climb out of the recession in the next quarter. In fact, with the UK and now the US, seemingly adding slightly to their quantitative easing efforts, the markets are suspecting that the slow down threat remains in place. With a large US financial institution failing over the weekend and the failure apparently the biggest of the year, that clearly rekindles financial market flight to quality interest in the Dollar. With the August 11th Commitment of Traders with Options report for US Dollar showing the Non-commercial position to be net short 10,110 contracts, with the Non-reportable position net short 1,693 contracts, that made the “combined” spec and fund position net short 11,803 contracts as of early last week. Therefore the September Dollar looks to be poised to rise to the late July highs of 79.81, but we doubt that the Dollar is going to completely throw off the downward bias that has been in place since early March.

EURO: The Euro is clearly under a liquidation watch, as the markets have once again rekindled concerns for the recovery. We would suggest that weakness in equities at the end of last week and into the opening this morning, were the result of ideas that the equity markets were ahead of reality and to see equity prices fall consistently throughout this week, might require fears of a failed recovery effort. However, in the near term slumping sentiment looks to apply pressure to the Euro and that could easily send the September Euro down to the first consolidation support zone of 140.00 on the charts. With the August 11th Commitment of Traders with Options report for Euro showing the Non-commercial position to be net long 17,551 contracts, with the Non-reportable position net long 18,905 contracts, that made the “combined” spec and fund position net long 36,456 contracts as of early last week. Therefore from a technical basis, the Euro would seem to retain at least a couple more days of long liquidations selling pressure.

YEN: The yen clearly seems to be a currency in vogue, with strength being seen in the Yen recently in the face of strength in equities and the currency also being bid higher in the face of slumping equities. Clearly the Yen is garnering some flight to quality type buying and that in combination with mostly upbeat macro economic views toward the Japanese economy looks to give the Yen an additional flight to quality benefit. Near term upside targeting in the Yen is seen at 106.41 and perhaps even higher if the anxiety being thrown off by the equity markets intensifies.

SWISS: A big range down extension in the Swiss clearly suggests that the Swiss, Euro, Pound and Canadian are all set to lose in the face of an economic letdown in world equity markets. While the Swiss looks to follow the lead of the Dollar and the Euro in the coming trading sessions, we would be surprised if the September Swiss didn’t fall quickly back to the 92.00 level in the coming trading sessions.

POUND: In addition to deteriorating macro economic views, the Pound also seems to be getting pressure from news of a privately generated housing survey. With the Pound into the August highs, technically and fundamentally overbought, that seems to set the stage for a slide to at least 162.63. In order to see a full washout in the September Pound, down to the 160.00 level, probably requires extensive liquidation carnage in global equity markets!

CANADIAN DOLLAR: Since the Canadian has already seen an aggressive liquidation washout to the even number 90.00 level this morning, a good measure of the macro economic disappointment is probably already factored into prices. However, it would appear as if the negative outlook toward the global recovery, is still destined to play out over the coming trading sessions and that could put the September Canadian down to the 89.31 level in the coming two trading sessions.

TODAY’S MARKET IDEAS: Expect the Yen and Dollar to extend overnight gains for at least the first two trading sessions of the new week.

