RJO FuturesCast

October 25, 2019 | Volume 13, Issue 43

The Markets

Metals - The Shiny One Has Lift Off

In the early morning trade, December gold has finally broken out above major resistance and you are witnessing momentum buying take place with the shiny one currently trading at $1,519. New data has been coming out weak, which has heightened the possibility of another fed rate cut next week. Furthermore, the announcement of another British election next week has obviously added fuel to the broad base metals rally this morning. Traders and investors alike are speculating if a U.S./China resolution trade deal is reached, then China will come in and buy gold which will give more confidence to the bull camp.

If you take a clear look at the daily December gold chart, you’ll see that it broke above the resistance level that it’s been trading in over the last two months. If we keep it simple, the next two levels that the shiny one should try to retest is the September 24th high and then the contact high of $1,566 back on September 4th. I highlighted these levels below on my RJO Futures Pro daily December gold chart.

Metals - Silver Eyes $20.00 After Spike in Volatility

Since July 2019, Silver has continued to outperform gold. The gold/silver ratio is around 84.50, relative to what it was in July of this year hitting approximately 93.39 on weekly bases. I still expect to see silver continue to appreciate relative to gold. It is impressive how silver held its ground considering dollar strength-today! Fed meeting in a few weeks. Would they cut-rate?  Maybe .25 base point? Who knows. Well, any cut would favor silver. There is a talk of progress in trade negotiating with Beijing.  

From a technical perspective, a closer look shows that momentum is turning up. The bulls continue to enjoy a technical advantage. There is formidable support around $17.00 that needs to hold per close bases; otherwise, the bear will resume. Also, the commitment of traders with options report measured last week shows the non-commercial and non-reportable position hold sizable longer over 118K contracts.  Given where we are now trading around 17.80 in the December futures, more longs came to the market. It would take a real fundamental change for sides to switch.

If you have any questions or would like to discuss the markets further, please feel free to contact me at 800-367-7290 or etesfaye@rjofutures.com.
Energy - Oil Prices Continue Climb Higher

Oil prices have continued to rally and have broken out of their multi-week consolidation despite continual soft economic data from Europe and Asia, which has only served to heighten demand concerns. This comes amidst conflicting stockpile reports from the EIA and API this week, as EIA reported a 1.7 million barrel decline in U.S. crude oil stocks while API reported a larger than expected build of 4.45 million barrels. Earlier in the week, there were reports that OPEC would discuss expanding productions cuts at their December meeting as well as enhance compliance standards. However, that was debunked by Russian Oil Minister Novak who stated that no formal proposal had been put forward. Further, China’s import quota was expected to increase by the end of the year, which provided underlying support. Despite record production levels in the U.S., net exports showed nearly the highest reading on record at 3.685 million barrels a day and with a drastic drop in imports (lowest since May 95), the market should continue to remain fairly supported with outlook orienting more towards OPEC and global demand concerns. This is not to discount the ongoing geopolitical risk factors, which remain at the forefront. The market is now neutral trend trend with today’s range seen between 52.25 – 56.17.

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 - Is Sugar Ready for a Reversal?

Mar ’20 sugar futures start the day down again but may find its footing soon. Demand concerns have weighed down heavily on prices and indication that the 2020/21 crop will rebound with high yields have granted managed money funds an opportunity to press prices down further. Sugar has been weak from a technical perspective, even with recent strength in the Brazilian real, sugar has seen very little support. There could be a change in demand tone however, with China making a large increase in imports. From the supply side there is a lot of support for the near to intermediate term as we are going into a period where supplies could be tight with what’s expected to be a massive production deficit for the 2019/20 crop; which could be a bullish opportunity for spread traders, with near term supplies threatening to be tight and the next crop possibly abundant. Looking at the charts traders should notice that each time prices have broken down below 1225, it has only been temporary and followed by a sharp rally. With this market so heavily oversold I think that as news shifts to tightening near term supplies we may see prices spiking higher soon.

