RJO FuturesCast

February 14, 2020 | Volume 14, Issue 7

The Markets

Metals - Gold Trying to Rally Back Above $1,600×

In the early morning trade, gold has extended on its rally which started last week at $1,555 and is currently trading at $1,579, which is up 1.5% in a week. Obviously, the coronavirus is the driving force of the recent gold rally while it provides fear and concern in the metals and interest rate sectors, which has caused buying from investors/traders alike. Also, the shiny one has expectations that China will eventually release a massive stimulus package after the virus subdues. Furthermore, ETFs saw a 17th straight day of inflow.

If you take a look at the April gold chart, you’ll clearly see that the gold bulls have taken over on Christmas Eve and have been in control ever since. It is in a strong bull trend and looks like it wants to retest the contract high of $1619.6 which was made back on January 8th. I have highlighted these levels below on my RJO Pro daily April gold candle stick chart. 

Gold Apr '20 Daily Chart
Metals - Silver Continues Sideways×

The March silver market has continued the sideways pattern it has been in for the past month and a half, trading as low as 17.435 mid-week before finishing with a positive day Thursday and a positive start to Friday’s session. The virus talks, and growing cases of infection remain at the forefront of the headlines this week, but the silver market has managed to stay relatively calm. Moves to the upside have been limited by expectations that China will release a stimulus package to prop up its economy. With this recent coiling in the market, as long as support of 17.41 holds there is potential for a push higher and a retest of resistance at 18.00. A close above that first resistance level would see a trend higher with 18.445 and 19.00 as the next upside targets. To have this happen we would need to most likely see a correction in the stock market and/or headlines of an accelerated spread of the virus. A break below support of 17.41 would turn the short-term trend lower with the next support level at 17.00 and 16.535.

Silver Mar '20 Daily Chart
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 on Pace for First Weekly Rise in 6-Weeks×

Oil has rallied to a near two-week high despite plunging more than 16% this year amid optimism from the World Health Organization (WHO) that the threat of the coronavirus may be abating. This comes as the WHO reported that the sudden surge in diagnoses does not necessarily imply a surge in new infections. In addition, the International Energy Agency (IEA) revised first quarter demand prospects as well a decline in January OPEC production from 29.44 million barrels per day to 28.86 million barrels per day, which would be the first quarterly contraction in more than ten years. This is coupled with OPEC downgrading their demand growth prospects this year for the sixth time in nine months, this time by 230k to 990k barrels per day, while simultaneously lowering their global economic forecast to 3% this year. OPEC is next scheduled to meet March 5 -6 with deeper cuts likely.  Do not discount geopolitical risk factors. The market remains bearish trend with today’s range seen between 49.05 - 52.70.

Crude Oil Mar '20 Daily Chart
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 - Tug-of-War Between Supply and Demand in Cocoa Futures×

March cocoa futures hit a multiyear high last week as the market attempted to touch 3000. The supply side of the fundamental equation is bullish. Weather premium is in prices due to patterns in West Africa. Harmattan winds tend to affect the crop this time of year, this mixed with the dry season coming to an end, could see production data down. These factors have provided support for the traders who are long.

The weakness and uncertainty in demand has not allowed prices to cross 3000. If demand were to increase, 3200 is attainable. Asian grinding data will be a good indicator moving forward. With the Coronavirus and that region of the world not functioning normally (with imports and exports mainly), how long the market will be negativity impacted by the virus is anyone’s guess.

Technically in the short-term a close above 2915 is needed to reaffirm the move higher. If these current levels fail, a drop back down to 2850 isn’t too far-fetched. The COT data being released Friday after the close will show us if we are in store for some more long liquidation.

Cocoa Mar '20 Daily Chart
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 - Good Buying Opportunity in Coffee?×

Although May coffee has had an impressive three consecutive days of positive price action, we are still far from having the supply demand support news that is required to rally back to the 108 level. Last week’s bullish roar comes mostly on the heels of short covering. May coffee is still dwelling at seriously oversold levels, but the fact that prices have been able to hold support at the 100 level, and also not challenge the October low of 9815, should indicate a potential for consolidation in the near term.

Our friends at The Hightower Group shared that “Brazil should still have a sizable production increase from the 2019/20 season, but leaf rush and berry borer issues make it less likely that it will reach a record high total.” For any type of rebound (or even support in the near term), traders must hear some good news in regard to China’s ability to stabilize the coronavirus so that more risk capital can make its way to coffee, as I believe it to be a great buying levels at this point.

From a technical perspective, we have been able to hold support at the 100 level and now the 102 level looks to be near term support. I believe this market to be extremely oversold, and with the slightest bit of good news related to not only the coronavirus, but key supply side issues, it could be due for an extremely strong bounce back.