Interest Rate Commentary – 2009.08.17

by Dave Hightower on August 17, 2009

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The Trend in Treasuries looks to remain up mostly off the sharp ongoing slide in equities. Apparently the markets are concerned about an extension of the slowing, in the wake of the slack US retail sales readings and the surprise decline in US sentiment figures at the end of last week. Since the declines in equities have now become notable that in turn has sparked a wave of safe haven buying of Treasuries. We suspect that the markets will be ultra sensitive to the NAHB Index and the New York Empire State Manufacturing survey early in the session today. However, in a somewhat strange twist of fate, we suspect that bonds and notes will rally unless both scheduled readings this morning are stronger than initial expectations. With both scheduled readings expected to be minimally above the prior month’s readings, the trade has partially baked into the cake, a gradual improvement in the economy. While the August 11th Commitment of Traders with Options report for U.S. Treasury Bonds showed the Non-commercial position to be net short 115,575 contracts, with the Non-reportable position net long 7,684 contracts, that made the “combined” spec and fund position net short 107,891 contracts as of early last week. The August 11th Commitment of Traders with Options report for US Treasury 10 Year Notes showed the Non-commercial position to be net short 83,744 contracts, with the Non-reportable position net short 109,241 contracts, and that made the “combined” spec and fund position net short 192,985 contracts as of early last week. However, with September bonds trading as much as 2 full points above the level where the COT report was calculated, we suspect that the net spec short reading in bonds is overstated but because the trade was still net spec short, one can’t rule out even more short covering buying ahead. In fact, with another US financial failure over the weekend, it is possible that fears of a second wave of financial failures is contributing to the upward bias in Treasury prices. In the near term, we can’t rule out a rally back above 120-00 in September bonds and above 118-00 in September Notes, as it could take a couple sessions before the disappointment from the economic front is tamped down. In fact, with a downside breakout in the S&P, putting stocks down to the lowest level since August 3rd, a return to the July highs in Treasuries is now possible. Fortunately for the bear camp in Treasuries, the majority of the weakness in equities is the result of expectations running ahead of reality, as opposed to real fears that the recovery has been lost.

Stock Market Commentary – 2009.08.17

by Dave Hightower on August 17, 2009

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!

While the market is mostly devoid of anxiety toward the economy, it does seem as if disappointment is widespread again this morning and that the bears have the capacity to control prices for now. While the international equity market weakness was supposedly the result of slack US numbers at the end of last week, one has difficulty explaining the 20 point downside extension in the S&P into the opening this morning. In fact, suggesting that the sharp correction is the result of stock prices running too far ahead of reality, doesn’t seem to justify the aggressiveness of the current washout. With the recent round of COT reports showing the Nasdaq to be the most vulnerable to long liquidation, we suspect that the upper end of the market will hold up relatively better than the smaller cap stocks. However, in addition to the negative US numbers from last week, the market is also being undermined by a failed reaction to solid Japanese GDP readings last Friday, a weak private UK home price survey and downbeat macro economic expectations from China. Therefore the path of least resistance is pointing downward this morning and the downdraft in prices could last for at least several sessions.

S&P 500: With a big range down extension in the early going today, it would seem like the bear camp comes into the new week with full control over prices. However, with the August 11th Commitment of Traders with Options report for S&P 500 Stock Index showing the Non-commercial position to be net short 9,802 contracts, with the Non-reportable position net long 40,876 contracts, that made the “combined” spec and fund position net long only 31,074 contracts as of early last week. With the S&P this morning already 10 points below the level where the COT report was measured and the net spec long only a nominal net spec long amount, we suspect that the correction could easily run its course early this week. We see a near term downside targeting of 978.60 in the September S&P, but an even lower bottoming might be seen down at 973.80 in the event that current slowing fears are fanned by the upcoming headlines.

DOW: The September Mini Dow is poised for a further slide as the economic outlook if currently negative and the momentum from the sell off is likely to force some follow through selling. However, with the August 11th Commitment of Traders with Options report for Dow Jones Index $5 showing the Non-commercial position to be net long only 4,843 contracts, with the Non-reportable position net short 7,157 contracts, that made the “combined” spec and fund position net short 2,314 contracts as of early last week. In other words, with a sharp downside adjustment in prices early this week, it is possible that the Mini Dow will become oversold quickly and that could reduce the duration of the slide in prices. Near term downside targeting in the September Mini Dow is seen at 9,038 and perhaps even 9,000 if the scheduled US data today adds to the recovery doubts.

NASDAQ: With the August 11th Commitment of Traders with Options report for Nasdaq Mini showing the Non-commercial position to be net long 50,408 contracts, with the Non-reportable position net long 9,074 contracts, that made the “combined” spec and fund position net long 59,482 contracts as of early last week. Therefore, relatively speaking, the Nasdaq would seem to be more vulnerable to technically orientated long liquidation pressure than either the Mini Dow or the S&P. With the market expected to show some downside momentum, we would not be surprised to see the September Nasdaq fall to the next critical support point of 1572 and perhaps even lower if the market shows a break in excess of the typical 2-3 day slide that is normally seen in a classic technical balancing of prices.

