RJO FuturesCast

October 18, 2019 | Volume 13, Issue 42

The Markets

Metals - Which Way Will the Shiny One Go

In the early morning trade, December gold is trading slightly in the red and has been in a very tight trading range over the last few weeks. However, gold has held above this week’s critical support low of $1,480, but will the weakness in the dollar might give the shiny one a much-needed lift? Furthermore, the U.S. greenback might continue its slide down due to the Feds growing calls to cut interest rates even further at the end of this month. However, with the agreement this week on a Brexit deal that has taken some anxiety buying out of the gold market, which does takeaway some confidence from the bull camp. 

If we take a quick look at the daily December gold chart, you’ll see how it has been trading in a tight range which in return has created a symmetrical triangle pattern. Let’s keep it simple for the support and resistance levels. If gold breaks the low of $1,465, then it opens to a sell-off, possibly back to the 200-day moving average. If it breaks out though the top of the triangle of $1,522, then gold should enjoy a momentum rally back to the high of $1,566 an ounce. All levels are highlighted below on my RJO Futures daily December gold chart.

Metals - Silver Searches for Fundamental Push

The silver market has been trading sideways this week with no real fundamental news pushing it in favor of the bull or bear crowd. The December market has pushed its way back to even on the week after trading down to a low of 17.18 during Wednesday’s trading session. A positive day on Friday is needed to close higher on the week. Although there seems to be progress in Brexit and the U.S./China trade talks on a phase one deal, some uncertainty remains on the actual completion of both. Support was seen this week on softer than expected U.S. retail sales numbers that has increased the estimates of a rate cut from the Fed by the end of the month. From a technical standpoint the bears have an edge, but we’ve seen that any break down towards support at 17.00 brings in value buying and any global economic uncertainty also lends support. Support comes in at 17.25 and then 17.00 but with momentum studies trending higher, any bullish fundamental news should accelerate a rally back up to resistance at 18.00.

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 - Crude Ticks Higher Despite Rising Stocks Amid Record Chinese Throughout

Oil prices have continued their follow through from yesterday’s gains and are ticking higher despite the EIA confirming the massive build in API crude stocks of 9.2 million barrels. This comes amidst data in the overnight showing China’s GDP grew 6% in the third quarter, a lower than expected reading and the lowest in almost three decades, which was weighed down by soft factory production and slowing domestic demand. This was largely offset by Chinese September refinery throughput up 9.4% year over year, which provides underlying support and demonstrates resilient demand expectations despite a near multi-decade low in GDP growth. In addition, OPEC and compliance stated that output quotas were exceeded at 236% in the month of September. The market remains bearish trend with today’s range seen between 51.79 – 54.86.

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 - Cocoa Futures, Demand Outlook and Brexit Deal

Cocoa has been a macro trade of late. The December contract is range bound in this recent consolidation. Due to a more positive global tone, possible Brexit deal as well, cocoa’s demand could be on the rise. If the demand outlook rises, look for support at these current prices at the higher end of this channel. As a Brexit deal could push the euro and pound higher, other outside global factors are still uncertain. Trade talks, Asian demand and North American data are all factors as well. Grinding data this week will also be processed and added to the trading equation as we enter the weekend. Will this data help the December contract break out and continue its climb we saw in October? What will the COT data show after Friday’s close? These questions will provide short-term volatility. A continued close above 2500 is supportive for prices. A close above 2560 and the 9-day moving average is critical– these key technical points should reaffirm last quarter’s trend as we head towards year end and the next contract roll.

Cocoa 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 pmooses@rjofutures.com.
Softs - Coffee Weakness Is Strong

The recent sell-off in December coffee prices have been sparked by a number of fundamental issues. For the most part, the Brazilian and Columbian currencies have been weakening, which has put some strong pressure on December coffee prices. In addition, reports for a very large upcoming crop from India has added to the bearish move. Our friends at The Hightower Group have reported that “Vietnam’s upcoming crop remains on-course for a large production total, however, and that has helped to drive London Robusta prices down to near multi-year low levels”

On the technical side, the failed bullish symmetrical triangle prompted an immediate sel-loff which ultimately violated the 9500 support level. In addition, we have also broken below the May 7th critical low of 9370 and are comfortably trading below this level. In addition, volume levels spiked and held steady during this entire selloff, likely prompting additional bears to become involved on the short side.

