Today in Commodities: Dollar Determines Destiny

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 |  Includes: BAL, CORN, COW, DAX-OLD, DBA, GRU, JJA, JO, MOO, SGG, SLV, TLO, UDN
by: Matthew Bradbard

The next few days will be critical with two Central bank meetings and a jobs number. IF the dollar can stage a recovery back above the 200 day MA, prices will temporarily reverse.

Fairly bearish inventory report in the energies today and a potential reversal in the dollar kept Crude and the distillates sideways today. We think prices are getting close to turning south; as we’ve voiced in recent posts, we do not expect much more than $2-3 higher before we see a trade back to $77/barrel. Tomorrow’s AGA inventory report or any new developments in the weather will determine the immediate direction in natural gas. Our recommendation remains to purchase November 50 cent call spreads.

From my viewpoint indices will track higher into Friday’s job number but we do not think bulls have much more gas in the tank. On a surprise friendly jobs number or settlement above 1140 in the S&P, we would admit we’re wrong. Until then we suggest fading rallies in September S&P futures and purchasing December put spreads. I may be reaching, but we could be making a triple top in the DAX-OLD; look at the highs in April, June and the current trade. We should know in the next few sessions. We suggest waiting for the jobs number Friday but looking at the daily and weekly charts in Treasuries we could be rolling over very soon. If September 30-year bonds remain below 129’00 we will likely have some suggestions to come for clients.

Sugar does not want to break lower even with bearish news out of India and Brazil. We do not suggest shorts BUT if we see a trade down to 17 we would be willing to re-explore longs. A move to 17 cents from the current prices would be a 10% decline. As long as 80 cents acts as resistance in December cotton, aggressive traders can scale into bearish exposure. Aggressive traders could sell rallies in December coffee that are contained at $1.76. We are tracking 15 cent put spreads for clients but have yet to make a move.

Live cattle gained 1.59-1.90% today, lifting prices to four month highs. Talking to a seasoned cattle trader he expressed his concern with the weather in Russia, and not about wheat, but the potential shift in demand for US beef. We will be exploring longs in October and December for clients on a set back.

December gold briefly traded above $1200/ounce, closing higher for the fifth consecutive session. We will be shopping December longs for clients but first want to see how the dollar reacts to the BoE, ECB tomorrow and NFP number Friday. Reversal in silver today with September closing 2% off its intra-day high. Trail stops up on longs; the 100 day MA is at $18.15 and the 50 day MA is at $18.25. We suggested clients to lighten up on some of their December silver positions today and will look to re-evaluate long entries depending on the next two days. We remain convinced a trade to $21/22 by early next year, so we will be likely buying dips but today’s price action was disappointing.

The weather in Russia and strength in wheat led all grains higher today; wheat higher by nearly 7%, soybeans 0.61% and corn by 2.76%. Buy dips and be long into the 8/12 USDA report. Wheat prices are near two year highs but we do not feel this move is over yet. The problem being after a 65% move the risk in being long increases significantly.

If the dollar can get back above the 200 day MA at 81.25 the next few sessions, we should finally get the correction we’ve been expecting in recent weeks in other crosses. The Euro and Swissie were hit the hardest today as suggested but clients were early on the trade and now need a major slide to offset the time decay in their options…stay tuned.

Risk Disclosure: The risk of loss in trading commodity futures and options can be substantial. Past performance is no guarantee of future trading results.