TODAY’S MARKET IDEAS: An overbought condition has been exaggerated by a string of disappointing second and third tier data.

Sugar Market Commentary – 2009.08.14

by Terry Roggensack on August 14, 2009

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The gap lower in London white sugar futures today from all-time highs posted yesterday could spark long liquidation selling in New York. The market has seen a sharp rally in the past week led by talk of lower yields in Brazil and a lack of rains for the cane areas of India. Conditions seem to have at least stabilized in India with some areas receiving rain this week and Brazil weather has improved for the second week in a row. There is talk that India has bought 150,000 tonnes of sugar from South America for prompt shipment and traders believe that India will need to import at least 5 million tonnes for the coming year. The extreme overbought condition of the market means that bullish news will need to be seen almost daily in order to attract new buyers. October sugar pushed sharply lower on the session yesterday as outside market forces were supportive but New York October sugar could not get through Wednesday’s highs. This sparked long liquidation selling to drive the market lower. Technical indicators are in an extreme overbought condition, especially after a 397 point run in just five trading session. The India situation has helped support the active spec buying but good weather in Brazil could be attracting some commercial selling and the USDA supply/demand report this week showed a 6.7% stocks/usage ratio for the 2009/2010 season as compared with just 3.4% the previous month. There is already talk of increased planting in Indonesia for the 2010 crop. For now, corrective breaks are likely to attract increased buying from commercial traders who are not covered for future needs but with October futures trading nearly 300 points above the 21-day moving average, the buying may not emerged right away. Nearby futures have moved up as much as 26.5% from the July 31st low and 49.4% off of the June 17th lows to new 28-year highs.

TODAY’S GUIDANCE: The market has started a near-term correction from historically overbought levels. The next upside target is 24.07 with key support at 20.82 and 20.04 basis the October futures.

Coffee Market Commentary – 2009.08.14

by Terry Roggensack on August 14, 2009

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The market has already reversed and worked lower for the past five trading sessions during a period of bullish outside market forces for commodity markets. This relative weakness is a negative factor for the market and the situation could turn more negative if outside forces sour. Weather has been a negative force for the past week or more as Brazil has dried out and there should be less quality concerns moving ahead. The coffee market pushed sharply lower on the session yesterday with more follow-through selling overnight. Talk of better weather in Brazil, failure to respond to the upside after receiving bullish influence from the dollar and other commodity markets and talk of the overbought condition of the market helped pressure. The market is still operating under the negative technical influence of the August 10th reversal-type action. The International Coffee Organization pegged the world coffee production for the 09/10 season at 127.0 million bags from 127.3 million last year. Consumption for 2009 is expected to come in near 129 million bags. While this is somewhat supportive, traders expect a 2010 Brazil crop near 9-12 million bags above this year. Brazil kept up a heavy export pace for much of 2009 ahead of the harvest which may mean that the crop last year was better than expected and traders see the outlook for a bumper crop next year as a potential negative force. US exchange stocks were up 2,017 bags to 3.498 million with 14,788 bags pending review.

TODAY’S GUIDANCE: The overbought condition combined with the lack of a reaction to positive outside market influence could spark a short-term correction or at least a consolidation of recent gains. Look for continued weakness for now.

