RJO Futures Website

September 15, 2015

Volume 9, Issue 19

Anticipation is Making Many Wait – USD Index Futures Rise Ahead of FOMC

U.S. Dollar Index Futures are rising ahead of the Federal Open Market Committee meeting which culminates in an interest rate decision on Thursday. The December contract for U.S. dollar index futures was up .05 percent at $95.46.

Meanwhile, U.S. economic data was mixed on Tuesday, but ultimately positive for U.S. currency futures. U.S. Retail Sales rose 0.2 percent last month, after advancing 0.7 percent in July, according to the Commerce Department. Sales have increased 2.2 percent over the past 12 months, as solid hiring has translated into surges in spending at auto dealers and restaurants. This compares to the estimate of a gain of 0.3%. Analysts say retail sales are increasing due to steady U.S. job gains. Hiring has added 2.9 million additional jobs over the past 12 months.

The New York Federal Reserve manufacturing index was negative 14.67, which compares to the estimate of negative 0.50.  The measure was negative 14.92 in August.

August Industrial Production fell 0.4 percent compared to expectations of a decline of 0.2 percent, while August Capacity Utilization came in 77.6 percent, just below the 77.8 percent expected.

July Business Inventories rose 0.1 percent, the smallest rise since March but in line with economists' expectations, according to the U.S. Commerce Department. Inventories in June were downwardly revised to show a 0.7 percent gain after the previously reported 0.8 percent increase.

Many commodity-futures watchers both domestically and worldwide are on hold, waiting for the FOMC meeting beginning Wednesday and ending Thursday with the decision on interest rates. 

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Metals - Gold

Gold Looks to Fed for Next Move

In the early morning trade, October gold is pulling back slightly and currently trading at $1,103.8. The gold market is waiting for some fresh news from the Fed on raising interest after a two-day meeting, which is due out later on Thursday. Yesterday, in fact, saw the lightest trading the gold market has seen all year. The Fed is expected to leave interest rates unchanged, but they may give an indication of the schedule for future increases.

If we take a look at the daily gold chart, for the bulls, it would need to break the $1,115.0 resistance level in order to make a serious move higher and possibly retest the August 24 high of $1,169.1. For the gold bears, if gold breaks below the $1,100.0 an ounce handle, then look for a possible retest of the July 24 price of $1,072.8. Of course the Fed’s announcement on Thursday will play a big part in the direction that gold will pick next.

If you have any questions or would like to discuss the markets further, please feel free to contact me at 866-536-8601 or ndegeorge@rjofutures.com.

 

Oct ’15 Gold Daily Chart
Source: RJO Futures PRO

Gold Daily

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Metals - Silver

All Quiet on the Silver Front Ahead of the Fed

Bob Haberkorn

The silver trade is currently hanging on while traders await the start of the most anticipated Fed meeting in recent memory.  With the prospect of a rate hike, the first hike in nearly eight years, silver is particularly sensitive due to the fact that it does not bear interest. Would one hike by the Fed be it or would they look to continue with multiple hikes, thus negating the safe haven status of silver to an extent?   

In my opinion the Fed will not hike rates tomorrow due to global economic worries and the effect a rate hike would have on the U.S. Dollar.  In Fed speak this year, they have mentioned the cons of a strong dollar on U.S. exports and that reason alone should be enough for them to push the prospective rate hike back to at least December 2016. In the current global macro environment it doesn’t make much sense for a hike while other central banks are still instituting accommodative policies in effort to stimulate lack luster growth. 

Silver is currently trading at 1429, down six with key support coming in at 1425 and then 1395.   To the upside, first level resistance comes in at 1459 and then 1484. 

If you have any questions or would like to discuss the markets further, please feel free to contact me at 800-826-1120 or rhaberkorn@rjofutures.com.   

 

Dec ’15 Silver Daily Chart
Source: RJO Futures PRO

Silver Daily

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Energies - Crude Oil

Crude Oil: A Market in Consolidation

Since the last eView, October crude oil has been in a consolidation pattern. The fundamentals have improved a bit and talks have resurfaced about lifting the ban on crude oil exports – that could make things very interesting and significantly alter the dynamics of the oil market.  Trades should monitor this very closely.  Last week’s EIA data reported a small build of 2.57 million barrels which seemed be in line with most traders’ expectations. Total stocks now stand at 457.998 million barrels. Traders should continue to pay close attention to the weekly EIA Reports and watch for additional news surrounding the possible lift on banning oil exports.

