RJO Futures Website

June 21, 2016

Volume 10, Issue 13

Featured Article

Brexit Vote: A Glimpse into the Future of Europe

Brexit Vote: A Glimpse into the Future of Europe

Blu Putnam, Chief Economist, CME Group

Video Highlights:

  • Brexit vote on June 23 could have significant impact on markets.
  • 'Leave' vote could weigh on pound, equities and trigger flight to quality.
  • A 'stay' decision could help pound regain some lost ground. 
  • Options could be a useful tool in managing market volatility and risk.

CME Group Brexit Video

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Metals - Gold

Brexit and the Gold Market

Phillip Streible

Gold futures are off to a cautious start as Brexit fears eased and an equity risk on remains.  While last week all the hype was the FED‘s cautious tone, this week the FED could start looking at a possible rate hike again if the Brexit vote favors continued unity. Currently, if you look at the Brexit percentage possibility and overlap that chart on gold you can see the level of correlation is high and I would expect this correlation to continue then transition into the correlation of a FED rate hike. After Brexit traders should start to monitor jobs data, growth and inflation. 

Moving on to the technicals one can see that gold may have formed a temporary top on the upside breakout on the Bollinger band to 1319.9 and a move down to the center band at 1255.6 might be warranted. One of the best technical indicators that is unbiased to fundamentals that measures the strength of the trend is ADX. With levels approaching 35 this recent downward trend is continuing to strengthen. Any way you look at the gold market coming into this vote I suggest to form a plan and trade that plan through to the end.

If you have any questions or would like to discuss the markets further, please feel free to contact me at 800-438-4805 or pstreible@rjofutures.com.

Aug '16 Gold Daily Chart

Source: RJO Futures PRO

Gold Daily Chart

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Metals - Silver

Silver Consolidated with Upside Potential

Eli Tesfaye

July silver futures is trading at $17.32 down about 19 cents on the day. As I write, Fed Chief Janet Yellen is testifying before Senate Banking Committee. The word of the day from her remarks seems “uncertain”. The dollar is a bit stronger resulting from her remarks; adding a bit of pressures on the metals. From her testimony so far, the Fed doesn’t see any big threat to the US economy. In my view, this will normalize the process of a potential rate hike in the very near future.

Other important factor that could impact the silver market this week is the Brexit vote. One should not underestimate the volatility resulting from such a vote. Be mindful of potential for a big spike in silver. Using options with clearly defined risk might be a way to get involved in the markets. Definitely, feel free to contact me so we can discuss specific strategy based on your risk tolerance ahead of the vote.  The key is to prosper from the volatility and not get run over by it.   

From technical prospective, the daily silver July chart shows that the market is in a consolidation type of mode. Last eView I express a possibility of a buying momentum above 16.60.  I still continue to think more upside potential so long as the market continue to stay and close above May 2016’s low on weekly chart.  These consolidation type of price action could be advantages for trading options

Like I said in the last eView, although not impossible, it is still premature to assume that the May 2016 high’s would not be retested.

If you have any questions or would like to discuss the markets further, please feel free to contact me at 800-367-7290 or etesfaye@rjofutures.com.

Jul ’16 Silver / Jun ’16 US Dollar Daily Chart

Source: RJO Futures PRO

 Silver Chart

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Energies - Natural Gas

Natural Gas Continues Climbing on Demand Potential

Natural gas futures started the month off with explosive upside momentum on the prospect of strong summer demand. After some brief consolidation following the initial run-up, prices are once again shooting dramatically higher. The current wave of buying is fueled by new weather models confirming a probable hot and dry end to June. Furthermore, the US Dollar has been under fire since the FOMC dodged an interest rate hike in last week’s meeting, adding a bullish tone to commodities in general. Interestingly, natural gas currently holds the title for the strongest US commodity month-to-date, posting gains over 15% in just 2 weeks.

Traders are obviously eager to catch some of this opportunity, though caution is warranted as the market is showing overbought levels not seen in years. While it would make sense to enter the trend on a pull-back, the closest major support I see exists around the early-year high of 2.65 in the August contract. That’s a whopping 16 cents from today’s high and may be a long-shot to wait for. I believe the current best strategy for entry into natural gas would be coupling long futures positions with long put options. Contact me for more specifics.  

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.

