September 8, 2017

Volume 11, Issue 36

Feature Article

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Exchange Info

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Metals - Gold

December Gold: Are We About to Explode Higher?

Joshua Graves

There are several reasons behind the upward move in gold over the past several weeks. The first and most obvious is the North Korean tension that continues to rattle markets and investors alike. The potential for a full blown conflict seems to be gathering steam as the largest bomb ever developed by North Korea, and over 10 times more powerful than the Hiroshima, was exploded. We expect North Korea to continue to threaten the US and our Allies with additional tests to come. NK is reported to be launching a full range ICBM, with no trajectory changes, on the country’s founding day Saturday September 9. The escalation could be steep if they were to launch in the general direction of the United States or any allies. On top of this, we also saw the jobless claims number come out at 298,000 vs the 241,000 as the consensus. This number can be attributed mostly to the Hurricane Harvey impact with over 50,000 additional claims coming out of Texas alone. We expect this number to continue to rise in the coming weeks causing the Federal Reserve not to increase interest rates for the remainder of the year. Non-yielding assets like gold will continue to move higher should economic data come out that is lackluster or below trade expectations.

A technical perspective will clearly point to higher prices in gold. We continue to stay in a nice upward channel, but are now clearly in overbought territory. It’s blown through all resistance that investors have been watching such as 1,325 and 1,350. It appears that 1,400 is now clearly in the cards.

If you have any questions or would like to discuss the markets further, please feel free to contact me at 800-435-4805 or jgraves@rjofutures.com.

Dec '17 Gold Daily Chart

Dec '17 Gold Daily Chart

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Metals - Silver

Silver is Eyeing More Gains

Eli Tesfaye

December silver is trading at 18.135, up 22 cents on Thursday's session. Metals are strong across the board once again. The credit goes to North Korea, as geopolitical risk is on the rise once again. in the last FuturesCast, I wrote that if silver takes out the $17.00 level, momentum will favor the bull camp. For now, a “flight to quality” type of price action dominates the metal market. The weak dollar is also, providing that there will be plenty of the uncertainty that seems to be helping silver.

Technical buying is driving price higher. Nothing is stopping silver from hitting overhead resistance of around 18.50 near term. As always, you have to feed the bull market every day. Retest to 17.00 level could attract bargain hunters. Bears should be discouraged from fading the market at these levels. 

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.

Sep '17 Silver Daily Chart

Sep '17 Silver Daily Chart

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Energies - Crude Oil

When Refineries Shut Down, Crude Oil Futures Turn Up

Dan Hussey

With Hurricane Harvey abating, and Irma in the forecast, crude oil inventories were reported by the EIA Status Report to have increased by 4.6 million barrels for the first time since June 23.  The increase in inventories is widely attributed to the shutdown in crude oil refining (read consumption), as hurricane Harvey made landfall right onto of the United States largest concentration of gasoline refiners.  It’s estimated that between 18% to 27% refinery capacity was lost during the storm surge, and now that waters have resided and cleanup has begun, energy futures are returning to a normal trading condition.  Hurricane Harvey was a textbook example of how basic economics affects the energy markets.  Refineries offline = decreased crude consumption + decreased gasoline supply.  This directly translated into a rally in gasoline futures and sell off in crude in anticipation of Harvey, and now that the storm has abated, that trend is unwinding and the “crack spread” is narrowing refiners margins.

From a technical perspective, front month crude oil futures have broken above trend line resistance at the 49.00 handle (as seen on the chart below), and have held technical 50% Fibonacci support (drawn from the June lows to August Highs) at 46.24.  This is constructive price action for bulls, as a clear big has returned to the market as US refineries first protect their margins (even before being able to turn their refineries back on) by buying crude oil futures, and second as real consumption of crude begins when those refineries get back to work.

The true test for resistance will be on a sustained break and close above the 50.43, which will immediately put the 55 handle highs from the beginning of 2017, back into the scope for bulls.  Without a doubt, WTI crude futures are still in a range from 42.00 to 55.00 over the last year of price action, however, the current trade is taking the market higher in this range for the time being.  Every test of the range highs and lows are a chance for a break one way or the other, but until then, we will continue to track the dynamics which are governing the price of crude oil. 

If you have any questions or would like to discuss the markets further, please feel free to contact me at 800-367-7290 or dhussey@rjofutures.com.

