RJO FuturesCast

In the early morning trade, June gold is trading in the green slightly and currently trading at $1,752 a troy ounce. Gold is going to have to face a little adversity over the next couple of trading days with the U.S. dollar making fresh new weekly highs overnight and with the world’s largest import country of gold on nation-wide lockdown with their second largest buying day of the year coming up this Sunday and will surely impact physical demand. However, the House just passed the $484B stimulus package for small businesses and if they start talking about another stimulus, which they very well could after the next non-farm monthly payroll number is released, then this should cause the shiny one to forge new highs and possibly even makes it way to the $2,000 an ounce handle.

If we take a look at the daily June gold chart, you’ll clearly see the gold bulls came in and bought gold off the $1,660s support level on is now back above $1,700 trading in a bullish trend clearly giving them back the advantage.

The silver market saw what had looked like to be a conclusive breakout to the upside last week. It should be noted that this moved was attributed to a decline in the dollar and the negative impacts of global supply. Silver prices may come into pressure as we begin to see more global stimulus headlines with more countries signaling packages for borrowing and debt. The challenge that the bull camp will undergo is going to continue to be a risk of strength in equities and a stronger dollar, which should be noted may be happening very soon. Although the market may be overbought in the short term technically; net spec and etf’s holdings are still net positive.

Chart studies as pointed out have been pointing to an overbought region, but as long as buyers continue to step in on pullbacks this should speed up a move higher when resistance levels are taken out. Moving averages point to a short-term pull back before potentially another leg higher. July silver points of interest include $15.02. If this holds resistance can be tested at $15.79 and $16.12.

May WTI crude fell into negative territory for the first time earlier this week registering its largest one day fall due to refiners cutting runs and cushing storage approaching full capacity. This led to carryover into the June contract which will likely be impacted by storage concerns but also any impending demand signals. White House Economic Adviser Larry Kudlow stated on Monday that May will be a difficult month for the U.S. economy with oil so closely correlated to jobs and GDP growth. Recent reports that Asia’s crude oil storage increased 18 million barrels over the last week bringing capacity to the highest levels since 2016. Regarding supply side developments, India and China have both reported a decline in crude production for the month of March. Notwithstanding the demand fallout are reports that the White House has instructed the destruction of any Iranian vessels that threaten the U.S. The market remains bearish trend with today’s range seen between 19.67 – 10.29.

Cocoa futures have some fundamental news this week that normally would be strong enough to move the contract. European grinding data came in higher than estimates, causing Wednesday’s trade to see the July contract in the green. Traders were thinking the range would 2-4% lower but the European data came in up .9%. Asia data also came in above estimates, bullish for futures, but the market didn’t react that surprised. N. American data came in inline; all three of these should have had prices closer to 2400, instead the global uncertainty still has control of all markets.

Demand will remain weak in cocoa as most of the world remains in some form of a “lockdown” or restricted from the “norm.”

As the world continues to learn how to live in these times, commodities are trading off one main economic force, supply and demand. This seesaw is not giving the markets much to work with. Supply chains are obstructed, bullish prices, demand is lower, bearish prices – this equals rangebound trading sessions in cocoa most days.

The new “work-from-home” population has gone through the process of “pantry-stockpiling” of coffee, while coffee shops and restaurants remain closed, allowing only for drive-thru purchases. All the while, a strong U.S. dollar and continued “risk-off” mentality adds pressure to most all commodity prices. In addition to the lack of bull participation on the July coffee contract, the outlook of Brazil’s extremely large crop on the horizon, new bullish news will be needed to support coffee prices. Our friends at the Hightower Group reported that “the outlook for a record-size crop out of Brazil this year continues to be a bearish force.” I could not agree more.  As demand for coffee is kept in check as we wait it out for more testing, treatments and ultimately a vaccine for Covid-19, the bulls will likely keep their distance from coffee.

Currency futures are mixed during Thursday’s trade as the U.S. dollar index is essentially flat on the day after trading in a 73-point intraday range. Short-term traders should look for a stronger dollar as uncertainty remains high. European fiat futures are likely to continue trending lower. In particular, the technical setup on the euro chart points to a retest of the low at 1.0671. The Australian dollar is also entrenched in a bear trend, trading at the top of its range on Thursday afternoon. Furthermore, the Australian economy is on track to enter its first recession in decades. Commodity currencies, like the Canadian and Australian dollar, typically trend higher went sentiment prefers the “risk on” trade. Therefore, in the likely event that “risk off” sentiment returns to markets, these currencies should be the worst performers. In the longer-term, this trend reverses. The Fed’s “do whatever it takes” attitude will inevitably break the USD and cause reversals in foreign fiat futures. When coronavirus uncertainty subsides, inflation is likely to return to the U.S. economy, and emerging market currencies should outperform those of developed economies.

As we look at the June 10-year note we have a high of 139-17 and a low of 128-31 and are currently trading at 139-11. The notes are under some pressure today due to stock near their high, with Dow futures up 440 and the S&P up 55.  We are also seeing crude oil climb nearly $3 in the June contract.  Positive vibes from stocks and energies are taking a bite out of prices in the note complex. Going forward, I think we may be seeing a top in notes due to all the stimulus provided by the central banks to aid failing economies. The consequences of this stimulus is that inflation will come much sooner than anticipated making treasuries less desirable. Going forward, traders should be keyed on even more stimulus, a lower dollar and lower prices for T-notes.