RJO FuturesCast

July 31, 2020 | Volume 14, Issue 31

The Markets

Metals - The Gold Bull Market is Alive and Well

As the week and the month come to an end today, we see fresh new highs in the gold futures and fresh new contract lows in the Dollar Index. At the conclusion of the FOMC Meeting this week, Chairman Powell made it crystal clear that the Fed is committed to using its full range of tools to help our economy recover during this health crisis. The Fed is not even thinking about when they may raise rates. None of this was a “surprise” but everyone wanted to hear it. This is helping to support gold…dovish Fed and dollar weakness.

Furthermore, Gold ETF purchases so far this year have already eclipsed the last three years combined. Meanwhile, due to the collapse of the global economy, physical demand naturally has been weak from the likes of China and India. As those economies begin to recover, one could expect demand for physical gold to return to normal levels.

Ups and downs along the way should be expected. Nothing should just go straight up. A healthy bull market rebounds after corrections. It’s my opinion that we are in the early stages of the next big commodity bull market. It starts with gold. One day, as a result of everything the Fed has been doing for far too long, inflation will awaken and commodities will be the “place to be”.

Gold Oct '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 fcholly@rjofutures.com.
Metals - Silver Should Pull Up

This week in the September silver market we saw a positive start trading to new recent highs on Monday followed by a wild trading day on Tuesday with a daily low and high of 22.46 and 26.275. After Tuesday’s slightly lower close of 24.525, the market sold off to a low of 23.00 on Thursday but is making an effort to re gain some of those losses to start today. The trend lower in the U.S. dollar and uncertainty in the spread of virus cases should continue the safe haven interest in gold and silver. Gold making new all-time highs this week and the continued inflows into silver ETFs, adding over 5 million ounces yesterday, should provide support. Silver would need to see a bullish push over 25.12 in order to continue the rally to test Tuesday’s high of 26.275. September silver would need to hold support at 23.40 and a close below 23.00 would reverse the short-term trend back to the downside. As long as the US dollar remains weak and gold continues to run, the silver market should be pulled up as well.

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 Prices Rebound Despite Economic Headwinds

Oil prices are bouncing back after hitting a three-week low on Thursday as the US economy declined by the worst print on record of a 32.9% annualized rate. Concerns regarding demand destruction are reemerging as new corona cases continue to surge globally as producers are set to increase output. OPEC+ are set to increase output of about 1.5 million barrels a day in August, easing some of the supply restrictions. This comes amid the largest one week decline in oil stocks since December, according to the EIA. Global economic outlook appears to be fleeting (once again) amid increasing infections as demand plateaus, which coupled with more supply coming back online may test near term market sentiment. The market remains bullish trend with today’s range seen between 39.47 – 42.40.

Crude Oil Sep '20 Daily Chart
If you have any questions or would like to discuss the markets further, please feel free to contact me at 800-438-4805 or aturro@rjofutures.com.
Softs - Strength in Coffee

A cross of the 25-day MA up through the 50-day MA has sparked a strong rally in September coffee. We continue to hear reports of less wet weather in key growing areas of Brazil that had initially provided somewhat of a bearish outlook. As we continue to battle against COVID-19, stay at home coffee purchases continue to stay solid. September coffee prices are targeting the 115 level, and with a weakening U.S. dollar, we should likely see an inverse push higher on most commodities.

As several States continue to rollback their initial re-openings due to the spread of COVID-19, we need to be mindful that until we are fully operational and back to normal, sporadic and volatile price action will continue to take center stage in commodities. Until that day when restaurants are permitted increase their level of capacity (or even remain open), home coffee sales will not be nearly enough to offset the gaping void of demand left unfilled by restaurants and coffee shops. In addition, many of these restaurants and coffee shops may never return.   From a technical perspective, we await a retest of the 115 level in order to see whether this rally may turn into a reversal up.

Coffee Sep '20 Daily Chart
Agricultural - Grain Futures Update w/Stephen Davis 07/31/2020
Stephen Davis discusses the latest movements in the grain market. China has been buying U.S. grains lately and we hope to see that continue.
Currency - Currencies Likely to Take Direction from Initial Claims

USD: We attribute yesterdays spike low and slightly higher trade as a temporary technical reaction in the dollar. However, the USD will made a critical decision this morning after initial claims, and began trading lower again. Lingering hope of stimulus from U.S. congressional programs should halt the slide lower in the dollar. Traders can look for a bounce back to 9380 or so, but beware of more downside from there.

Euro: The euro deserves a measure of corrective action following the breakneck gains throughout July. We suspect that the net take away from German economic data overnight adds to the liquidation tilt this morning. The key event of the day is likely to take place after initial claims with recent action in the euro suggesting a concerning claims report can lift the euro. Suggesting that buyers wait for below 117150 to enter the long side.

USD Sep '20 Daily Chart
Euro FX Sep '20 Daily
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.
Interest Rates - Treasuries Waiting on Today's Fed Announcement

Looking at the September 10-year note this morning, we have seen a high of 139-25 and a low of 139-185. The whole treasury complex has seen a very narrow range for the past two weeks. The market is coiling which normally means we should see a breakout soon. Most markets have been in summer mode recently except the USD and the metals complex, the dollar hit a ten-year low yesterday.  If this move should continue, we could see a major trend reversal in notes to the downside. Most traders view a sharply lower dollar as a sign of inflation which could rally rates and push prices lower in the treasuries.  As stated earlier, the Fed has an announcement today at 1:00pm CSTl on rates. Most believe they will stay consistent with their continued dovish tone but if they hint at a hawkish tone, we could see some market volatility pick up. Traders should use rallies of 16-20 ticks in the notes to establish short position looking for continued weakness in the dollar and hence lower prices in treasuries.

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 - Stocks Testing Upper End of Rangers

The Nasdaq and S&P are on the rise again following the blowout earnings we saw from the usual suspects in tech.  The Nasdaq had been spending the majority of the month in a range (10500-10750) within a range (10350-11050) and is now testing the upper limits of the latter.  With earnings figures like we saw yesterday, don’t be surprised if the index prints new highs in short order. The Dow and Russell are the debbie downers of the group, up a measly 0.1% and down 0.5%, respectively.  Perhaps they’re having a hard time being optimistic after seeing a GDP reading of -32.9% yesterday, coronavirus numbers continuing to climb, unemployment numbers on the rise, and tensions with China elevating. The overall market continues to discount much of the causes for concern, and why not? The Fed will save us, right?  Well so far, the answer is overwhelmingly yes. Powell suggested that they intend to keep rates as is through 2022 and possibly beyond.  He also suggested that QE is here to stay and that they’ll continue to inject liquidity as they see fit for the foreseeable future.  Fighting the Fed is a great way to lose money, but I can understand the uneasy feelings that many investors are struggling with.  Also keep in mind that we’re likely to see another stimulus package here soon.  There’s a lot of posturing going on, but that’s nothing new. 

Unemployment benefits are going to get extended.  We’re just not quite sure for how long just yet.  The deadline is midnight tonight, so maybe we get news on that today. With all that in mind, we continue to look for opportunities to buy dips. At some point or another it will stop working, but until then, that is the plan.

E-mini Nasdaq 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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