Short-term technical indicators appear to be in neutral to slightly oversold territory. I remain cautiously bullish while the market is consolidating. I would suggest using an option strategy or waiting for an inside day breakout to enter using futures.  The market has shown strong signs of a bottom in my opinion and a break to the upside should confirm this.

If you have any questions or would like to discuss the markets further, please feel free to contact me at 800-367-7290 or msabo@rjofutures.com.  Also be sure to check out my weekly energy market update posted on our website.

 

Oct ‘15 Crude Oil Daily Chart
Source: RJO Futures PRO

Crude Oil Daily

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Energies - Natural Gas

Natural Gas Shows Strong Recovery after Breaking to New Lows

A strong run-up in October natural gas has sent the market to a new monthly high of 2.794 today. This is over a 15 cent rally from the lows of last week and a strong indication the market may want to climb higher still. Bearish traders were able to sneak in a fresh contract low of 2.632 at the beginning of the month by barely breaking the previous low of 2.638 that was placed back in April. Although this move likely stopped out a lot of long positions, critical support has ultimately been re-confirmed around this 2.63 area. Another supportive price appears to be around 2.73.

Due to the nature of a 15 cent move in just one week being a bit extreme, I believe there is a small pullback due for October natural gas. With autumn and winter around the corner and an expected seasonal increase in demand, I believe the next targets for this market are 2.84, 2.90 and 2.97. I will wait for two consecutive weekly closes above 3.00 before suggesting a longer-term turnaround is developing for the natural gas market.

If you have any questions or would like to discuss the markets further, please feel free to contact me at 866-741-0339 or aburton@rjofutures.com

 

Oct ’15 Natural Gas Daily Chart
Source: RJO Futures PRO

Nat Gas Daily

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Softs - Sugar

Sugar Trading Down Post-Holiday, Pre-Fed Announcement

Joe Nikruto

This week’s comment finds the March sugar futures down 20 ticks, taking a break after more than 20 days of technical strength.  Relatively high volume trade took place on September 11 as both the March and October contract closed over relevant technical levels.  Closes at or above these levels, 11.49 for the October contract and 12.44 for the March contract, were the result of sizeable covering of short trades by the managed/fund trader category. 

This robust trading occurred during the gap in COT reports.  Traders will be looking closely at the next COT to see how many of the short contracts the funds were coming out of were handed off to producers pricing sugar in the March ’16 delivery contract.  A recent call by a large bank for traders to enter positions in “oversold” commodities and willingness of small traders to enter new long positions on short-term technical strength (in what many view as a mature downtrend) has the chart action looking positive. 

Today’s failure of the March contract to hold above the 50-day moving average plays into the hands of bullish yet patient traders who are waiting in the wings for a test of the 18-day moving average, 11.98.  Those trading from the long side will likely look to 11.69 and 11.56 as the first lines of defense for risk management purposes. The truly committed will be forced to use the spike low from August 24, 11.28, as a reasonable place for stops. 

With holiday trade (L'Shana Tova!) and the run up to the Fed meeting resulting in muted trading action, it is difficult to use the lack of volume and follow through in March sugar futures as a sign post pointing to weaker prices. A quick review of the fundamentals, suspiciously well-worn as they are, shows that not much has changed. Sugar remains a subsidized commodity in some of the larger producing countries. There are ample supplies and incentive by producers in Brazil to trade sugar for dollars due to weakness in the domestic currency, the real, versus the dollar.

An interesting bullish fundamental that has only gotten minor traction is the Chinese importing sugar hand over fist.  Wire services were reporting that Chinese sugar imports are up as much as 67% year over year (a sizeable increase). Yet not much was made in the press as it likely doesn’t fit the simple narrative of “Chinese stock market weakness equals lower commodity prices”.  While the wire service reports suggest this increase in Chinese imports has done much to alleviate the surplus in Thailand there are still many producers with sugar to move.  If March sugar futures bounce near the 18-day moving average, 11.98, and move back toward the 50-day moving average, 12.38, this rally could have legs. Fund buying that could result should the market surmount overhead technical levels such as 12.55 and 13.15 will feed on itself and could take the market to 14.00 or higher.  But, as we have seen more than a few times in this downtrend once the 50-day moving average is taken out and price action fails to sustain upside momentum, the clock starts ticking.  Every day spent back below the 50-day moving average puts pressure on the newly long small trader and fund trader alike.  Should March sugar post closes below the 18 day moving average, again 11.98, at the time of this writing, the technical picture will be pointing to new lows for the move.

If you have any questions or would like to discuss the markets further, please feel free to contact me at 800-453-4494 or jnikruto@fjofutures.com.  

