RJO FuturesCast

January 17, 2020 | Volume 14, Issue 3

The Markets

Metals - Can Gold Make It Back to the $1,600 Handle?×

In the early morning trade, gold is trading slightly up this morning and still trying to make is back up to the $1,600. As I stated above, gold is pushing higher even in the strength of the U.S. dollar. There’s still a risk on appetite with gold along with the stock market making another all-time high but watch if that doesn’t start to unwind with the U.S./China Phase I Trade Deal signed Thursday, senate just passed the USMCA, and now positive news from the EU overnight on trade talks. Furthermore, China’s economic data came in slightly better overnight, which can prevent gold from making it back up to the $1,600 handle as risk trades are taken off.

If you take a quick look at the daily February gold chart, you can clearly see that the shiny one broke above resistance on Christmas Eve and was back in bullish trend. However, the high it made might not be legit because that was off the knee jerk reaction from the Iran missile strikes in retaliation of our President killing their terrorist leader Qasem Soleimani. Even though gold is in an uptrend it can still pull back all the way back down to the $1,500 handle, which there is strong support. Therefore, is gold going to $1,600 or $1,500 first?

Metals - Silver Susceptible to Move Lower×

This week we saw lackluster trade for the March silver contract after last weeks failed run to 18.895. After opening at 18.130 on Monday, silver traded down to a weekly low of 17.690 on Tuesday before fighting back higher towards the second half of the week. Trade this week reiterates that 18.000 remains a key level in the March contract. With tensions in the middle east lessening and a risk-on attitude towards equities remaining in-tact, the bears have the upper had currently. Recent strength in the US dollar should also be added pressure to silver. Barring any fundamental changes, the short-term trend remains to the downside and any rallies will be short lived. A close under 17.750 should accelerate a move lower with 17.000-17.200 being the next level of support. A strong close over resistance at 18.000 is needed to reverse the trend back to the upside.

If you have any questions or would like to discuss the markets further, please feel free to contact me at 800-826-2270 or therrmann@rjofutures.com.
Energy - Oil Up on Improved Outlook×

Oil prices are edging higher after rising more than 1% on Thursday following carryover optimism from the trade deal signing, signaling enhanced demand prospects. In addition, prices are receiving a lift this morning from positive Chinese industrial production and retail sales readings for December as well as reports that Chinese refineries processed an all-time high of 58.5 million tons of oil. This was coupled with Chinese December oil demand jumping close to 14% on year over year levels. This largely offsets reports that Libya increased oil production and Norway had stronger than expected oil output. The market discounted threat from Iran earlier this week, with Iran indicating that it will be enriching more uranium than under the 2015 Nuclear Agreement. Geopolitical risk remains unabated. Oil remains bullish trend with today’s range seen between 56.90 – 63.81.

If you have any questions or would like to discuss the markets further, please feel free to contact me at 800-438-4805 or aturro@rjofutures.com.
Softs - Grinding Data and an Increased Demand×

Grinding data this week has cocoa futures testing highs from 2018. The March contract reached 2729 on Thursday. Asian demand increased and provided market support – leading to more speculative buying. European eemand was also up, paired with a stronger Eurocurrency, helped the market continue this follow-through move higher. If the N. American grinding data after Thursday’s close is also strong, look for 2750 to be tested. The street is anticipating a weaker number than other regions though. If this is the case, the market could see pullback back to 2680. If traders are looking for a short-term play, buying puts could be the path to exposure.

Technically, the chart is poised for a move higher. The market continues to close above the 9-day moving average and continues to trade above the 200-day. Support is at 2680 if the market were to pullback if we reach overbought levels. Resistance remains at 2730, above that 2750.

If N. American grinding surprises, 2800 could be touched over the next week. If the data comes inline, look to the currencies and global/political news to guide the cocoa futures again – as well as any tension in West Africa.

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.
Softs - Coffee Coming Into Support×

In my last article, I made mention that long liquidation was taking place, and we should begin to see some support being offered at the 113 level in March coffee prices. The fact still remains that tightening supplies are still on the horizon, which initially sparked this most recent, strong bull run over the past month. At the same time, we continue to make new highs in U.S. stocks, which should equate to steady demand for coffee. I am still very much bullish due to the fundamentals of March coffee.

Our friends at The Hightower Group shared that “coffee has a chance of seeing upside follow-through buying during today’s price action.” From a technical perspective, we have violated the 50-day moving average, and the 113 level is critical for holding support.

