February 23, 2018

Volume 12, Issue 8

Feature Article

Upcoming Webinar

Introduction to Options on Futures

Wednesday, February 28 at 11 a.m. CT

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Join RJO Futures and CME Group for an In-Person Seminar in Chicago March 1, 2018

Dave Hightower (of the Hightower Report) outlines his expectations in 2018 for the top grains and energies futures markets. Additionally, Tom Hart, Director of CME Group Metals, speaks on the dynamic CME Group metals futures markets, which comprises the most liquid Metals market in the world.
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Metals - Gold

April Gold, Are We Headed Back to 1300?

Joshua Graves

April gold futures have seen essentially range bound trading for the past few months. It seems like 1365 is a top while 1300 is a low. If you look at the fundamentals of gold you really could make a case either way. Usually in a commodity market with a clear trend, there are one or two major driving factors that lead the market higher. In the case of gold, it’s been range bound. The bulls are focusing on the weaker US dollar, and the recent drive higher in the stock market following the massive selloff we saw earlier in the month. There could also be a long term bullish setup for gold by looking at the South African mining as a whole. Production has been dropping due to significant graft in the national government, poor safety conditions, and many mining contracts expiring in mid-2018. Production is likely to continue the slump.

Another reason to be bullish the precious metal is that if the fed decided to take a more dovish stance than the recent hawkish tone we saw in the FOMC meeting. I would expect three rate hikes this year, but anything less could send gold much higher. Investors might show more interest in the metal if the stock market gets a little overheated once more. CPI data is the biggest gauge of inflation and if the data continues to come in above expectations we could see a much more hawkish Fed, thus sending gold lower. Technically gold should see much support 1290, while much resistance at 1365.

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.

Gold Apr '18 Daily Chart


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Metals - Silver

Silver Eyes Dollar and Fed Amid Range

Michael O'Donnell

As of Friday morning’s trade, the March silver contract is trading near the $16.475 per ounce as the market continues to trade in a narrow range following this week’s FOMC minutes as well as outside market forces such as the US dollar.

It would seem that the trade may be eyeing the moves in the dollar as well as this week’s FOMC minutes. The Fed is also at a point where there are a number of empty seats and this seems to mirror the silver markets lack of direction following FOMC minutes and Fed speak this week.

As of this writing, the silver market has traded in a 14 cent range and seems to be rangebound, possibly consolidating prior to finding some direction.  It would seem that the market would like to see some direction in the dollar and, as the argument could be made for a number of metals, a reprieve from multiyear highs in interest rate products such as the 10-yr note.

Silver traders may eye the 90.45 level in the dollar, what some may consider the base level of a double bottom formation on a daily time frame.

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

Silver Mar '18 Daily Chart


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Energies - Crude Oil

Can US Oil Production Peak Oil Prices?

After a mild draw on US inventories of -1.6 million barrels in this week’s release of the EIA Petroleum Status report (compared to a 1.8 million barrel increase last week) the fundamental story for WTI crude seems to be that producers are matching consumption at a fairly close rate.  The looming pressure “from above” in oil prices is the ability for US production, particularly from the Dakota and Oil Sands, to increase production.  When WIT crude prices first broke above $60, the initial reports of previously halted production in these drilling areas started, and are now coming back online.  This is in response to the favorable prices, which have made oil sands operations profitable again.  I have talked extensively in the past on why the $60 to $65 price per barrel threshold is significant for multiple stakeholders and producers in the global crude oil complex.  Other than the supposed level US oil sands producers need to keep production profitable, this is also the price which Brazil was speculated to have used in the past  for the budgeting and accounting of the for their national budget plan.  The final fundamental supply side improvement, is the return of the Keystone Pipeline to service.  After the incident that resulted in a mild oil spill and a shutdown of the pipeline supply, WTI crude inventories simply had a harder time getting replenished.