Cocoa Market Commentary – 2009.08.14

by Terry Roggensack on August 14, 2009

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The cocoa market seems to be benefiting from the ongoing weakness in the Dollar and expectations for a global recovery which may be enough to eventually support a move in December cocoa back to key resistance if outside market influences remain bullish. December cocoa has been confined to a trading range over the last month but the market could attempt to retest the $3,000 price level if the macro economic optimism that seems to have been revived this week, continues to build. Early strength in equities yesterday despite a disappointing US retail sales reading was certainly a key factor providing a lift to cocoa in Thursday’s trade. In fact, with industry news thin, a tighter correlation between cocoa and equities has developed and we suspect cocoa will need the upward price leadership in the stock market in order to initiate a leg higher move. Rising investor risk appetite tied to the weak price action in the Dollar continues to attract investment flows to cocoa. Bullish sentiment toward cocoa demand has been stoked this week by the Fed’s positive outlook on the US economy and surprisingly strong 2nd quarter growth rates from both France and Germany. A report that Barry Callebaut, a major chocolate manufacturer, bought 25% more cocoa beans from Cameroon in the year ending in July than the previous period may have also raised hopes that global grind numbers are set to improve. Some supply side concerns may have also been stirred up by reports of quality problems with the Ivory Coast mid-crop. But the market really hasn’t been that interested in classic physical supply issues or even slow arrival rates at several producers as macro economic views and outside market influences continue to be the primary driver of price direction.

TODAY’S GUIDANCE: It looks as if the sideways trade in cocoa over the last several weeks has corrected the market’s technically overbought condition and that could give the market some further buying capacity. Trend following funds have been a major buyer of cocoa and a breakout above the critical $3,000 price level could trigger aggressive chart based buying. While we still think cocoa looks fundamentally expensive at these price levels, it looks like support at $2,800 has a good chance of holding as long as financial market trends remain supportive. However, in order to keep cocoa well bid up at these price levels better than expected results for today’s reports on CPI, industrial production and consumer confidence may need to be seen. Otherwise, data that undermines the bullish macro economic view could prompt some profit taking.

TODAY’S MARKET IDEAS: Without bullish outside market support Dec cocoa could be vulnerable to some end of week profit taking.

Cotton Market Commentary – 2009.08.14

by Terry Roggensack on August 14, 2009

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The market managed to close higher yesterday but the close was 138 points off of the highs of the day and the chart has the appearance of a near-term top. While the USDA data this week was not as bearish as traders had believed, there was also not enough news for the bulls to remain confident in the steady uptrend. The biggest concern for the bulls is the potential for improving yield in the US and the potential for a slow recovery from the world recession. Without a jump in employment or a much stronger economy, spending on cotton-based products may not improve as quickly as consumption of other more essential items such as energy or food. Seed technology is also an issue and with normal weather, traders are bracing for improving yields ahead. December cotton broke-out to the upside of the recent consolidation on a move over the July 21st highs early yesterday but failed to find much in the way of follow-through buying support and inched back down into the recent consolidation. Outside market forces were bullish and export sales were strong but weaker than expected retail sales and a favorable crop weather outlook may have helped spark the long liquidation selling. Net weekly export sales for cotton came in at 1.216 million bales. Of this total, 983,400 bales were a rollover from last year but new sales of 233,300 bales were seen as supportive. As of August 6th, cumulative cotton sales stand at 25.3% of the USDA forecast for the marketing year versus a 5 year average of 21.8%. Sales of 142,000 running bales are needed each week to reach the USDA forecast. Shipments for the week were 191,100 bales as compared with 222,800 bales last week. Scattered thunderstorms look possible in the next ten days in the west Texas growing areas with temperatures in the low to mid 90′s. This looks to be near ideal weather for the crop to see improving conditions ahead.

TODAY’S GUIDANCE: Look for choppy to lower trade ahead as the market monitors the US and India for supply issues and the global economy for demand issues. The technical failure leaves 64.55 as resistance for December cotton with 61.38 and 60.12 as support.

