July 19, 2019

Volume 13, Issue 29

Feature Article

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Metals - Gold

Gold Breaks 1450 on Increased Rate Cut Expectations

Tyler Herrmann

August gold continued through 1450 to post a new recent high of 1454.4 in the overnight session before trading back below Thursday’s close of 1447.4. Bullish headlines this week continue to add strength to the market, but weak trade to end the week could lessen bullish momentum. The market is expecting that the U.S. is ready to weaken the dollar with preemptive rate cuts up to 50 basis points on July 31st. The U.S. dollar has recovered some today from its 2-day slide. The silver market has been posting a series of higher highs all week and currently looks to have more strength than the gold market. Some of gold’s pullback to start the day could be due to funds building a larger net long position in silver vs gold. The 1450 level in August gold is still the key resistance point in continuing the trend higher with the next level of resistance at 1470. Support comes in at 1433.5 and a close below that would point to trade breaking to the 1400-1408 level. With more Fed members speaking on the need for action the trend is still to the upside but we may see some choppy trade before making another run higher.

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.

Gold Oct '19 Daily Chart

Gold Oct '19 Daily Chart

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Metals - Silver

Silver is Flying High

Eli Tesfaye

2018 highs of $17.50. We will have to review the COT report coming out today to see where we sit with net long positions. As of the last report, it was not overbought, but according to HT report this morning, it will not be overbought until silver hit over 90k contract long.

The chart below is what I would like to get everyone’s attention on. This gold/silver ratio has been showing a sign of pulling back. Silver is still cheaper relative to gold. I think we now start to see that silver is coming back in strides to regain its “shine.” Again, as I said before, equities are becoming chaotic due to devolving U.S./China trade talks, escalating tension and potential conflict with Iran, and an expectedly ugly 2020 presidential election. It appears that money may start to move into “something you can hold onto.”

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

Gold/Silver Ratio Daily Chart

Gold/Silver Ratio Daily Chart

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Energies - Crude Oil

Crude Oil Under Pressure

Phillip Streible

Oil futures followed another textbook buy the rumor and sell the fact this week with a run up to $60.92 on news of the impending hurricane and then an immediate drop down to critical support at $55.00. With bullish news flowing through the headlines and no bids coming into the market crude oil might have to travel back down to the low 50’s to spark new demand. Looking at the supply situation inventories sit at 455 million barrels with the 5-year average at 432 million barrels leaving the market flush with inventory. Keep an eye on new geopolitical risks developing in Iran and another drop in the rig count with rigs falling 10 of the past 13 weeks.

If you have any questions or would like to discuss the markets further, please feel free to contact me at 800-438-4805 or pstreible@rjofutures.com.

Crude Oil Aug '19 Daily Chart

Crude Light Aug '19 Daily Chart

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Softs - Sugar

Sugar Falls Off a Cliff but Summertime Makes Breakouts Tricky

Joe Nikruto

This week’s comment finds October sugar under pressure. 12.60 to 11.60 in 6 trading sessions! The October contract had been hugging the 50-day moving average for the last 2-weeks until falling off a 12.25 cliff. Today’s low, 11.53, takes sugar to the lowest level of 2019. Wire services and futures commentators are highlighting recent large deliveries, the last reportedly upwards of 15,000 lots. The resulting price action, in my opinion, shows the inconvenient effect abundant supplies can have on the sugar deficit narrative. Weakening price action in outside markets hasn’t helped. Of note on the fundamental front, a large commodity concern has been getting mention across the wires for a study they recently put out detailing what they see as cost of production in sugar producing countries. At the risk of oversimplifying, the study showed that all producers had cost of production that was higher than the current futures price.

This is the same discussion we have seen in coffee, where the “C” price, the benchmark for Arabica coffee traded on the ICE exchange, is reportedly lower than the cost of production in Brazil and Columbia. Even a two-armed economist has to raise an eyebrow toward a commodity that is trading on the open market for less than it costs to produce. How long can that go on? Technically intermediate-term trend followers have been forced into new short positions over the last 3 trading sessions as price has dropped and open interest has increased.  I expect the COT report this Friday to show the fund trader category has increased their short position. Sugar has challenges. Trade friction between the U.S. and China could result in less sugar imported into China. Big up-front supplies of sugar could be followed by increased production from countries such as India and Brazil. But, the timing of this move lower, the middle of summer, means that even the most bearish of traders must be vigilant and extremely nimble. Do you have profits?  Place a stop. Commodity markets are good at punishing trend followers in the summertime.  Sugar is coming into good support and while the trend is down we could see a nice bounce up to the 18-day moving average, 12.33. Traders with the tolerance for the risk can position for this bounce and then look to be short when the market tests the 18-day.

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 Oct '19 Daily Chart

Sugar Oct '19 Daily Chart

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Softs - Cotton

Cotton Starts the Day Down

Eric Scoles

Dec 19’ cotton futures have started the day down again at 62.36 currently with short-term supply and demand fundamentals still looking bearish. U.S. cotton crops have been noted as currently improving with cotton crops rated good/excellent increasing and up 7% over the 10-year average. There have been some concerns regarding production in India due to the late monsoon season, but that has yet to offer any significant impact on prices. There is still some potential for the U.S. and China reaching a positive trade agreement which would leave the currently priced-in demand tone as heavily undervalued, but I wouldn’t suggest holding one’s breath. However, the managed money funds currently hold a large record net short position leaving cotton in oversold territory. We may be approaching a point where the selling momentum could be drying up and any truly positive U.S./China trade talks or legitimate supply threats could spark a wave of short covering. This makes cotton a market to keep your eye on as there could be a great opportunity for well-timed bulls.