The fundamental reason there may be a high in oil for the short term, also has the potential to confirm a technical reversal lower.  While there is no reason to call for a confirmed “top is in” just yet, it would be irresponsible to not consider a situation where oil could trade to the lower $50.00 area, before trading higher.  While a Fibonacci support zone has already provided a bounce from the $58.00 inflection zone (blue boxes on chart), and the ball is in the bull’s possession, the market has a high probability to continue to trade in a 66.00 to 58.00 range.  Upside technical targets from $58.00 could take the WTI crude price to the $68.00 to $70.00 objectives, but there is also the potential for much larger supportive technical areas to the downside to trade as well.  Below the $58.00 inflection zone, are the $54.50 trend line and Fibonacci 100% extension inflection zone, as well as the much larger $46.36 full 50% Fibonacci retracement inflection zone.  Either of these supportive areas would be logical downside targets if the price of WTI crude breaks lower.

In my opinion, the rally that took WTI crude prices to the $66.66 continuous contract highs into the end of 2017 and start of 2018 is taking a mild pause.  Fundamental supply and drilling ramp ups, along with the return of the Keystone Pipeline, are reason to believe there is healthy and ample supply in crude inventories to keep prices capped.  Of course there are black swans that could change this dynamic in a second (i.e. war in the Middle East, or a shutdown of the Keystone Pipeline again), but it’s important to remember a market’s ability to remain irrational for longer than your account can remain positive.

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 Continuation



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Softs - Sugar

Technical Correction Looms But Rally Potential Unclear At This Time

Joe Nikruto

This week’s comment finds the May sugar futures contract languishing or maybe marking time. As of this writing the May contract was back down near the recent lows carved out mid-January.  Eleven days prior sugar had managed to surmount and even close above the 18-day moving average, a positive development. Almost as fast as sugar had arrived in positive technical territory, a near 45 point downdraft put the widely traded contract back on the defensive.  Since then the May sugar futures contract has eroded in price while open interest has increased with the trade shifting from March.  Volume has also waned.  Is it possible the May contract has run out of sellers?  This morning the Hightower group issued their daily comment and noted that sugar maybe should be trading lower with talk of another smaller surplus next year.  This is a valid point. While we may, yet again, be at a technical pivot, the May sugar futures contract appears to be holding up rather well.  If sugar is going to hold and advance from here this is where it will have to happen. Short term traders trying to catch the falling knife likely have stops below 13.15.  The May sugar futures contract is now squarely in oversold territory.  Fundamentally, I can’t see anything on the horizon that could be construed as bullish enough to sustain a lasting rally. That typically means a bottom is near. 13.57, where we currently find the 18-day moving average, and 13.96 the 50-day moving average are the two levels that loom overhead. A technical bounce cannot be ruled out. Aggressive traders could look to position for that technical bounce but remain nimble even if the market starts chopping into overhead resistance.

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.

Sugar May '18 Daily Chart


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Softs - Cocoa

Will Cocoa Demand Outpace Surplus?

The cocoa market has put a great fear on those who have been long the last few weeks as yesterdays close was less than desirable.  Those who have been long have been waiting for a breakout and settlement above 2200.  As we come to the close of the week I am skeptical that the market has the strength to make the run.  This morning we are trading about 30 points higher on the idea that cocoa demand is still going to outpace the global surpluses we have seen the last couple of years.  Granted, we will not have solid numbers on paper until the next set of grinding numbers come out in April.  However, even if today’s trade does push above 2200 we still need a good solid close above that level in the May contract to keep the long position holders satisfied.  Current resistant levels are at 2180, 2200, and at 2223.  A close above 2200 will be the first since November of last year and a likely sign that we may have finally beat the range that we have been in since Thanksgiving of last 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.

Cocoa May '18 Daily Chart


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Agriculture - Grains

Daily Market Update - Grain Futures - 02/23/2018

Stephen Davis

RJO Futures Senior Market Strategist Stephen Davis discusses the grain futures markets. 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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EUR/USD - Range Bound

John Caruso

We received Eurozone inflation data in the overnight, and it slowed -0.9% vs 0.4% m/m and 1.3% vs 1.4% y/y.  This is in the wake of a softer German PPI reading (2.1% vs 2.3% prior y/y) and ZEW (Business Conditions) Survey reading of 92.3 vs a prior reading of 95.2 m/m and 17.8 vs 20.4 prior y/y .  For the time being our outlook on Europe and the Euro currency is tilting bearish.  A stronger exchange rate vs the USD is not exactly a boon for Europe’s exporting business climate.  If you take a look at a MCH Euro Weekly Chart we have been making a series of lower highs and lower lows for the past four weeks, but largely trapped inside a 1.25-1.22 trading range.  Technically speaking, a break of the low end of the range (1.2230), could drive the Euro back down towards 1.2075. The fundamental catalyst would likely be a more dovish leaning Mario Draghi as a result of weaker economic data.  For the time being, our recommendation is to manage the range of 1.25-1.22. The longer term (3-6 month) Euro chart remains bullish trend, but beware of a near-term correction higher in the USD and and softer economic data releases out of Europe.