Coffee May '20 Daily Chart
Agricultural - Grain Futures Update w/Stephen Davis - 02/14/2020×

Stephen Davis discusses this week's movements in the grain markets. Coronavirus is still affecting both foreign and domestic grain markets. China is experience a food shortage and is supposed to start buying U.S. grains as part of the Phase One Trade Deal. Now, if that happens remains to be seen, but it could be huge for U.S. grains.

Agricultural - Demand in Corn Improving, but is it Enough?×

Corn prices continue to coil up in this wedge pattern that is forming on the charts. The increase in coronavirus cases in Hubei provinces weighed on the corn market as that cast fresh doubt on whether China can meet their target of U.S. corn and DDG purchases. There is rain in the forecast for South America growing regions, particularly for Argentina next week. This will also weigh on prices. Buenos Aires Grain Exchange did lower their forecast for argentine 2019/2020 production from 50-million tonnes down to 49-million tonnes. Sales will need to average 675,000 tonnes per week to reach the USDA forecast. Hubei, the province at the center of the epidemic, reported almost 15,000 new cases after revising the way they diagnose the virus, which undercuts the idea that the virus was slowing.  Cash basis is better than normal and bull-spreading is also helping support the market.  Per usual, demand concerns remain the big story in corn. The next area of resistance is around 381 and 383 with support at 377 and 376.

Corn May '20 Daily Chart
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 and U.S. Dollar Move Higher as the Euro Weakens×

– U.S. dollar futures are higher yet again on Thursday afternoon, attempting to make a run over the 99 level to test the October high @ 99.305. Economic anxiety caused safe-haven buying in the dollar index as the coronavirus situation in China has gone from better to worse this week. After experimenting with new forms of detection, such as CT scans and ribonucleic-acid tests, there was a surge of over 14,000 additional cases coming out of the Hubei province alone. Side effects of the evolving virus situation include a slowdown in economic activity, so investors are looking toward the relatively strong U.S. economy for safe-keeping.

Furthermore, U.S. stock markets remain overvalued, so as investors move their money to the sidelines, cash markets aka the U.S. dollar will see strength. Meanwhile, the euro is in the grips of the ‘falling knife’ pattern on the charts. Trading at levels not seen since 2017, the euro moved as low as 1.0852 on Thursday with no signs of support. On the contrary, the British pound is holding up in the face of a stronger greenback. The currency of the UK is 0.71% higher on increased volume during Thursday’s trade. Technical projections signal more upside is to come. The Japanese yen stays depressed. This is not surprising in the face of a strong equity market. Should we see a stock market sell-off, yen futures are likely to move higher. Commodity currencies, like the Canadian and Australian dollar, remain in a short-term bearish pattern.

U.S. Dollar Daily Chart
Interest Rates - U.S. Treasuries Feeling Pressure×

Coming into this morning, we see the March note trading down 11 ticks at 130.21 with a range of 130.30- 130.19.5. The market was still acting friendly with the note yesterday and not far from the 1.50 yield. Powell just finished his testimony and with not much market movement and stocks having a good day, we are seeing some pressure on the treasuries. I am still in the bull camp because of the coronavirus and how it impacts the Chinese economy going forward. My best guess is we will see a substantial slowdown in China which could have a major effect on our economy in the coming months.   Today we have some Fed speakers and a ten-year auction at noon.

Let’s take a look at technicals for the ten-year note. The market is still in a bullish trend, needing to hold 130-12 on a closing basis for the uptrend to continue. If this price holds, expect a move to 131.16 to come in to the cards rather quickly. If we break 130-12, we could see a move to 130-02 in quick order.   Traders should be cognizant if any new developments come out on the Coronavirus as that should be a catalysis for the next move.

10-Year Note Mar '20 Daily Chart
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 - U.S. Stock Market Remains Resilient in the Face of Coronavirus Uncertainty×

U.S. stock indices are bumping up against resistance into week’s end as uncertainty surrounding the coronavirus situation continues. The March e-mini S&P is 58 points higher on the week but has struggled at the 3380 level during Thursday and Friday’s trade. Furthermore, implied volatility is at -5%, indicating levels of complacency are still high in the stock market at a time when the VIX remains elevated above 15.00. This tells me that funds are hedging while they are still mindlessly piling into an overvalued stock market. Gold prices and interest rates would support this hypothesis. Going into a three-day weekend, I would be weary about long exposure at these levels given the elevation in coronavirus cases in Hubei this week. However, adding fuel to the bull camp is the confidence that investors have in aggressive central bank support. Should U.S. stock observe a 3-5% correction, the Fed is likely to step in and speak about further rates cuts and quantitative easing. Support in the March S&P is seen at 3356 and below there at 3314.50. The Russell 2000 remains the weakest of the main indices.

E-Mini SP 500 Mar '20 Daily Chart

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