RJO FuturesCast

August 9, 2019 | Volume 13, Issue 32

The Markets

Metals - October Gold, The Sky’s the Limit

Let’s be real, the rally in gold over the past few weeks has legs this time! My last call on gold was that if we broke the $1460 contract high that a level of $1500 was likely. This was true and then some! The next target for October gold is $1600. Let’s start by looking at the technicals of the contract. The August 1st low is a textbook key reversal; however, it was not validated by a close higher the following session. This didn’t seem to matter as gold has now crossed the psychological $1500 level. The August 7th high volume blowout to the upside is obviously a positive. Yesterday’s October gold traded inside of that previous day’s range and even today as are trading once again in the same range. This contract is likely to move beyond the August 1st range up or down as we consolidate and coil for the next “move.”

Fundamentally, I don’t think there are two market conditions that firmly cement the bull case. The first, obviously, a never-ending trade war with China that is bringing prolonged uncertainty to the markets and thus driving safe haven demand. The second is what appears to be a slowing global economic situation, primarily in Europe. Weak German economic data and the surprise (first in 7 years) decline in the UK GDP data showing their economy contracted .2% this quarter. US economic data has been steady, but with growth likely to slow as we continue to expand tariffs on China gold demand should only get stronger.  Let’s not forget the perma-bulls that have now jumped in and are long and strong as we finally break out to new contract high territory relatively speaking. If you would like discuss trade opportunities and ways to structure an October gold trade please contact me directly.

Gold Oct '19 Daily Chart
Metals - Silver Market Correction Would be Healthy

December silver futures have added $1.10 in premium this week alone, finally punching through the $17.00 level of resistance. Now, the December silver contract runs into a ton of “consolidative resistance” between $17.20 up to $17.50. This week’s high, also a new swing high of $17.39, happens to be right smack in the middle of that prior consolidation. So, technically, the market is doing what a chart trader would expect. This is a very impressive rally that was just a slow starter. Think about it this way…silver has rallied $3.00 in three months. That’s $15,000 on a one lot!

So, now a little pull back and maybe the rally takes a “breather” to go sideways for a while, would be healthy for the market. In fact, this rally remains intact all the way down to around $16.60. I’m targeting $18.00 level shorter term and the $20.00 level by the fourth quarter. Watch outside markets like gold, dollar and equites. Use the charts to time when to get in and when to get out. Add on momentum. Don’t over trade and manage the risk accordingly. Work with a professional like myself.

Below is a weekly chart so that you can see the levels that I’m looking at.

Silver Dec '19 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.
Energy - Crude Charts Damaged

The last couple weeks have seen an FOMC rate decision shift, unemployment, a tariff increase tweet and much, much more. The crude oil contract and others have seen significant moves and corresponding chart damage which could have further implications. As noted previously, producer quotas mark a market operating at oversupply and these changes to demand do not help, certainly factored into the price action.

Also, yesterday saw extremes and a bounce from the lows in oil, although the recovery today is on lighter volume, and the market has recovered from this level early June. Should the market fail to recover this time, a run to December levels could be possible.

Looking to the chart below, the trendline from the December and June lows was traded through yesterday and it does not seem, as of this writing, that it will be trading close to that point today. There may be some encouragement from the RSI near 30 and the recovery from yesterday’s low, although outside markets and some fundamental factors point otherwise.

Energy - Safety on the Sidelines For Natural Gas

Natural gas for September seems to be consolidating near the $2.100 handle. The market doesn’t seem to have any direction. RSI and MACD are near the half-way level, lending no indication to direction through past price data. Today’s pivot numbers are in a narrow range with $2.110 being the pivot. The resistance levels are $2.134 and $2.159.  Below the support comes in around $2.086 and $2.061.  A close above August 1st’s high of $2.202 may signal a move to the range between $2.200 and $2.300.  Until the market picks a direction, the safest place might be on the sidelines.

Today’s storage number is estimated to be an injection of 61 bcf. This is on the higher end of estimates, they range from 52bcf to 63bcf. Barring any major surprises in the injection, the path of least resistance is down. The low of this move is $2.029, anything beneath this level would be bearish. For a large majority of the continental U.S., weathers forecasts seem to be slightly below normal over the next week or so. Once again, the safest place to be right now might be on the sidelines until the market chooses a direction. 