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 Mar '18 Daily Chart


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Interest Rates

Are Interest Rates Driving Equities?

The FOMC minutes that came out on Wednesday afternoon were initially interpreted as dovish which sent the stock market soaring to new session highs, with the March S&P futures hitting 2747.75.  However, within the hour the Treasury bond market began to plummet with the 30yr Bond leading the way.  This in turn sent the S&P reversing hard as the market is very sensitive to the idea of higher interest rates.  This is a relationship worth keeping an eye on, as the stock market has had a historical rally on the shoulders of low interest rates and stimulus.  Those two ingredients are coming out of the batter, and it’s yet to be seen if the market can adjust.

There were mixed messages in the minutes, which led to the wild intraday swings.  On the one hand the Fed didn’t raise rates, and mentioned that they would stick to gradual rate hikes.  On the other hand, the Fed stated that there were “upside risks” to economic growth.  They also mentioned that inflation was picking up and the 2% target rate would likely be realized in the “medium term.”  The Fed stated that the CPI would rise “notably faster in 2018.”  As mentioned in the last article, inflationary gauges are worth watching closely.  The Fed’s main task is to keep a lid on inflation, and historically when the genie is out of the bottle it is a race to put it back in.  A rapid increase in interest rates are not favorable in general to equities.

Moving forward, the Fed is expected to raise rates at the next meeting in March, and two more times after that in 2018.  There has been talk of a possible fourth rate hike, but that largely depends on the trajectory of the economy and inflation.  The 30yr Treasury is trending down and has now reached a major 10yr trendline on the monthly chart.  This 10yr rally coincided with Quantitative easing, and now has fallen down to the trendline as the Fed has halted asset purchases and begun to unwind its balance sheet.  There could be technical support at these levels in the low 140 handle on the 30yr futures contract so shorts should be cautious.  However, rallies should be sold, and in my estimation the 147-148 area should be a sweet spot of resistance.  For any help on technical levels, or interest rate strategy, feel free to contact me directly.

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.

T-Bond Jun '18 Daily Chart


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E-mini S&P has Capacity to Build Support Around the 2700 Level

Jeff Yasak

Global equity markets overnight were weaker with a few exceptions.  International markets overnight appeared to be undermined as a result of the rising interest rate theme, but also because of somewhat disappointing corporate earning flow from Europe.  With a fresh downside breakout on the charts, one would think the bears continue to control.  However, the markets initially rejected that probe down and commentary from the Fed’s Bullard this morning should ultimately provide some countervailing of fear from the rising rate threat.  On the other hand, strong US economic data could be bad for stock prices. 

While the charts in the E-mini S&P remain classically negative the capacity to build support around the 2700 level could be seen as a psychological victory as the session progresses today.  In fact, a number of credible voices are suggesting that conditions are favorable and that the ultimate reading from the Fed into the end of January should favor the bull track and not the bear track.  Critical support comes in at 2682.

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.

E-mini S&P 500 Mar '18 Daily Chart


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This material has been prepared by a sales or trading employee or agent of RJO Futures and is, or is in the nature of, a solicitation. This material is not a research report prepared by RJO Futures Research Department. By accepting this communication, you agree that you are an experienced user of the futures markets, capable of making independent trading decisions, and agree that you are not, and will not, rely solely on this communication in making trading decisions.


The risk of loss in trading futures and/or options is substantial and each investor and/or trader must consider whether this is a suitable investment. Past performance, whether actual or indicated by simulated historical tests of strategies, is not indicative of future results. Trading advice is based on information taken from trades and statistical services and other sources that RJO Futures believes are reliable. We do not guarantee that such information is accurate or complete and it should not be relied upon as such. Trading advice reflects our good faith judgment at a specific time and is subject to change without notice. There is no guarantee that the advice we give will result in profitable trades.

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