Soybean Complex Commentary – 2009.08.13

by Terry Roggensack on August 13, 2009

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NEAR-TERM MARKET FUNDAMENTALS: The USDA’s crop production and supply/demand reports were considered supportive on the supply side in soybeans yesterday. The market’s initial price reaction to the report was weak, but prices rallied during mid session to finish modestly higher on the day. November soybeans then took out yesterday’s high in the overnight session to trade at the highest level since June 15th. Traders said that prices are being boosted this morning by a very supportive outside market configuration. On yesterday’s report, the USDA pegged the 2009/10 soybean yield at 41.7 bushels per acre versus 42.6 in July. This was below trade expectations near 42.2. Harvested acreage was increased by a modest 300,000 to 76.8 million. Total production was estimated at 3.199 billion bushels, down from 3.260 billion in July and below trade expectations of about 3.225 billion bushels. Ending stocks for new crop 2009/2010 were pegged at 210 million bushels compared to 250 million last month and trade expectations near 215 million. World ending stocks were dropped to 50.32 million tonnes from 51.83 in July. The USDA announced a sale of 113,000 tonnes of soybeans to China yesterday for 2009/10 delivery. It included 58,000 tonnes previously listed as sold to an unknown destination, leaving 55,000 tonnes of the announced sale as new business. China indicates that drought conditions have worsened in key growing areas of NE China with three times as much crop area now affected by drought in that region since July 31st. Temperatures remain at normal to above normal levels in the US Midwest as we approach the end of the week, but dryness is expected in most of the region through at least Saturday. The 6-10 day forecast calls for below normal temperatures across much of the Midwest, reducing concern over potential heat damage to the developing US soybean crop. This concern had been a major market factor last week. Diminished monsoon rains in India now seem to be focusing on rice-growing areas in the NE of that country with soybeans areas mostly seeing adequate moisture. Deliveries against the August contracts remained at zero in meal with another 7 contracts delivered in soybeans. This takes the soybean total for the month to 17 contracts. Oil deliveries were 329 contracts with the total for the month now at 22,898.

WEATHER: US temperatures continue at normal to above normal levels in many growing areas with more dryness now expected late this week and into Sunday than had previously been forecast. The 6-10 day forecast now calls for below normal temperatures across most of the Midwest and the central and northern plains in the US with above normal precipitation across the southern Midwest, SE and much of the Delta. Fears of a frost in Canada later next week appear to be ebbing. Concern over diminished monsoon rains in India now seem to be focusing on rice-growing areas in the NE of that country with soybeans areas mostly seeing adequate moisture.

TODAY’S GUIDANCE: The USDA’s August crop reports are already old news, with outside markets running the show in the grains this morning. Fundamentally, the market is supported by the fact that soybean demand is still on target to outdistance supply until a good chunk of the new soybean crop is harvested. If prices do not go up in the meantime, farmers may be reluctant to sell in the early stages of harvest, further tightening supply. In addition, the world market must wait until March at the earliest for South American new crop supplies to hit export channels. Right now, the market is assuming that soybean acreage will be up in South America and that growing conditions there will be favorable. If either of those assumptions are downgraded between now and early 2010, buyers such as China will start to increase, rather than decrease, their buying and stockpiling of US soybeans to compensate.

TODAY’S MARKET IDEAS: November soybeans appear poised to move through the June highs sooner rather than later and we would set the next upside objective at 1150.

Corn Commentary – 2009.08.13

by Terry Roggensack on August 13, 2009

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NEAR-TERM MARKET FUNDAMENTALS: Yesterday’s eagerly anticipated August crop reports have come and gone with little or no lasting impact on the corn market according to one analyst. This appears to be the case since the report was considered negative on a substantial increase in the US and world supply for 2009/10, yet corn prices finished the day higher yesterday and the rally continued in the overnight session. The move to increase demand estimates for ethanol, exports and feed usage were seen as positive. Overnight strength came in conjunction with a very supportive combination in key outside markets with a lower dollar and substantially higher crude oil and equities. The fact that farmers have shown little interest in selling either old or new crop supplies on recent weakness in corn futures is also lending support to the market according to some traders. A spreading drought in NE China may also be adding modest support. Their Office of State Flood Control and Drought Relief said that 4.37 million hectares in this region were experiencing drought as of Tuesday of this week. This is three times the area affected as of July 31st. This comes during a week in which the government think tank, CNGOIC, increased their estimate of the country’s corn crop by 3.5 million tonnes to 166.5 million. US temperatures continue at normal to above normal levels in major growing areas with more dryness into this weekend than was being forecast yesterday. The 6-10 day forecast now calls for below normal temperatures across most of the Midwest with above normal precipitation across the southern Midwest, SE and much of the Delta. On yesterday’s USDA supply/demand report, the USDA raised its 2009/10 corn yield to 159.5 bushels per acre from 153.4 in July. Traders were looking for about 157.5. Planted acreage was left unchanged at 87 million acres with a slight reduction in harvested acreage. Total production came in at 12.761 billion bushels which would make this the second largest US corn crop on record. Ending stocks for 2009/2010 were pegged at 1.621 billion versus last month’s estimate of 1.550 billion bushels. The USDA raised projected ethanol usage 100 million bushels to 4.2 billion which fits with a gradually improving political outlook for ethanol in recent months. Total usage was up 350 million bushels from July’s report. World ending stocks for corn were pegged at 141.49 million tonnes versus 139.17 in July due to increased US production.