Aug ’16 Natural Gas Daily Chart

Source: RJO Futures PRO

Natural Gas Chart

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Energies - Crude Oil

Small Draws on Well Stocked Oil Supply

Michael Sabo

August Crude oil has been one of the stronger performing commodity markets of the year, from the January lows of $32.22 to the June highs (so far) of $52.28 over a $20 move higher.  It seems though we have plenty of oil with current stock piles of 531.54 million barrels of oil, well above our 5-year average of 399.90 and well over the highest stocks for this time of year which was last year when the stock piles stood at 467.98.  We currently have almost double the amount of oil from our lowest level for this time of year which was back in 2003 when they were at 288.35.  Recent EIA Reports have been showing small draws in the stocks even with refinery capacity utilization down from year ago levels.  May oil demand in China was down almost 1% vs year ago same time and there are fears of slowing demand throughout most of Asia.  This week traders should watch for tomorrow’s EIA Report and the upcoming Brexit vote – this has a lot of potential long lasting implications should they vote to leave the EU and could help determine short-term market direction.

Short-term technical indicators look mixed in my opinion, with the recent small pullback in price stochastics looked mixed.  Today, so far the market is having an inside day – a sign of market consolidation.  I would suggest watching for a breakout assuming the market completes an inside day today.  As of right now I remain cautiously bearish - the market is currently trading below the 10-day moving average, suggesting additional weakness. I would recommend using an option strategy or waiting for an inside day breakout to establish a futures position. 

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

Aug ‘16 Crude Oil Daily Chart

Source: RJO Futures PRO

Crude Oil Chart

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Softs - Sugar

Brexit yeah or nay? Either way could be a gift for sugar traders.

Joe Nikruto

This week’s eView comment on October sugar futures finds us staring straight down the barrel of the long awaited and much discussed Brexit.  No matter which way the referendum to leave the European Union turns out it is difficult for me to divine from the tea leaves how sugar futures could be impacted. Should the UK stay or should they go, now?  Many traders with either the luxury of experience or an abundance of common sense have exited the building and will await a decision from the safety of the sidelines.  The rest of us are left to make sure the capital we have on deposit for margin is adequate and the risks we are taking are managed to the best of our ability considering the potential for heightened volatility.  In the case of October sugar futures, it is possible that both well profitable and recently added longs could head for the exits as traders either trim risk or use sugar profits to increase margin reserves for other contracts they intend to hold through the Brexit event.  Either way this could be setting the stage for an overdue technical correction that could bring the October contract down to and even possibly below the 18-day moving average, 19.03.  At the time of this writing October sugar was trading 19.58, bouncing convincingly from a low of 19.25.  Recent price action has seen the October contract reluctant to trade below even the 10-day moving average, having not managed a close below this merely derived, but very easy to see technical study since May 24th

Chinese import numbers highlighted in the morning comments from the Hightower group today speak to the idea that inflows of the commodity into China have slowed dramatically, 50% plus year over year.  It is difficult to believe that slowing in the Chinese economy could result in such a dramatic reduction in imports. It is more likely the case, in my opinion, that the Chinese are hoping for better prices as South American supplies come to market.  I don’t view that scenario as bearish for sugar as sooner or later the Chinese will have to be back on the market bidding for a commodity that is in short(er) supply and likely to remain that way.  Technically, volume has been waning while the fund long position has increased to the largest on record. It is tough to tell if the decline in volume is Brexit related or if the October sugar futures contract is tired and setting up for a correction.  At this point I don’t see any levels above 17.15 that will force the fund trader to change course but this can change from week to week.  Traders will want to use either new highs or a Brexit induced pullback to enter long call spreads with an eye toward a high in the low to mid 20’s.

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.  

Oct ’16 Sugar Daily Chart

Source: RJO Futures PRO

Sugar Daily Chart

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Softs - Cotton

Solid Crop Conditions and Declining Chinese Imports Could Stunt Rally

Erik Tatje

Monday’s crop conditions report shows 75% of the crop is rated good to excellent, compared to 71% at this time last year and a 10-year average of 68% for this time.  The forecast looks dry in key growing areas down in Texas, which should help cotton conditions as well.  China imports are down over 50% from last year’s pace and this lack of demand has the potential to cap the recent strength that participants have seen over the past few months.  The Brexit vote is slated for this Thursday, which as the potential to produce volatile directional moves in the currency markets.  Strength in the USD certainly has the potential to add to the negative fundamental narrative in the coming days.  The trend in cotton remains positive; however, today’s negative price action is threatening and could produce a relatively lower low from a technical standpoint.  The area from 63.00 – 63.44 could serve as initial technical support and, in the event that prices can break from here, 61.74 – 62.00 becomes the next relevant area to monitor.  Slight bearish divergence between RSI and price could be alluding to a coming reversal in the cotton market and participants should key in on key levels of support as a potential “tell” on the markets next move. 

