Commodity Spotlight Agriculturals

Natural rubber: Continuing oversupply weighs on prices

The rubber price hit a multi-year low in late January, as the market for natural rubber is driven by a combination of rising supply and concerns about weaker demand. Many of the plantations set up several years ago when prices were high will now be harvested for the first time, pushing supply further up. On the demand side it is especially weaker economic data from China, the world’s largest rubber consumer country, that are clouding the outlook. In 2014, supply looks set to exceed demand for the fourth consecutive year. This makes large price surges appear unlikely.
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Commodity Spotlight Base Metals

Pricing on iron ore market in state of flux

Swap trading is becoming increasingly popular on the iron ore market. Swaps are being used more and more to hedge against price risks, partly because there is currently no liquid trading of steel futures. In this Commodity Spotlight we will be shedding light on the factors that are influencing the iron ore market and outlining the development of pricing and tradability of iron ore, in which China is playing a key role. The plentiful supply situation means that the iron ore price is unlikely to regain its previous highs.
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AUD/NZD – Daily Chart

AUD/NZD has reversed from major support and targets 1.1150.

We highlighted last week that AUD/NZD was bouncing off the 1.0501/1.0434 major support zone which consists of the 1995 and 2005 lows And we were looking for a major reversal higher.
We recommended buying AUD/NZD in the 1.0600 region – we are raising stops on longs from 1.0400 to a profit stop of 1.0665 and maintain an upside target at 1.1150.
We noted the positive RSI divergence and because AUD/NZD bounced off the psychological 1.0500 level we are of the opinion that another significant low was made at 1.0493. This is why we changed our technical view from a neutral to a bullish one. We will retain our bullish outlook while no daily close below the 1.0400 level is being made. If so, allow for parity to be targeted.
Upside targets are the double Fibo at 1.1010/36 then the August and September lows at 1.1157/99.
Near term dips are indicated to terminate circa 1.0750.
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NZD/USD – Daily Chart

Is swiftly bouncing off the current February low at .8051 which was probably a false breakout

NZD/USD’s rejection by the .8408/37 resistance area, made up of the September/November highs, took it all the way to the current February low at .8051. From there it has swiftly shot up, though, and now trades back around the 55 day moving average at .8234.
This week’s rally leads us to believe that last week’s drop below the .8084 November low was nothing more than a false breakout to the downside.
We therefore expect to see further range trading between the .8408/37 resistance area and the .8084/51 significant support zone and thus neutral.
In case of a daily close above .8437 being made, we will have to allow for the .8500 region and the October peak at .8545 to be revisited.
A fall through the .8084/.51 support area would turn us bearish, and eye the psychological .8000 mark.
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FX Alpha

At the ECB’s mercy?

At the ECB’s mercy? Admittedly, EUR-CHF is not going to attract investor attention as a result of major moves at present. In this respect the EM currencies no doubt provide better potential. But anyone who thinks that the recent risk-off sentiment is of no importance for the Swiss National Bank is wrong. It has made it clear once again that the franc remains a safe haven. So unless the situation improves short term EUR-CHF will remain under pressure.
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S&P GSCI Total Return Index

Market has halted at the 200 day ma at 4796

The S&P GSCI Total Return Index has tested and failed at the 200 day ma at 4796. In this vicinity we also find 4805, the 38.2% retracement of the move down from August of last year and we suspect that the market has topped here. We look for a slide back to the 4615 January low.
The Elliott wave count on the 240 minute chart is also implying failure here. It is also suggests a move to 4535. A close below 4615 (recent low) would be negative and target initially the 4493.50 2013 low. Failure here will target 4442/47, the 50% retracement of the move from the 2009 low to the 2011 high and the 78.6% retracement of the move from 2012. This represents our medium term downside target.
Above 4805 (not favoured) we will have to allow for a slightly deeper retracement (4820/45), this is the 78.6% retracement of the move down from the December peak.
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Gold – Daily Chart

While resistance at 1268.28/1272.56 caps on a daily closing basis we will retain our neutral view