TODAY’S GUIDANCE: The USDA added to the supply side on yesterday’s reports but, when all was said and done, this was not much of a surprise and corn recovered from an early sell off to finish higher on the day. The advance continued overnight, and this appears to be short covering led by higher than expected demand forecasts and the outlook for colder weather by late next week. Weather forecasts seem to indicate that the worst of the hot temperature fears are not going to be realized, but dryness may be getting to be a minor problem in some areas.

Wheat Commentary – 2009.08.13

by Terry Roggensack on August 13, 2009

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NEAR-TERM MARKET FUNDAMENTALS: The wheat market has followed corn and soybeans higher since the last half of yesterday’s session with good support coming from a lower dollar this morning according to traders. This follows the release of USDA crop reports yesterday that were considered slightly bearish for wheat on both the domestic and world fronts. Forecasters indicate that there may not be a killing frost in Canada or the northern US Plains late next week as was feared earlier this week. The weak monsoon rains in India are now primarily affecting rice-growing areas in the NE. While wheat is already harvested there and not directly affected by the poor monsoon rains, rice is a competing staple grain crop, and diminished output in rice could add to demand for wheat. Egypt’s state news agency announced yesterday that the country is banning both imports and exports of food that is not certified to be free of genetically modified products. Egypt is one of the world’s largest importers of soft wheat and the ban would include wheat. On yesterday’s reports, the USDA pegged 2009/10 ending US wheat stocks at 743 million bushels, up from July’s estimate of 706 million, but below trade expectations of about 750 million bushels. This is down from 667 million bushels last year and just 306 million for the 2007/08 season. All Wheat production was pegged at 2.184 billion bushels, up from 2.112 billion last month. Traders were looking for near 2.152 billion. Canadian wheat production was lowered to 22.5 million tonnes from 23.5 million and Argentina was lowered to 8.5 million from 9.5 million in July. Total world production was raised to 659.29 million tonnes from 656.48 in July. World ending stocks were raised to 183.5 million tonnes from 181.3 million last, 169.5 last year and 121.8 million two years ago.

WEATHER: US temperatures continue at normal to above normal levels in many growing areas with more dryness now expected late this week and into Sunday than had previously been forecast. The 6-10 day forecast now calls for below normal temperatures across most of the Midwest and the central and northern plains in the US with above normal precipitation across the southern Midwest, SE and much of the Delta. Fears of a frost in wheat-growing areas of Canada later next week appear to be ebbing. Concern over diminished monsoon rains in India now seem to be focusing on rice-growing areas in the NE of that country with soybeans areas mostly seeing adequate moisture.

TODAY’S GUIDANCE: The positive price reaction to yesterday’s somewhat negative report in wheat seems to be telling us that this news was already priced into the market. Is this enough to turn the wheat market higher? This is doubtful over the long term, particularly since forecasters now seem to be downgrading the potential for a killing frost in late August in Canada and/or the northern US plains. First support is near 512 1/2 in the December contract with next support near 495 to 503 1/2. First resistance is at 532 3/4.

TODAY’S MARKET IDEAS: Given the moves being made in outside markets, particularly the dollar, we would give the wheat market some room to rally over the short run.

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