If you’d like to discuss potential trading strategies in the cotton market, I encourage you to contact me directly at 866-397-8195 or etatje@rjofutures.com.

Dec ’16 Cotton Daily Chart

Source: RJO Futures PRO

Cotton Daily Chart

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Softs - Cocoa

While Cocoa Awaits the Brexit Reaction, Supply Supports the Market

Peter Mooses

The markets are focused on the Brexit possibilities coming June 23rd. Extreme volatility is expected in all sectors. A vote to stay in the EU will most likely be bullish for commodities. An exit will bring a negative tone across the board. The British Pound has brought big swings and carried some of that over to cocoa – look at the chart on June 16th, almost a 200 point swing occurred.

Cocoa’s supply remains supportive for a move higher. With the July contract roll behind us, September has found resistance around 3133. Today, cocoa has traded at and above the 9-day moving average. Technically, it looks like the market would be a buy if the global news wasn’t hovering over us for the next few days. The sidelines is probably the most attractive place to be over the next week until traders can digest the news coming out of the UK. Many FCMs are raising margins in preparation for what could happen.

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.  

Sep ‘16 Cocoa Daily Chart

Source: RJO Futures PRO

Cocoa Daily Chart

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Softs - Coffee

July Coffee Consolidation

Adam Tuiaana

July coffee prices continue to rally strong to a point of consolidation. Failure to break above the high of 145 (from 6/9/16) may be a good sign that July coffee prices may be coming to a bit of resistance. All of this price action and volatility came shortly after a rapid selloff toward the end of last month. Shortly after this selloff, July coffee prices held support at the 118 level, and have since made a run for highs not seen since March.

The key level to monitor in July coffee will be the 145 high from this month. This price level represents that last major rally high. Should this level be broken, July coffee prices will likely continue to soar to levels not seen since February of 2015.

The “risk on” appetite on the equities side continues to feed rally’s throughout the commodities family, with major volatility in the soft commodities sector. In addition, the Hightower Group has reported, “a stronger Brazilian currency and improving equities markets helped to support” this last rally. In the short-term, look for a run to test the 142 level, in which case July coffee prices will either soar to the next level of resistance (145), or crash and burn on a volatile dive back down to the 122 level.

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.

Jul ’16 Coffee Daily Chart

Source: RJO Futures PRO

Coffee Daily Chart

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Agriculture - Livestock

Live Cattle futures approach long-term 50% level

Jeff Gilfillan

Front month fed cattle futures are approaching a long-term (1996-present) 50% price level at 113.025. Just below this level is a low volume washout area at 107 which is also the contract high at the time in Sept. 2008 (see chart below).

Record slaughter and production is driving down prices in beef and it may take some time for lower prices to bring back enough demand to turn prices around similar to the pork market in 2015.

We recently hit new lows and are holding yesterday’s lows today. Technically, I favor the long side in August Live Cattle. You are trading against robots but there seems to be a regularity of breaking new highs/lows in futures and quickly retracing. These days sometimes you need to let the market come to you for counter-trend entries.

If you are a prospective client and would like direct access to RJO's extensive in-house and independent insight, contact me directly for a live two week trial.

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. You may also follow me on Twitter @RJOJeffGil.

Aug ‘16 Live Cattle Daily Chart
Source: Track'nTrade

Live Cattle Chart

 

Feeder Cattle Weekly Chart
Source: Track'nTrade

Feeder Cattle Chart

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Agriculture - Grains

Stellar Demand in Soybeans

Stephen Davis

Generally speaking, better than expected crop conditions in yesterday’s USDA update, along with decent eastern Corn Belt rains yesterday and forecasts this morning again confirming expectations for a decent rain event Wed-Thursday, another modest event in the 6 to 10-day period and the heat ridge expected to stay mostly in the far west through the 15-day period allowed grain prices to move lower again overnight. The focus on the trade remains fiercely on the weather ahead of the USDA’s June 30 reports.

Demand is key as well here and the demand is stellar. USDA reported the sale of 66k tonnes of old crop 2015/16, soybeans to unknown destination this morning, along with the sale of 40k tonnes of 2015/16 soybean oil to China. USDA also made new crop, 2016/17 sales announcements of 132k tonnes of soybeans to China and 60k tonnes of soybeans to unknown. This line up reminds me of last week where the USDA had export announcements similar to these almost every single day.