 

Mar '16 Sugar Daily Chart
Source: RJO Futures PRO

Sugar Daily

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Softs - Cotton

Cotton Remains Neutral Following Friday’s Report

As discussed in our previous newsletter, cotton continues to trade in a neutral, range-bound environment following Friday’s USDA report.  Despite seeing some decent volatility on the chart, Friday’s session produced a relatively neutral bar which could signal more of the same in regards to price action.  The area from 6180 – 6195 will likely continue to serve as a “support band” below the market.  Friday’s swing high at 6420 could prove to be an area of resistance as both the 20 and 50 period moving averages both seem to be around this area as well.  So long as prices remain above the August 12 low of 6120, traders will likely continue to see choppy, sideways price action.  Technical traders could use this opportunity to leverage momentum indicators in an effort to identify potential trading opportunities. 

If you have any questions or would like to discuss the markets further, please feel free to contact me at 866-397-8195 or etatje@rjofutures.com

 

Dec ’15 Cotton Daily Chart
Source: RJO Futures PRO

Cotton Daily

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Softs - Cocoa

Direction of Cocoa Still in Question

Peter Mooses

December cocoa has consolidated and can’t decide which direction to breakout to. Supply concerns continue to support the long-term bullish trend. El Niño has hit West Africa. Ghana has lowered its output, both factors giving fundamental boosts to prices. Ghana’s currency has weakened and their banks have raised interest rates creating further upside potential in cocoa prices.

The global markets are all anticipating the Fed news this week which should have a carryover effect to all markets. Look for support at 3245 and resistance at 3295 – with a chance to head back towards the highs with a clear break above 3300.

If you have any questions or would like to discuss the markets further, please feel free to contact me at 800-826-4124 or pmooses@rjofutures.com.  

 

Dec ‘15 Cocoa Daily Chart
Source: RJO Futures PRO

Cocoa Daily

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Softs - Coffee

December Coffee Under Pressure

Adam Tuiaana

The slow demand for coffee is still playing out in falling prices, along with a questionable supply ahead. We had a slight bounce back last week, likely due to a pullback in Brazilian currency, but still not enough to reverse this major downtrend in coffee prices.  We’re also seeing some strength coming back to Vietnam and Columbian currencies, but I believe coffee will require much lower than expected Brazilian production in order to find a bottom to falling prices.

As for our position today, we will do what we always do, weigh on the side of the trend, down. In the daily chart of December coffee, we can note six consistent violations of what should be strong support. Also, notice that prices have continued to make lower lows. Being a trend follower, we should continue to keep on the bear side of this trade, and I’d expect a visit back down to at least the 116 area soon.

There are several strategies that traders can apply in this situation. If you have any questions or would like to discuss the markets further, please feel free to contact me at 866-536-8601 or atuiaana@rjofutures.com.  

 

Dec ’15 Coffee Daily Chart
Source: RJO Futures Pro

Coffee Daily

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Agriculture - Grains

Soybean Market Continues to Impress Post-NOPA Crush Report

Stephen Davis

The grain markets are mixed with soybeans higher and corn and wheat lower. There is good resistance for all the grain complex as the CRB index continues to decline. Further rallies in the corn market will likely be met with some old crop corn sales. This is similar to the trading process that lies ahead. Managed funds can buy as many corn and soybean contracts under the right technical situation as humanly possible. The U.S. farmer will be a seller on these rallies in the months ahead.

The National Oilseed Processors Association’s monthly soybean crush report is came out today at 11 a.m. CT. The report met expectations and was the highest crush total for the month since 2007. You have to be impressed with how the soybean market has rallied these last two days with all the soybeans that will be around in our country. The function of the U.S. soybean market to rally the price and get the U.S. farmer to sell the soybean demand is robust.

The wheat market gapped higher yesterday as Brazil’s southern state of Rio Grande do Sul saw some deep frost Friday night and more freezing temperatures on Saturday night. This does not happen often and they are now trying to evaluate the loss if any to their wheat crop. It will take time to assess the damage. The fundamentals have not changed as there is a lot of wheat in the world today and still it is interesting our wheat market gapped higher yesterday. The macro markets are waiting for the Fed’s decision on interest rates on Wednesday.

If you have any questions or would like to discuss the markets further, please feel free to contact me at 800-367-7181 or sdavis@rjofutures.com.  Also be sure to check out my weekly grain market update posted on our website.