Natural Gas Sep '19 Daily Chart
Softs - New Lows in Cocoa – Where is the Bottom?

With global uncertainty, trade wars and volatile currencies - all commodities and stock sectors have had a rough week. Cocoa futures are no different. Cocoa futures’ prices are down again, 12 straight trading days. This market has formed one of the most bearish charts in commodities. Is this a good buying opportunity? Now, it is hard to tell, not only have the outside factors created this spiral lower, but cocoa fundamentals are weak too. Demand is a concern; volatile Asian markets are not helping this. Cocoa arrivals are leaning on the move lower as well. Uncertainty in cash prices in Ivory Coast and Ghana are also pressuring the cocoa market. As September options reach expiration and the September trades in its final weeks, look to see if the market holds above 2200. If it holds, buying opportunities in the December contract should form.

Cocoa Sep '19 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 - September Coffee Violates Support

Coffee prices seem to be holding support, likely due to a strong bounce back in corrective action from U.S. stocks. There has also been talks of weather that may not be favorable to the upcoming crop in the second largest producing country, Vietnam. In fact, our friends at The Hightower Group have reported that “Vietnam’s Central Highlands growing region is forecast to receive 20% to 40% less rain than normal this month, with temperatures expected to be slightly above average.” These weather concerns in Vietnam may help to support coffee prices, while a rallying US stock market could bode well for a break above resistance levels, as the September E-mini S&P 500 fights to hold ground above the 2900 level.

The recent violation of the June 19th low of 9625 is bearish. Typically, we will see a violation of such support areas, followed by a sizeable return move and strong correction (especially in the case of coffee prices, which can be extremely volatile at times). Technically, I would expect follow through selling to take place over the next few days, in a big way. Look for September coffee prices to resume the downtrend with a visit back down to the lows we saw back in May of this year.

Coffee Sep '19 Daily Chart
Softs - Trade Tensions Weigh on Cotton

December cotton started the week pushing to new contract lows of 57.26 before rallying some to close at 58.66. Cotton’s drop lower continued this week with pressure from China’s releasing statements saying it has stopped buying U.S. agricultural products in response to additional tariffs from the U.S. The bounce off the lows show that there is perceived value down around the 57.25 to 58.00 level. This week’s crop progress report came in with a 54% good/excellent rating and although that’s down from last week’s 61%, it’s still ahead of last year at this same time when we saw only a 40% good/excellent rating. The decrease in key growing regions could be the spark needed to start a short covering rally. The 10-14 day forecast is showing higher than normal temperatures and precipitation except in west Texas where it remains dry. The December cotton market has fallen 20 cents from the mid-April high and although we could see a short-term rally on declining conditions the longer-term trend remains lower. Barring continued decreases in weather/crop conditions, Chinese demand and US/China trade tensions remain weighing on the cotton market

Cotton Dec '19 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.
Agricultural - Grain Futures Update w/Stephen Davis - 08/09/2019

RJO Futures Senior Market Strategist Stephen Davis discusses the grain futures markets.

Agricultural - Questions and Uncertainty Surround the Corn Market

The market today seems to be starting to price in Monday’s USDA report, and expectations lean supportive.  Demand is struggling mightily, which could be the reason we saw corn move 60+ cents lower over the last few weeks. The weak demand getting priced in. Most traders, farmers, and anyone in the AG industry seems to be expecting lower yields on top of much lower planted acreage. In June, they released projected planted acres at 91.7 million. Since that time, USDA has re-surveyed and will release “more accurate” numbers with August 12th report. I have heard estimates anywhere from 81 million acres all the way to still in the 90 million-acre range. I think it will take a number below 87 million-acres for the corn market to really see a move higher and possibly test the old highs. Obviously, yields, % harvested and weather will still be factors moving forward for corn pricing.  Support is seen at 4150 and resistance comes in at 426.