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

Cotton Dec '19 Daily Chart

Cotton Dec '19 Daily Chart/p>

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Agriculture - Grains

Be Aware of Liquidation in Corn

Tony Cholly

The weather is shifting to a less threatening outlook and with crop conditions at such low levels a few weeks ago, the more normal weather should result in improvements. The market closed below the 50-day MA for the first time since May 14th. Better than expected rains moved across Iowa, N. Illinois, Wisconsin, and N. Indiana which put some pressure on the markets yesterday. Export sales also disappointed with just 200,000 tonnes for the current marketing year. The lack of clarity on planted acreage continues to cause angst among traders and a shift to cooler next week is seen as a slightly bearish force. The latest 6-10 day forecast has cooler temps and below normal precipitation for all of the Midwest July 24-28th. 

December corn is down almost 30 cents on the week so far and should put a bearish outside week lower on the close today. The long- term forecasts have certainly thrown a wrench in the bull camps thinking, but with acreage adjustments likely to come plus the large percentage that was planted late, we still think buying healthy pullbacks is a valid choice. Resistance comes in at 437 and support at 418.

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.

Corn Dec '19 Daily Chart

Corn Dec '19 Daily Chart

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Agriculture - Livestock

Positive Outlook From China for U.S. Lean Hogs

Peter McGinn

There are short term fundamentals in the market that are supportive to hog prices, but with continued trade tension between the U.S. and China, we could see more downward pressure. Helping the hog prices though is the continued rise in Chinese pig value with the Chinese Ministry of Agriculture indicating that the rise of Pork prices in June and that the tightness in pork supply is predicted to be even more intensified in the second half of the year. Chinese pork prices are up 40% year to date, indicating a strong need for the Chinese to import pork, which should be supportive to U.S. prices. In the October contract, with the strong price action we saw yesterday, and if we see continued follow through today, we should see this market make a run back up to the $77.75 level which would confirm the double bottom reversal chart pattern. The USDA pork carcass cutout value was up $2.90 at $75.80 on very good movement of 366 loads. The butt was the only primal reported lower, with the belly up $9.53. Estimated packer margins were $3.46/head for non-integrators and $30.24/head for integrators vs. $-0.92 and $24.25 the previous day. Weekly IA/MN hog weights came in at 280.0 lbs. vs. 280.2 lbs. last week and 276.5 lbs. last year. Weekly kill is up 3.49% vs. last year.

In the October live cattle contract, the long-term fundamentals are bullish but in the near term we could see a small technical pullback due to overbought conditions from my stochastic and RSI indicators. Supply is tightening in the market, so we should see this market trade higher over the next month. Within the next couple days, I expect prices to test the 110.55 price and a break through this level to test the 112.00 level. If there is a rejection at the $110.00 price we could see retracement back to $108.75. The USDA boxed beef cutout value was up 64 cents at mid-session yesterday, but closed 34 cents lower at $212.93, down from $214.73 the prior week. The estimated cattle slaughter came in at 121,000 head yesterday bringing the total for the week so far to 238,000 head, which is down from last week which was 241,000. Cash prices in Texas traded at $111-112 last Friday, up $4 on the week.

If you have any questions or would like to discuss the markets further, please feel free to contact me at 866-536-8601 or pmcginn@rjofutures.com.

Live Hogs Oct '19 Daily Chart

Lean Hogs Oct '19 Daily Chart

Live Cattle Oct '19 Daily Chart

Live Cattle Oct '19 Daily Chart

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Currency Wars Ahead

John Caruso

Global Central Banks, specifically the FOMC and ECB, are racing to offset an avalanche of slower economic growth ahead via rate cuts and dovish lingo – what currency arbitrage might benefit the best? We ultimately believe that the U.S. Federal Reserve wins out in the end with a weakening USD and perhaps an aggressively weakening USD at that. With the benchmark U.S. 10-yr note yielding a historically paltry 2.05%, it's still one of the highest yielding government bonds globally. Comparatively speaking, the German 10-yr bund yields -0.32%, France -0.068, Japan -0.133% (I could go on), which means on a rate of change basis, the Fed has the most room to pull down US interest rates aka lower borrowing costs which ultimately leads to a devaluing of the U.S. Dollar. One currency we believe will ultimately win by default due to a dovish U.S. Fed and dovish ECB, is the Swiss franc. Without the peg to the euro, we believe the Swiss will be a top currency for flight to safety measures with declining global bond yields. Our quantitative signal in the CHF/USD went bullish trend at the beginning of June, and is likely to continue thru year end and into 2020.

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.

Swiss Franc Sep '19 Daily Chart

Swiss Franc Sep '19 Daily Chart

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Interest Rates

T-Note, Eurodollar Divergences Stem Relapses, Consistent with Broader Bullish Counts


Yesterday's poke above 10-Jul's 98.315 initial counter-trend high confirms a bullish divergence in short-term momentum that confirms at east the intermediate-term trend as up and clearly defines 10-Jul's 98.18 low as one of developing importance and possibly the END of what looks to be only a 3-wave decline from 25-Jun's 98.50 high as labeled in the 240-m,in chart below.  Left unaltered by a relapse below 98.18, that late-Jun/early-Jul setback is easily seen as a corrective/consolidative affair within the still-arguable major uptrend that should not surprise by its resumption.  12-Jul's 98.225 smaller-degree corrective low is left in the wake of yesterday's 98.315+ pop and serves as our new short-term risk parameter from which a resumed bullish policy can be objectively rebased and managed by shorter-term traders with tighter risk profiles.

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Eurodollar Jun '20 240 Min Chart

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