 

Dec ’15 Corn Daily Chart
Source: RJO Futures PRO

Corn Daily

Nov ’15 Soybean Daily Chart
Source: RJO Futures PRO

Soybean Daily

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Agriculture - Livestock

Neckline Does Not Hold, 130 Still in the Cards in Live Cattle

Demand uncertainty, heavy weights and poor technicals have contributed to new contract lows in live and feeder cattle futures. Some short covering led to a test of previous lows the last several weeks and failed. Live cattle offers are around 140-143 in slow early week markets with bids around 137.

Technically, the live cattle futures market still appears vulnerable on the daily, weekly and monthly charts. The head and shoulders on the weekly is still in play targeting $125 which also is just below the 50% fib on the weekly dating back to 2009/2010 lows.

Real long-term value will start around 130 in live cattle and 165 in feeders. I believe a washout area in live futures will test 135 and feeders in the 188-190 area. We are not far.

Cleaning up the front end supply is essential to find some value areas below. I believe we have finally seen competing proteins taking away market share and we are seeing this in the spreads.

If you have any questions or would like to discuss the markets further, please feel free to contact me at 888-861-0382 or jgilfillan@rjofutures.com

 

Live Cattle Weekly Chart
Source: GeckoSoftware.com

Live Cattle Weekly

Weekly Feeder Cattle Futures
Source: GeckoSoftware.com

Feeder Cattle Weekly

Long Feb ‘16 / Short Dec ‘15 Live Cattle Futures
Source: GeckoSoftware.com

Live Cattle Spread

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Currencies

Thursday FOMC Meeting Likely Pivotal for Global Markets

John Caruso

With Thursday’s FOMC policy meeting on deck, traders begin jockeying for market position.  While there are many different scenarios that can play out whether the Fed decides to raise rates or not, I think it’s important to remember the U.S. seems very likely to lead the world higher in interest rates in months to come.  With the ECB most likely looking to extend their sovereign debt purchases, perhaps as early as next month, coupled with the Bank of Japan and Chinese extending stimulus measure within their own economy, this leaves the U.S. dollar the most likely place for investment from a longer-term perspective.  Many traders and economists are starting to feel more and more comfortable about the fact the Fed will not raise rates this coming Thursday, but many still believe we are set to increase rates by year’s end.    

With that being said, how will global markets react to a “reluctant/dovish” Fed?  Do they prolong the inevitable and keep interest rates at 0-25%?  What happens if they raise interest rates amid a global slowdown, and in the face of an oncoming global recession cycle, which some economist and central bankers are predicting?  These are the challenges that the Federal Reserve is faced with, not to mention continued warnings of acting too quickly from the International Monetary Fund.  I think it’s safe to assume that there is a growing conundrum, and the longer they (the Fed) wait to make a touch decision, the harder it gets.  I believe it’s also safe to assume market conditions are about to get very interesting in oncoming trading sessions.  

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Equities & Interest Rates

Will the Fed Leave Rates Unchanged…Again?

The FOMC meets this week and will make an announcement on Thursday, September 17 about interest rate policy. They seem to have a convenient excuse to leave interest rates unchanged, again. Perhaps more language about the slow pace of the recovery, lower inflation expectations and so on and so forth.

A rate hike is long overdue. A quarter point rate hike will not cripple the U.S. economy! We need to start moving back towards a more “normal” monetary policy. A rate hike probably should have happened about two years ago. The historically low rates have not had the intended results. Or has it? The equity markets have been on an unprecedented rally for more than six years while the U.S. economy grows at an anemic rate. Can’t they see their low rate policy has not worked…unless you have millions of dollars sitting in stocks. The vast majority of the rally is a direct result of the Fed’s easy monetary policy. The equity markets have been the only game in town…the only place to get some return on your money. Sorry folks, but the party has to end sooner or later. It’s time to take our medicine. Interest rates normalizing will be a good thing in the long-term.

It’s my opinion that the time to raise rates is now. It may be just one-and-done this year, but it needs to happen.

I think the Fed will finally do the right thing and raise rates ¼ point. I think the equity markets will sell off sharply in a kneejerk reaction. Longer-term, I expect the equity markets to recover and eventually make new all-time highs—but not this year. I think we will see the S&P dip below 1800.00, if the Fed has the stomach to do the right thing.

If you have any questions or would like to discuss the markets further, please feel free to contact me at 800-826-4124 or fcholly@rjofutures.com. Also be sure to check out my weekly metals or equities market update posted on our website.

 

Dec ’15 E-Mini S&P 500 Daily Chart
Source: RJO Futures PRO

E-Mini S&P Daily

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