Agricultural - Corn Becoming Oversold, but Traders Want Evidence of Chinese Demand×

While the corn market has not shown that much direct impact from the big picture developments, prices should be supported as a result of definitive risk on vibe in equities, favorable Chinese economic data and from news of a South Korean KFA purchase of 66,000 tons of corn. While the trade deal agreement calls for China to purchase at least $40 billion of agricultural products over the next two years, compared with a 2017 base of near $24 billion, traders are still skeptical that China will actually purchase that amount. It would take “extremely” aggressive purchases of grain products to fulfil this commitment.  This is what sparked aggressive selling in grain markets over the last couple trading sessions; people are unsure this commitment will be reached. While this is a concern, the market seems to have bottomed out, at least in the near term from this bearish demand news.  In fact, moving forward demand news seems to have a good story just ahead. Resistance comes in at 381 and 391 while support hits at 369 and just under that again at 366.

If you have any questions or would like to discuss the markets further, please feel free to contact me at 800-826-2270 or tcholly@rjofutures.com.
Currency - British Pound Looks Ripe for the Picking×

March U.S. dollar futures attempted a rebound during Thursday’s trade, settling at 97.04 while foreign currencies mostly finished lower. The British pound was the notable exception, finishing 0.37% higher for the day despite soft CPI data out of the UK on Wednesday. When nations are not meeting their inflation targets, lowering interest rates is the traditional path to higher domestic prices. The fact that this soft inflation data did not have a larger negative effect on the currency is a bullish factor. Furthermore, the pound respected technical support at the 1.30 level earlier in the week before moving higher. From a fundamental standpoint, it appears as though Brexit will be resolved in the near-term, which could help promote Boris Johnson’s business-oriented political agenda thus boosting demand for the UK currency. The Japanese yen looks the weakest of the major foreign currencies. Given the positive global sentiment, the yen has sold off to new lows in the March contract. If worry returns the markets, it is likely the yen will bounce higher given its safe-haven characteristics, but the overall pattern is very weak. The direction for currency futures will ultimately be dictated by the greenback. As of now, the path of least resistance in the U.S. dollar is pointed lower. This will prove to be true if the Fed must cut rates again in 2020.

Interest Rates - Treasuries: Sell The Fact×

The treasuries, specifically the ten-year note, had a decent bid to them this morning and were trading at 129.10 up 5.5 ticks while having a high of 129.14 and a low of 129.04. The 10-year note has been acting well this week making three consecutive higher highs, so the short-term trend lies in the bull camp. Traders have been waiting for the phase one deal that was signed earlier today. We have not seen much reaction since most markets have already priced this deal in. The problem I see with the deal is that most don’t even know what the deal contained. My best guess is its nothing more than a truce as tariffs remain on China. I wouldn’t be surprised to see a "sell the fact" type of trade where many traders take profits off the table in stocks and start allocating some money in to Treasuries as a safe haven. I say this because there are still many uncertainties going forward with China and no one expects any new developments on working towards the “phase two deal” for a long time to come. Traders should expect a pickup in volatility as the phase one deal is now complete. I would encourage traders to keep a eye on the S&P 500 for a key reversal today, where a new contract high is made and then closes lower on the day. If that should happen, expect to see bids across the whole Treasury complex.  The S&P is only up 1 point so the "sell the fact" trade might just come to fruition.

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.
Equity - Stocks Hit Another New High×

All four of the major U.S. indices printed fresh new highs preopen. While we’re certainly seeing some overbought readings, I’m also showing several momentum studies that still project even higher prices. Technical trading becomes a bit more difficult now that we’re literally in uncharted territory, so keep an eye on the news concerning China, developments about a possible deal with the EU, and of course, earnings. Today’s slate of data is relatively light, but we saw a nice housing starts number earlier.  We were expecting to see the starts figure come out at 1.373, but we posted an impressive 1.608M. Permits, on the other hand, were in range but slightly below consensus.  We’ll be looking forward to the consumer sentiment data as well. It is expected to come in strong at 99.3. 

Many of the markets have short hours or are closed altogether on Monday in observance of Martin Luther King Jr. Day. The rest of the week’s slate of data is very light, but earnings should make things a bit more interesting. Traders will be looking forward to the following week when the FOMC gets together for a two-day meeting on 1/28 & 1/29.  We’re not expecting any cuts or hikes, but we’ll be looking for clues into potential for either moving forward.  For what it’s worth, the FOMC said last month that they’re not forecasting any more cuts for the foreseeable future.  With other central banks continuously lowering their rates, I personally find that a bit hard to believe.  That said, I do think any cuts we’ll make will be a bit more reactionary than proactive. 

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

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