RJO FuturesCast

July 2, 2020 | Volume 14, Issue 27

The Markets

Metals - The Great American Comeback or Too Soon?

In the early morning trade, gold has pulled back from this week’s high after finally breaking above $1,800 an ounce, but is currents trading at $1,767 an ounce. Yesterday, gold started to sell off from its high largely due to positive news that Pfizer and a biotech company out of Germany have made a promising drug for the Coronavirus, which Dr. Fauci stated could be available to the public later this year. Furthermore, gold continued its sell off this morning due to the very positive jobs number with unemployment falling to 11.1% in June with employers rehiring 4.8 million American, which is the highest record EVER recorded. Are we on the cusp of The Great American Comeback? If this trend continues-we sure are. Happy Fourth of July weekend to all!

If you look at the daily August gold chart, you’ll clearly see that gold broke below a long term up trend and now is open to a possible sell off back down to the low $1,700s unless it rallies back today. If it can hold, look for gold to rally back to $1,800 an ounce.

Gold Aug '20 Daily Chart
Metals - Silver Consolidation Continues

September silver has traded adjacent to the strength in gold, and the second wave of the virus could very well add more support in the contract. Prices have rallied significantly from March, so a consolidation at these levels would be warranted. That being said, safe haven demand remains steady, and interest rates in this environment make this fundamentally sound and attractive to traders and investors alike. It should be noted that inflation data will also be closely watched as a key fundamental, the more that the Federal Reserve acts to prevent other market declines through fiscal policies we will see undermining and destruction longer term in other market prices.

September silver is undergoing consolidation and the $18.00-dollar level remains in focus as a key level of support for bulls. If this level fails to hold, consolidation may not be intact, and a test of the $17.80 level will be tested. In order to see the contract trade at the $19.00-dollar level and beyond we will need to test $18.70 and $18.90.

Silver Sep '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 Continues Its Climb

WTI crude registered its highest quarterly performance of more than 91% and is trading at its highest level since early March but is still down over 34% from the start of the year as the market assess enhanced demand prospects, despite recent reports of lowered Chinese imports as well as ongoing fears of corona lockdown in the U.S. This comes amidst data showing U.S. crude stockpiles fell more than expected from a record high last week as refiners increase production and imports ease. Prices have been buoyed by recovering fuel demand and supply cuts from OPEC plus, with some focus on the upcoming U.S. holiday driving activity as well as how expeditiously U.S. producers revive shut in production as U.S. companies and OPEC producers start to increase output due to higher prices. Oil has now transitioned to bullish trend as the reflation ramp up continues with today’s range seen between 36.92 – 41.22.

Crude Oil Aug '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 - Increase in Covid Cases/Decrease in Demand for Cocoa

As the world, especially in the United States, sees an increase in Covid cases some commodity prices are weakening. Cocoa had a small rally but failed to trade and hold above 2400 in the September contract. As the old lows were tested the past few sessions, on Tuesday 2200 was broken. Demand has been a long-term issue for cocoa even before the virus spread but now that less cocoa is needed for consumption the bottom could be unknown. Will 2000 be the next downside target? If more re-openings are paused, indoor restaurant seating remains closed and sporting events are delayed any further “food” commodities could continue to take a big hit.

Food companies remain positive that the markets will turn around, demand will return, and things will go to a new “normal” once the pandemic is under some control. But for the time being, it appears we are a long way from that.

Bearish traders may want to look at long puts in the front months. Traders who anticipate a recovery will want to look further out, 2021 options for example, to have exposure once the softs recover.

Cocoa Sep '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 - Coffee Demand in Question

As several States begin to shut down after just re-opening due to the spread of COVID 19, we can expect yet another challenge on the demand side for September coffee. This new shutdown will be weighed against recent reports that temperatures in key growing areas of Brazil are colder than normal, thus possibly delaying and affecting the upcoming crop while frost damage becomes a real possibility.  September coffee futures recently broke out of consolidation due to the reported temperatures in Brazil, and coffee prices have been able to hold support at the 95 level.

From a technical perspective, a likely return to the 50-day moving average at the 104 level is likely to take place in the near term. However, ultimately may see stiff resistance at the 50-day moving average as the await the effects of the recent increase in new cases, which will likely delay a reversal to the upside for September coffee prices.  

Coffee sep '20 Daily Chart
Agricultural - Grain Futures Update w/Stephen Davis - 07/02/2020
Stephen Davis discusses the latest movements in the grain markets.
Currency - Global Currency Forecast

The dollar index is marginally lower this morning after non-farm payrolls added another 4.8 million jobs in June, bringing the unemployment rate down to 11.1%. Buying the dollar has become a ‘risk-off’ trade. As long as optimism remains present in the markets, the dollar is likely to extend its downtrend. Currency markets are often useful in forecasting macroeconomic movements. Commodity currencies, like the Aussie dollar, are showing relative strength. This may be an indication that commodity prices are likely to continue their climb higher from the March lows. The USD is continuously failing at resistance levels, leading me to believe that stimulus may spur inflation down the line, and there may be more fiscal/monetary support coming out of Washington. Keep an eye on the Japanese yen if a ‘risk-off’ mindset returns to the markets. Over the intermediate/longer-term, the euro is likely to gain strength against the dollar given the arsenal of tools being applied by the U.S. central bank.

USD Sep '20 Daily Chart
Interest Rates - 10-Year Note Grinds Higher

The September 10-year note is trading back to contract highs seen in early May. The Federal Reserve has slashed interest rates to nearly zero along with pumping $2 trillion into treasuries and MBS. Traders will be watching the June Chicago PMI which is expected to have an uptick from May’s reading. It should also be noted that Powell will be testifying in front of the House Financial Services Committee during trading hours today. The 10-year note contract had an open-interest increase of nearly 180,000. Traders will be positioning themselves ahead of Wednesdays release of the feds previous minutes.

10-year September contract has support 139’075 that it has found buyers at before in the short term. If this level fails we can see a quick re-test of 139’35 which has been greater support in the past. If these levels hold we may get a test of resistance at 139’140, a break of this we may test a greater point of resistance at 139’150.

10-Year Note Sep '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 - Jobs Number Impresses Again

The most hated rally in recent memory continues to power on. I get it. Things aren’t exactly rosy out there. However, the market continues to discount the perceived risks, and we’re up roughly 1.5% in the four major indices. Consensus expectations for this morning’s nonfarm payrolls was 3,000,000. We saw a number of 4,8000,000 and an upward revision of last month’s number from 2,509,000 to 2,699,000. The unemployment rate, which was anticipated to come out at 12.4%, was reported at 11.1%. Private payrolls and manufacturing jobs were huge contributors. The private sector added over 4.7M jobs vs. expected 2.66M. We also had a revision on last months number of an additional 138k.  Manufacturing jobs increased by 356k vs. an expected 180k. There was also an upward revision ther of an additional 25k manufacturing jobs in last month’s number. On the flip side, we saw average hourly earnings dip by 1.2%. 

The Fed is doing all they can to support the economy. There is a legitimate argument about who is benefiting from their actions, but that’s a conversation for another day. The bottom line is that betting against the Fed has been a tremendous way to lose money over the years. It’s hard to say where all this will stop. The virus is obviously the biggest headwind here. The concerns are legitimate, but the market seems to be optimistic about the prospects for a vaccine.  Suppose we have one in the next six months. My biggest question is whether or not that has been priced in, or if we’ll end up having to chase the market at higher levels as a result. Dip buyers continue to get paid in the interim. 

E-mini S&P 500 Sep '20 Daily Chart
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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