Global equity markets all traded higher overnight in a concerted rally that saw Chinese markets gain over 1%. The Asian session was relatively quiet data-wise, while the European session featured the June IFO survey of German business climate that bested expectations for a downtick with a fresh “record high”! The North American session will start out with the Chicago Fed’s May national activity index that is forecast to have a moderate decline from April’s 0.49 reading. May durable goods are expected to see a modest uptick from April’s -0.8% reading but remain in negative territory. The Dallas Fed’s June manufacturing business index is forecast to decline slightly from May’s 17.2 reading. San Francisco Fed President Williams will speak during early morning US trading hours. Earning announcements will include Novagold Resources after the Wall Street close.
While it might be premature we detect a noted improvement in international and domestic sentiment to start the new trading week. Certainly US scheduled data expectations later today are likely to temper the economic optimism and therefore the treasury bulls probably won’t have the broad-based deflationary vibe that has been cemented into place by unrelenting weakness in oil prices. On the other hand given early weakness in bond and note prices combined with the prospect of several weak US data points that should set the stage for a recovery bounce this morning. In fact given a clean sweep of soft data this morning it is likely that Treasury bonds will actually post a fresh upside breakout and new high. However in the event that the risk on vibe does translate into sustained gains in equities over a period of days, that could make the highs later today fairly solid resistance later in the week. Initial buying support this morning in September bonds is seen at 156-14 and an upside target is seen up at 157-01.
A definitive shift in sentiment and psychology combined with distinctly favorable technical action sets the foundation for a return to the highs.
Apparently favorable global equity market action provides the dollar, pound and Canadian with buying interest at the expense of the euro, Swiss and Japanese Yen.
Without surprise developments in the headlines, the prospect of a solid low and certainty to see sustained gains in crude oil pricing is limited. Granted the market is short-term oversold, but economic psychology is injured and the bear camp sees little in the way of threatening themes in the headlines. A normal retracement of the June 12th to June 21st slide allows for a bounce up to $44.14 and perhaps $44.72 without altering the technical downtrend. The failure to hold above $42.72 in September crude oil probably sparks another washout and a sub $42 pricing.
In the short term gold and silver look to have a tight inverse relationship with the dollar. In fact the bull case in gold and silver last week appeared to be completely reliant on a weaker dollar and with the Dollar higher this morning equities around the globe throwing off upbeat economic sentiment and recent deflationary fears from oil still lurking in the market’s consciousness the bears have a lot of ammunition. Initial resistance in August gold following the sharp early washout is seen at $1,245.80 and the failure to hold the psychological level of $1,241.70 early today could send the August gold contract down to $1,234.80. Initial resistance in September silver to start the trading week is now seen at $16.58, and the failure to hold $16.46 could knock silver prices right back down to the overnight low of $16.28.
As indicated, the path of least resistance is pointing upward in copper especially with the macro-economic sentiment around the globe starting the week out on a very positive note. It is also positive that the Press has finally taken note of the long held pattern of daily declines in LME copper stocks as that in a way can confirm solid world demand! We define the upcoming trading range as $2.6625 and $2.5990 but the bull camp might be capable of extending that range to the upside if US stocks post big gains today and US data this week shows some improvement. Uptrend channel support in September copper to start out the new trading week is seen at $2.5680 with the 50 day moving average also providing support down at the $2.5835 level.
Trend-following fund traders increased their net short position by 30,148 contracts for the week to 95,289 contracts and this was through Tuesday when Dec corn closed at 388 as compared with the break to 374 by Friday. Technically, the market has failed to hold or even slow down at support levels as traders are convinced that the crop is made. Close-in resistance is at the 378 1/4 to 379 1/4 zone with 366 1/2 as the next swing target. The short-term weather is bearish, but there seems to be limited downside potential from here. Unless the weather remains near perfect, the market looks vulnerable to a bounce to 387 or even 391 1/2 as key resistance.
Without a significant shift in the weather pattern, the short-term trend should remain down. The technical downside breakout for November soybeans leaves 899 1/4 as next downside target. Beyond that, the March 2016 lows are at 871 1/4. Before the 30 cent break from Tuesday, trend-following fund traders were already net short nearly 106,000 contracts which is oversold. Resistance is at 926 1/2 and 932 1/4. Consider selling a bounce.
Key support for Chicago September wheat will emerge at 460 3/4 and then 456. Resistance is at is 478 and 480 1/4. The market may follow the other grains short-term, but there are plenty of potential bullish forces which could emerge in the weeks just ahead. Consider buying a break to support.
Cash cattle traded mostly $122-$123 last week from $131 the previous week. With the sharp drop in beef prices and a lull in demand, cash cattle looks to trade lower again this week. August cattle has already reached the first key target at 113.52 (a 50% correction of the Feb-June rally). While technical indicators are oversold, the COT report shows the market still in an overbought condition. Chart resistance is all the way up at 118.82. New sellers might wait for a recovery bounce before getting active with 110.92 as next downside target.
If belly prices turn lower, pork cut-out values could also turn down and this might spark a lower trend in cash prices ahead. However, the pork market found additional support on Friday to push cut-out values to the highest since October of 2014. August hog selling resistance is at 80.15 and 80.75, with 77.60 and 75.80 as next downside targets.
While the short-term news flow remains bearish, the market is extremely oversold. Look for short-term support for December cotton at 66.74, with 67.80 and 68.26 as resistance. Eventually, the next key support is down at 65.57.
ICE exchange coffee stocks saw 3 daily declines and fell by over 7,000 bags last week, which may be an early sign that global demand may be on the mend. If coffee can also find some fresh bullish supply developments, coffee’s record short position from fund traders could help to fuel a further bounce. September coffee will find close-in support at 121.85 while resistance is up at 128.20 and 132.10.
Cocoa will continue to face headwinds from this season’s sharp uptick in production combined with sluggish demand in Europe and North American. Indications that West African mid-crop output is slowing could help to extend a recovery move. Near-term support for September cocoa is at the 1850-1840 zone with 1924 and then 1960 as key resistance.
The market awaits threatening supply news before there will be much concern from end users. Downtrend channel resistance in October sugar today is 13.46 while initial downside targeting is seen at 12.82.