Agricultural - Grain Futures Update w/Stephen Davis - 10/25/2019
RJO Futures Senior Market Strategist, Stephen Davis discusses this weeks movements in the grain markets. With winter staring us down the barrel, he also discusses where he expects the grain markets to go in the near future.
Agricultural - Cattle Market Looking Sideways

The December cattle market remains overbought technically, but there is no good fundamental reason for sellers to start becoming a more active participant in the market. U.S. beef production is expected to be 120 million pounds lower in the 4th quarter than it was in the 3rd. Last year, production increased by 43 million pounds over the same period and it would also be the first time in 5 years that production increased in the 4th quarter. The USDA boxed beef cutout was up 75 cents at mid-session yesterday and closed 80 cents higher at $220.93. This was up from $218.02 the previous week and was the highest the cutout had been since September 10th. The higher beef trend could support a positive tilt to the cash cattle trade this week. The USDA estimated cattle slaughter came in at 119,000 a head yesterday. This brings the total for the week so far to 237,000 head, up from 235,000 last week, but down from 238,000 a year ago. The cattle on feed report is released on Friday and is expected to only show a modest increase in both the placements and marketings during September and fewer cattle on feed than the previous year. I expect the market to trade sideways for the rest of the week and into next week. If there is a breakout over the $115 level, then I suspect a further run up to the $118 level. If there is a rejection at the $115 level, then expect a retracement down the $112 level.

Currency - U.S. Dollar Establishes Bear Flag Amid Correction

Currency futures were fighting for direction this week as back-and-fill action gripped the complex. The U.S. dollar marked a weekly low at 96.89 but was able to close every day above the pivotal 97 level. The recent correction in the dollar is attributed to the commencement of liquidity injection by the U.S. Fed. A pullback of this magnitude is expected after mild monetary easing, but a close under the 97 level would cause investors to take inventory and establish bearish momentum on the dollar chart. The FOMC is meeting again next week and is expected to cut the federal funds rate another 25 bps. According to the CME, the probability of a quarter point cut is over 90%. As the dollar broke down, foreign currencies have gained upside traction. The euro and the pound have had sizeable rallies, breaking through think channel resistance levels that have previously stopped their rallies all year long. After another delay in the Brexit process earlier this week, both currencies have taken a pause from their rallies. The euro appears to be forming a bull flag on the daily chart, which coincides with the bear flag forming in the USD. Should the greenback fight back to 98, and hold those levels, its correction should be short-lived, and the currency markets would return to “business as usual”. However, if the bear flag materializes, and we begin to see closes under the 97 handle, bullish strength would compound in foreign currencies and the euro could extend rallies back to 1.13.

All eyes will be on the Fed next Wednesday. Should they bring out the big guns in order to promote stock market strength, the dollar will fall through the floor. However, if they continue their trend of “less-than-dovish” rhetoric, the correction in the dollar could be over for the time being. Look for resistance back at the 98 level and be careful shorting the other currency markets. Aggressive traders can find success in these choppy waters, but passive investors must be weary of trend reversals that accompany easing monetary policy.

Equity - Stocks Go As China Goes

Global markets were generally mixed coming into Fridays open. Amazon’s 6% premarket decline from their disappointing earnings was putting a damper on the open. On the positive side, word out of China is that they are willing to buy more agricultural products from the U.S. if they cancel existing and forthcoming tariffs on Chinese goods. China’s Foreign Ministry spokesperson, Hua Chunying, hit out at Vice President Mike Pence for his critical comments on Beijing’s human rights record. Further suggesting that Pence should focus on America’s domestic troubles rather than taking aim at them.  According to Bloomberg, “U.S. consumer sentiment paired gains from earlier in October while remaining elevated, suggesting America’s spending will continue to support the economy despite weakness in manufacturing.”

Today’s support is 299600 and 298900 with resistance checking in at 3012 and 302200.

If you have any questions or would like to discuss the markets further, please feel free to contact me at 888-861-1656 or jyasak@rjofutures.com.

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