Corn Dec '19 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 - Global Currency War: A Race to the Bottom

September U.S. dollar futures slid 10 points lower Thursday morning, continuing a consolidation pattern between 97.25 and 97.50 this week after last week’s intense volatility. The dollar attempted a breakout above the 98 level after a less-than-dovish Powell indicated the 25 bps July rate cut may be a “one & done” situation, but this breakout quickly faltered. Why? Enter President Trump. The commander-in-chief announced last Thursday that the U.S. is going to implement another 10% tariff on the remaining $300 billion of Chinese imports. The dollar plunged on this news as stocks sold off. China retaliated by allowing the yuan to trade through the critical 7:1 yuan to dollar ratio, effectively devaluing the Chinese currency. Both nations are attempting to manipulate domestic currency to gain an advantage in world trade. A weaker currency is more attractive to foreign buyers looking to get the most bang for their buck. Given increased trade war tension, the probability of a 50 bps September rate cut increased this week from 15% to 28%. As developed economies around the world follow suit, interest rates continue to move lower.

 Talk of further cuts is now a common theme coming out of many central banks. Because U.S. rates are still higher than most other developed nation, the Federal Reserve has the clear advantage when it comes to using rate cuts to devalue domestic currency. However, Chinese President Xi does not have a central bank to contest with the way Donald Trump does. That could be their best weapon in this currency war. So which currencies will be the beneficiaries? Safe-haven currencies, like the yen and the Swiss franc, have been performing to the upside given the developing trade situation. The pound and the euro are still entrenched in bear tracks. Relative to slowing growth around the world, euro zone growth is the slowest (most notably in Germany, the largest EU economy). The prospect of a no-deal Brexit has not helped the pound catch support, but once this situation is in the rear-view mirror come November, the pound may reverse trend. Commodity currencies, like the Australian and Canadian dollar, are bouncing Thursday morning after correcting to the downside over the last couple of weeks. Should the dollar begin its descent, these currencies stand to gain ground.

Japanese Yen Sep '19 Daily Chart
Interest Rates - U.S. Yields Edge Higher

U.S. government bond prices are falling and coming off their bottleneck breakout following a report that German officials are considering implementing a fiscal stimulus package. This comes following new lows in U.S. yields after interest rate cuts by centrals banks in New Zealand, India, and Thailand this week. Easing policy typically weakens the respective country’s currency and supports their economies by making exports cheaper, which in turn leads to a stronger U.S. dollar. The Fed reduced rates by a quarter percentage point last month – the first cut since 2008 – to what Chairman Powell described was preemptive ‘mid cycle adjustment’ but expectations have increased sharply for further cuts as concerns regarding global growth continue to persist, coupled with ongoing and intensifying trade tensions.  The benchmark 10- year yield remains bearish trend with today’s range seen between 1.61 – 1.91.

30-Yr Yield Sep '19 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.
Equity - Volatility Returns as Stocks Search for Direction

The stock market had investors on their toes this week as it can be summed up with one word: volatile. The VIX indicator reached 24.80 this week and investors saw markets fight for direction in a financial tug-of-war. The initial catalyst for the recent correction was a Fed testimony that the markets viewed as “not dovish enough”, as Powell indicated it was an insurance cut to maintain the historical economic expansion. The real knife to the heart came last Thursday when Donald Trump implemented a fresh round of 10% tariffs on the remaining $300 billion of Chinese imports. Before the news, stock markets were attempting a rebound, which failed almost instantly when the president’s tweet went live. Markets fell through the floor and selling continued into last weekend, then early this week stocks came crashing down.

The Sep S&P plummeted over 100 points on Monday, marking the largest one day sell-off of 2019. The overnight low touched 2775.75, nearly 10% off the all-time high from late July. After such extensive sell-offs, it is not unusual to see a rebound attempt, which took shape on Tuesday. It paved the way higher for the remainder of the week. Friday morning, we are seeing the waters calm compared to earlier this week. The rally hit stiff resistance near 2940, falling 1% Friday morning. I believe the rally was supported by increasing odds of a September rate cut in the face of increasing trade tensions. The odds of a 50-bps cut in September hit nearly 30% this week. Short covering provided aid to the rally as well. Should the market hold Thursday’s low at 2870.50, I believe the rally can sustain itself. The rebound attempt seems to be taking a breather today after running up 5% from Tuesday night’s lows. Investors may consider trading the ranges and treading carefully. One tweet could send markets into an uproar.

E-Mini S&P 500 Sep '19 Daily Chart

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