According to the Bloomberg Commodity Index, commodities bounced back on Friday from lows seen in May after rollercoaster week. The biggest winners are corn and cocoa, were traders focused on weather concerns. Also copper had a good week on technical buying and escalated turmoil in the world’s second biggest copper mine in Indonesia. On the other side it was a bad week for precious metals and crude oil. The later fell after a very disappointing EIA Weekly petroleum report were crude and gasoline inventories increased massively compared to an expected drop.
Crude oil
The oil
market had a turbulent week after the production cut extension agreed by OPEC and Russia didn’t convince the market that it will be enough to bring balance back to
the market. This week the pressure on oil bulls increased after the EIA crude
inventories were released as instead an expected drop by 3mil barrels they
increased by 3.3mil barrels. Moreover fuel stocks also increased by 4.4 mil
barrels signalling there is more than enough supply for the upcoming US driving
season. The market is driven by a very negative sentiment and if there is even
some bullish news, traders are ignoring them. The light at the end of the
tunnel is the developing political crisis in the Middle East involving Qatar as
the risk of this tension is not priced in at all. The main thing here is that it cause supply disruption
in case of war but also this could put the OPEC production cut in jeopardy.
Technically there are two scenarios therefore it's a risky situation. The market is retesting currently the 61.8%
level of the rally from last August until January (in case of uptrend the 3rd wave on
the chart). Until the 45 dollar level holds, the direction where we look should
be the upside. On the other hand the uptrendline is broken and if the $45 is broken we can sea a bearmerket with next support at $40. The question here is how long it will take for the crude to take
off from the $45-50 range if ... (next spring could be goal for Russia and Saudi
Arabia to lift prices / more here) and how many times will the bears try to
test the support at $45 level. At this stage I would definitely not throw away
longs if I have them and would be cautious with any stops as these will be possibly
hunted below $45. Focus on weekly close.
Corn
After a
volatile week in Corn market it seems that hedge funds are losing their nerves.
According to CFTC COT report Money managers closed out 38k shorts to 373k
contracts. On the other hand they also increased longs significantly by 32k
lots in the week ending on 6th June (last Tuesday). With the net
short decreased by more than 35% the market seems to be more balanced and this rebalancing
probably continued until the end of the week (we will know next Thursday the
fresh data).
The hot
weather coming to the Midwest offset the bearish reports from USDA last week. The
Crop progress report that despite earlier concerns farmers managed to speed up
corn planting and the warm weather is helped to develop the crop although
there is a delay compared to last year. However the continuation of hot and dry
weather (even exceeding 90-100 °F , 38°C) forecasted for this week could decrease soil moisture too much
and this can change the situation for corn and soybean. The USDA in WASDE report Friday was
rather bearish raising estimates of world corn and soybean stocks but the US
corn stocks were left unchanged. Also CASDE suggested that China may see the
smallest crop from 2013.
Technically
corn broke out from the triangle which was forming for 2 month and holding
strong despite a pullback (bearish shooting star) on Thursday. It seems that
the uptrend line from last September is the next main resistance as the market
could not close above it despite testing twice during the week.
Sugar
The sugar
market was consolidating and managed to close above 14 cents. Monday traders
will be watching cane harvest data from the Brazilian Sugarcane Industry Association. Analysts expect a 9% drop in the key Brazil Centre South
region and also the amount of sugar contained in cane is supposed to drop due to heavy rains. This
will add support to the sugar but still plenty of bearish factors weigh.
The Indian
sugar lobby is trying to persuade the government to increase import duty on
Sugar to 60% from 40% due to the falling prices as imports at 40% duty are
still viable. Do you remember few weeks ago the Indians reduced import duty
to zero for 500k tones due to domestic sugar shortage, quite a change... Domestic Sugar
production is estimated to rise app. 20% this marketing year. Also China introduced duty on sugar imports last month. According to the CASDE report the Chinese sugar imports may fall as much as 300k tonnes. Moreover the EU is planning to boost its sugar export to gain market share after years of isolation from international markets. Moreover European sugar production is expected to rise by 13% this year.
Technically
despite a short term support and possible increase in prises we expect Sugar
prices to fall further toward the Head and Shoulders price target. However first
a correction toward 15 maybe even 16 cents is possible. The question is only
how much the prices will rise before they fall again.
Good Luck
and remember to watch your risk and be consistent
Mr. Tech Man
DISCLAIMER:
This material was created for informational purposes only and represents the
Land of Trading team’s view of the past and current economic and capital market
environment. It is not an investment advice and should not be viewed that way
at all, and the creators of this material cannot be held liable for any
potential losses resulting from trading, where despite this disclaimer someone
would consider this material as an investment advice. All rights reserved
©2016.
Contact:
landoftradingATgmailDOTcom, Blog: landoftrading.blogspot.com
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