Crude Oil Daily Continuous Chart

Crude Light Daily Continuous Chart

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Softs - Sugar

Sugar Poised for Upside Technical Breakout

Joe Nikruto

This week’s comment finds the October sugar futures contract poised for further gains. Since our last note, the market has managed to surmount the 50-day moving average and hold above a newly turned up 18-day moving average. The 18-day comes in at 13.71 and is now the downside level that sugar will have to take out to remove the bullish cast from the chart. 13.60, the recent low from the last 9 days worth of consolidation will also be a good line in the sand for traders who are not looking to stay long in the face of what still remains rather bearish fundamentals. Typically, consolidation like we have seen in the last week is resolved by the market moving in the direction it was moving in before it began to consolidate. An upside breakout places the market squarely in the 15.25 and higher range. Funds are still short. Recent upside price action has both been caused by fund short covering and created more fund short covering. The last measured fund short position, as of Aug 29, was about 120,000 contracts, around 6k less than the previous period as listed on the Reuters COT page. This week’s reading should show the fund short position shrinking further. Trend followers will be forced to cover further if price continues to rise. Long signals for many fund trading participants will be generated in the 15.13 and 15.17 area. My guess is that a move above those levels will cause commodity trading funds to switch from short to long rather abruptly. Fundamentally, it is difficult to see a sustained rally in sugar taking place. But, funds getting whipsawed can provide for enough movement in price for our purposes, even if your risk profile suggests options are the way to play.

If you have any questions or would like to discuss the markets further, please feel free to contact me at 800-453-4494 or jnikruto@rjofutures.com.

Oct '17 Sugar Daily Chart

Oct '17 Sugar Daily Chart

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Softs - Cocoa

Cocoa Still Probing Both Sides of Long and Short

Hector Galvan

The cocoa market continues to puzzle the trade, which for weeks has given the market time to find solid direction.  We closed Thursday around 1900 in the December contract on some light liquidation, but the short week has done little to animate prices.  Therefore, what should we be on the lookout for as we go into the next couple of weeks?  I would argue that we will need to closely watch the weather projections that should give us a better picture of future yields.  In my last article, I mentioned the idea that we may have less cocoa just on the idea that no one wants to produce for free.  The value of cocoa is nowhere near where it was a year ago, let alone six months ago.  The main crop in Ivory Coast for example runs from October to March.  If we were to have poor weather push that starting period to November, you could see much less cocoa come to light at the end of the season.  This in addition to the idea of less producers stepping up to farm cocoa this season sure does help build confidence in possibly higher cocoa values by the end of 2017.  One might look at the consistent range that we have been in since the month of April as one piece of proof that we have reached a point where the market needs more information.  Granted, one can never tell what the future will bring, but should the crop in West Africa come in less than anticipated I imagine a slew of volatility by the end of the year.

If you have any questions or would like to discuss the markets further, please feel free to contact me at 877-963-6484 or hgalvan@rjofutures.com.

Dec '17 Cocoa Daily Chart

Dec '17 Cocoa Daily Chart

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Softs - Cotton

Tighten S-T Dec Cotton Bull Risk Near 2017 High



In our day-to-day technical analysis and client workshops we stress momentum as a very valuable technical as trends typically slow down via consolidation before ultimately reversing following a failed new high. In the 240-min chart below, late-Aug/early-Sep's rally looks to be an accelerated (3rd-wave-type) component to the clear and present uptrend that we believe requires some slow-down behavior ahead of at least one more round of new highs before it becomes vulnerable to a peak/reversal threat.

Since the market has yet to breach Wed's 75.65 high, it would be premature to conclude yesterday's 73.37 low as the END of a correction ahead of a resumption of the current uptrend. By virtue of overnight's rebound however, that 73.37 low can be used as a very tight but objective bull risk parameter for shorter-term traders as it breach would confirm at least the intermediate-term trend as down and reinforce Wed's 75.65 high as one of importance and a more reliable risk parameter from which non-bullish decisions like long-covers could then be objectively based and managed...

To read the full article RJO Futures clients may login here to the client portal and access all RJO Market Insights.

Cotton 240 min Chart

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Agriculture - Grains

Daily Market Update - Grain Futures - 9/8/2017

Stephen Davis

Crop reports in September and October will confirm yields, but will demand match?

If you have any questions or would like to discuss the markets further, please feel free to contact me at 800-367-7181 or sdavis@rjofutures.com.