Agricultural - Grain Market Update w/Stephen Davis - 10/18/2019
RJO Futures Senior Market Strategist, Stephen Davis, reviews this week's moves in the grain markets and discusses what he expects going forward, including the end of the season.
Agricultural - Weather Begins to Shift Negatively for Corn Heading

Same story all season; a weaker demand tone seems to be offsetting potential losses from the storm last week, which led to consolidation this week. Traders remain concerned about yield damages done to the crop from last week’s storm in North/South Dakota and Minnesota. Analysts are predicting 150MB to 400MB of lost production. News about the USDA re-surveying these states also added uncertainty to the market. If we lost the 400MB, this would put ending stocks at the lowest they’ve been since 2013.  South America is experiencing delays in planting due to dry conditions, which could add a little support to the market today. Yesterday’s ethanol number was slightly negative, coming in at 971,000 barrels per day.  Up .8% from last week but down almost 4% from last year.

December corn is down 3-cents on the week and needs a close over 397 to mark the fourth consecutive weekly higher close. The weather heading into the final stretch of harvest is looking better with a drier outlook. However, enough uncertainty about yield and harvest should support pullbacks and keep them shallow.  Resistance is at 397 with support coming in at 392.

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 - Grappling with the Greenback: Foreign Currencies Gain Momentum

U.S. dollar futures broke a valid trendline below 98.50 this week and continue to sell off. The slide lower comes on the heels of Powell’s announcement, saying the Fed would inject massive amount of liquidity into the U.S. economy via treasury buybacks from November through April. Thursday morning, the dollar is off its overnight lows, but encountering resistance near 97.50 and sliding lower. Technically speaking, the dollar is encountering a “trifecta of overlapping cycle downturns”. Essentially, major trends and minor trends are all running out of steam, and the fundamentals paint the same picture. However, I do believe the dollar will fight to hold near the 97 level. Dollar demand is not going anywhere. Should the Fed’s easing of monetary policy reignite the slowing economy, the gap between the dollar and foreign currencies is likely to narrow, but the greenback will remain the most fluid and accepted currency in the world. Should Fed policy fail to stimulate the economy, foreign nations will likely struggle more quickly and more intensely than the U.S., providing safe-haven buying interest in the USD. So, the dollar is breaking down due to increasing money supply in the short term, but inevitably, I still believe the dollar will remain strong due to the resilience of the U.S. economy and its strong global demand. As the dollar breaks now, other world currencies move higher. Specifically, the British pound and the commodity currencies are doing well.

Fundamentally, investors in the pound are drafting confidence on the progress of Brexit. There is a deal in place, but it still needs to move through Parliament, and without the support of the Northern Irish DUP, there is still risk of failure. Should the bill be passed, I strongly believe we’ll see the pound rocket higher. The euro is catching a “win-by-default” bid as the dollar breaks down, while the safe-haven yen remains in a firm downtrend (so long as uncertainty is subdued). The Canadian dollar looks to test resistance at 76.25, and a close above that level will test a run to 77. In short, currencies are looking to reverse trend, but all action is tied to the movement of the USD.

Interest Rates - Treasuries Up Early Wednesday

Looking at treasuries, specifically, the ten-year note, we are currently trading 129-31, up 6 ticks in quiet trade. We had retail sales that came out at 7:30 this morning and the street was looking for up 0.3%, but the number disappointed as a -0.3 print came out and as a result the 10-year rallied up to 130-055. However, that number has since fallen to 129-300 back in the middle of the range from the overnight low at 129-245 to a high of 130-075. The market continues to trade cautiously and moves on any news regarding China.  

Looking at technicals, the market has made 4 continuous days of lower highs, even if the face of economic news that has been generally weak. Now, all that can change very quickly if anything negative comes out on the wires concerning any impasse or stalled talks on the trade front with China. For bulls, a big number on the upside that you will want to see is 130-255, which is the 50-day moving average. If we can close above that level, near term bias will shift to the upside.  Stocks have been strong lately, but are near the top end of their range and with any kind of significant pullback, we might very well see the 50-day moving average come to play.  On the economic front later today, we have a few Fed speakers in the afternoon and at 1:00 central, we have the beige book which is the economic outlook for the different regions of the U.S. Normally not a big market mover, but if there are significant signs of strengths or weakness, the market can certainly move.  

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 Lower to Begin Session

All four major indices are slightly lower in the wake of the opening bell. The data slate today is very light, but traders will continue to monitor the headlines for news on China, Brexit, and the situation along the Syrian border. Several of the Federal Reserve members will be speaking, but I’m not sure they’ll say anything that will really move the needle. Next week’s slate is also on the lighter side until Thursday when things start picking up again. Absent news, previously mentioned headlines, and talk about what the Fed will do at month’s end should dominate the conversation.  As of now, it appears the Fed is on pace to cut another quarter basis point. 

The S&P still looks strong but is struggling to build on the gains we saw last week into some overhead resistance. News could provide the spark needed to drive it higher, but I’m not holding my breath for a China deal anytime soon.  Earnings season is still in full swing, so any big surprises there could also give the market the nudge it seemingly needs to move off this 3000-level. 

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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