There are large managed fund row crop positions that are at risk ahead of a potentially bearish June 30 acreage report, especially in the face of an okay weather forecast. This weather forecast is certainly not perfect but far from threatening.

I believe the key is last week’s low in November Soybeans. If that is taken out there can be more liquidation. This okay weather forecast, over extended fund longs and deteriorating chart patterns, point to more long liquidation until or unless weather forecasts turn worse.

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.

Soybeans Weekly Chart
Source: RJO Futures PRO

Soybeans Weekly Chart

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Currencies

Currencies Rely Heavily on Brexit Decision

John Caruso

The combination of Brexit and FOMC meetings have caused a lot of activity in the futures market. Currencies like the euro and british pound will rely heavily on the decision coming up on the 23rd.

If you have any questions or would like to discuss the markets further, please feel free to contact me at 800-669-5354 or jcaruso@rjofutures.com

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Interest Rates

Brexit Stage Left

Tarik Husseini

All eyes are on the so called Brexit, the referendum in Europe on whether or not Britain will remain in the EU.  Investors are bracing for volatility before and after the vote.  The situation remains fluid as each new poll shows changing results between the stay and go camps.  The last few days has seen reduced anxiety as the stay camp has taken a couple point lead.  This has been most apparent in the steep rally over three sessions in the British Pound.   Global Bonds have also fallen, and yields increased, as flight to quality has taken a breather.  However, the appetite for risk has diminished as we draw closer to Thursday night, when the voting will begin.  Traders in general are not looking to put on any big positions ahead of the vote.  The official results are set to come out around 7am Friday London time, or 1am Friday Central.  Markets should have a pretty good idea which way Britain is going before the official results, as numbers start rolling in overnight.

Looking forward at Treasuries, the Brexit vote looms large.  In general, bonds should sell off if Britain remains in the EU, and conversely rally if they go.  Fundamentally, US government bonds still look attractive on a comparative basis to other bonds of the developed world.  Expectations of a summer rate hike has fallen from 61% to 12%, as employment numbers have slowed.  Technically, 30-yr Treasuries have taken a hit this week as Brexit fears subside, but as noted, this can change quickly.  As of now, the September Bond is trading 16723, and won’t find strong support until the mid-165 handle, and 160-161 on a continuous basis below that.  Bonds remain in a long-term uptrend dating back to the end of 2013, but seem pretty stretched on the upside.  Resistance will be strong between the 171-172 handles.

If you have any questions or would like to discuss the markets further, please feel free to contact me at 800-672-0664 or thusseini@rjofutures.com

Sep ’16 30-Yr Treasury Bond Daily Chart

Source: RJO WebOE

30-yr Bond Chart

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Equities

Markets Volatile Ahead of Brexit Vote

Greg Perlin

The S&P E-mini is opening higher this morning ahead of Federal Reserve Chair Janet Yellen’s comments on the economy and Britain’s vote on its European Union membership. Yellen is expected to speak on the central bank’s monetary policy before the Senate Banking Committee at 9:00am in Washington.  She will also attend a meeting at 3:30pm with other Fed officials.  The markets like when Janet Yellen speaks and in this case it looks like last month’s weak May job number really spooked her.  Traders are expecting her to be accommodative and allow the markets to inflate a little bit. The central bank left interest rates unchanged last week and sounded cautious after surprisingly weak monthly hiring data put the economy’s recovery in question.

Also, on the docket this week is Brexit, where Britain is scheduled to vote on Thursday on whether to stay in the European Union or leave and be on its own.   The markets have been quite volatile waiting on the vote and it looks to be a 50/50 chance on them staying which is causing extreme nervousness throughout the world.   If they do happen to exit, investors are saying it could possibly cause a very disruptive decline in the British Pound which could have ripple effects throughout Europe and the rest of the world. 

Looking at technical‘s, last Thursday’s spike reversal tested 2051 support and then turned back higher, rejecting a larger downturn.   Be alert for a recovery attempt the next few days.  A close over 2084 or a pop over Monday’s high could boost rallies back to 2100+.  Suspect a continued fight to hold and to rebound off the low 2050’s. A close under 2051 is needed to highlight a larger top/downturn.

If you have any questions or would like to discuss the markets further, please feel free to contact me at 800-826-2270 or gperlin@rjofutures.com.

Jun '16 E-mini S&P Daily Chart
Source: RJO Futures PRO

Equities Chart

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