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Currencies

EUR/USD 9/8/17 Outlook

John Caruso

On the back of the European Central Bank meeting yesterday, the question we’re left asking ourselves is when and if so, how much will Mario Draghi and his Constituents pair back their Euro Zone sovereign debt purchases aka QE.  The ECB has been buying up nearly 60B worth of assets since March and previously as much as 80B.  It’s a widely held consensus view that Draghi will trim Euro Zone QE at the end of the year, announcing the policy decision at their October meeting.  However, yesterday we did hear a more reserved and certainly less hawkish ECB.  Draghi expressed some concern for the rapidly rising EUR/USD exchange rate, and it’s potential for impeding on Euro Zone growth and inflation progress.  Draghi did however revise EZ growth outlook higher, all the while revising inflation forecasts lower for the next two years.  The Euro Currency’s bullish drive vs the USD (+13% ytd) has been one of the largest consensus held viewpoints according to CFTC data.  Adding further fuel to the fire has been the US Fed and Janet Yellen’s dovish pivot on US interest rates.  Tracking US Fed Funds futures and the CME Fed Watch Tool, the market is currently pricing in the odds of a December rate hike by the Fed at a paltry 31% chance.  So the ball is in Mario Draghi and the ECB’s court and the market is watching closely.  While we don’t expect a full end to Euro zone QE, we do expect a pairing of its asset purchases back to 40B and possible extension thru 2018.  All of the guessing aside, the EUR/USD is presently in bull formation, however caution is warranted for “johnny come lately”, as we’re in a very overbought state.  Consider becoming bullish into corrections closer to 1.1720, which was the Euro’s breakout from a nearly two year sideways/bearish trend.  Furthermore, keep your ear to the ground for any pivots in US Monetary Policy from dovish back to hawkish, this will certainly hamper the global exchange rates. 

If you have any questions or would like to discuss the markets further, please feel free to contact me at 800-669-5354 or jcaruso@rjofutures.com.

Euro Weekly Chart; Previous break-out level of 1.1710 should now act as support.

Euro Weekly Continuation Chart

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Interest Rates

Time to put a brake on falling yields?

Tarik Husseini

Treasury yields have hit their lowest levels since November of last year as mounting tensions with North Korea, and dovish statements by Fed members, drive futures higher. The 10-Year yield is currently hovering just below 2.07, with the 30-Year in the neighborhood of 2.68.

On Sunday, North Korea conducted its sixth and most powerful nuclear test to date, and it is reported that they are readying for another ICBM test in the coming days. The bomb test was followed by a statement on Monday by the White House that “all options to address the North Korean threat are on the table.”

On the Fed front, yesterday Fed Governor Lael Brainard said the US central bank should go so far as to make it clear it is comfortable pushing prices modestly above the Fed’s 2 percent target. “We should be cautious about tightening policy further until we are confident inflation is on track to achieve our target,” Brainard, a permanent voter on monetary policy, said in a speech in New York. Later in the day, Minneapolis Fed President Neel Kashkari added that the Fed rate hikes may be slowing inflation, wage growth, and job growth. “There may be a lot more slack in the labor market than we appreciate,” Kashkari said. This comes on the heels of a weaker than expected jobs number last Friday, which showed the US economy had added 156,000 jobs in August. 

The next FOMC meeting begins on Sep 20, with the Fed Funds rate expected to remain unchanged at 1.25%.  Although the Fed has hinted that it wants to raise rates one more time this year, the odds on that happening by December have dropped to 31%. 

Technically, 30-Year futures look a bit stretched to the upside. Currently, the front month Sep futures is north of 15800, and there is some room up to the 160 handle in the current channel, but that hinges on North Korean tensions ratcheting even higher and Economic reports showing weakening growth as well as tepid inflation. At this point, there are substantial bullish undercurrents priced into the market. We would look to cautiously begin adding short exposure as it is likely tensions with NK will lessen, and the Fed will begin to pair back their balance sheet as announced. Keep in mind that this is a counter trend trade, and thus best initiated with risk minimizing strategies. This can be done by buying the NOB spread, or utilizing options to minimize risk.

If you have any questions or would like to discuss the markets further, please feel free to contact me at 800-672-0664 or thusseini@rjofutures.com.

30-yr T-Bond Daily Chart

30yr T-Bond Daily Chart

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Equities

Uncertainties over debt ceiling; many investors grow nervous

Jeff Yasak

Global markets have found their footing, but have been unable to shake off lukewarm risk sentiment going into Wednesday morning’s trading.  The Shanghai composite finished near unchanged levels, the Nikkei 225 posted a modest loss, and Japanese equities continue to be pressured by safe-haven inflows to the yen. Australian GDP was in line with forecasts, while German factory orders fell short of trade estimates. European shares are under moderate pressure this morning and led by weakness in the UK FTSE-100. The North American session will start out with weekly private surveys on same-store sales and mortgage applications. With so many short term factors to spark economic uncertainty, the market looks vulnerable to see lower values ahead. Traders are getting nervous over the many steps the US congress needs to take in order to “not” disrupt financial stability. In addition, Hurricane Irma brings about new financial uncertainties due to the size of the storm and likely costs of damage and productivity. Given the disruptions and uncertainties over the debt ceiling, investors tend to get nervous that many stocks are priced for perfection, which could lead to a technical correction, and possibly a more significant correction. Watch for more back and fill action in the S&P. Short term resistance is at 2466 and 2470 with support coming in at 2443 and 2431.

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.

Sep '17 E-mini S&P Daily Chart

Sep '17 Emini S&P Daily Chart

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