Last week the gold price dropped back to the 55 day moving average from which it has bounced back close to the 1268.28/1279.13 resistance zone which still caps. It consists of the December and January highs and the 2013-14 resistance line.
As long as no daily chart close above this resistance zone is being made, we will keep our neutral outlook.
Only a daily close above the 1279.13 January high will make us change our forecast to a bullish one.
In this case the area seen between the 200 day moving average at 1312.97, the July peak at 1349.31 and the mid-September and October highs at 1362.23/1375.37 will be in focus.
While the gold price is being rejected by resistance at 1268.28/1279.13, a retest of the 1225.00/1211.57 (early December low) remains on the cards.
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EUR/PLN – Daily Chart

Still has the 61.8% Fibonacci retracement at 4.2782 and the 4.3000 region in its sights

EUR/PLN’s surge higher took it to 4.2648 on Friday, close to the 61.8% Fibonacci retracement of the June-to-December decline at 4.2782 which is our next target.
We still target the 4.3000 region and the September high at 4.3098 over the coming weeks and months.
This view and the bottoming formation will remain valid while EUR/PLN trades above its late January low at 4.1714.
Support above this level comes in between the 4.2344 January 27 high and the November peak at 4.2204.
Further support can be seen along the 200 day moving average at 4.2136 and then around the 4.1926 January 10 high.
As long as EUR/PLN trades above the January 21 low at 4.1531, we will retain our medium term bullish forecast.

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AUD/NZD – Daily Chart

A technical buy signal has been seen on AUD/NZD and a major reversal higher should follow

AUD/NZD probed and then bounced off the 1.0501/1.0434 major support zone which consists of the 1995 and 2005 lows. A major reversal higher should now be seen.
We recommend buying AUD/NZD in the 1.0600 region with a stop at 1.0400 and an upside target at 1.1150.
Because of the positive RSI divergence and because AUD/NZD bounced off the psychological 1.0500 level we are of the opinion that another significant low was made at 1.0493. This is why we have changed our technical view from a neutral to a bullish one. We will retain our bullish outlook while no daily close below the 1.0400 level is being made. If so, allow for parity to be targeted.
Upside targets are the 1.0707/31 area (December low and January 20 high) and then the 1.0911/28 region (55 day moving average and late December high. Once the latter has been bettered, the August and September lows at 1.1157/99 will be back in the picture.
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Commodity Spotlight Precious Metals

Despite the good start into the year, gold requires patience

The gold price had a positive start into the new year. This was attributable to the temporary end of the equity market rally, the fall of real interest rates and robust Chinese purchases ahead of the Chinese New Year. Also, sentiment has improved slightly among speculative financial investors. Gold ETFs, in contrast, have seen outflows until recently. The gold price looks set to come under pressure again in the near-term. However, India could relax its restrictions on gold imports in the second quarter. ETF outflows should likewise come to an end. This should be conducive to a sustained upwards movement in the gold price in the second half of the year.
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Will JPY pause for breath?

Markets now fully price in the BoJ’s inflation target. Is there scope for disappointment?

Although markets are currently fixated with woes in emerging markets and the general under performance of carry trades, it is timely to ask whether the funding leg of carry trades, namely JPY, will weaken further.
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NZD/USD – Daily Chart

Still oscillates between the .8408/37 resistance area and the .8213/.8084 support zone

NZD/USD’s rejection by the .8408/37 resistance area, made up of the September/November highs, has so far taken it to the .8198 level.
We expect to see further range trading between the above mentioned resistance area and the .8213/.8084 significant support zone in the week ahead and thus remain neutral.
In case of a daily close above .8437 being made, though, we will have to allow for the .8500 region and the October peak at .8545 to be revisited.
Were a fall through the .8213/.8084 support area to be seen, we would turn bearish, though.
In this scenario the psychological .8000 region will be back in the picture.
For now we retain our neutral outlook.
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S&P GSCI Total Return Index

Market upside corrective, but looking for failure ahead of the 200 day ma at 4790

The S&P GSCI Total Return Index continues to grind higher following the recent failure to maintain its initial break of the 2009-2014 uptrend. Rallies should find resistance at 4790/4805, the 200 day ma and the 38.2% retracement of the same move. We would expect to see the market struggle here – the current Elliott wave count on
the 240 minute chart is implying failure here. Should this not be seen we will have to allow for a slightly deeper retracement (4820/45), this is the 78.6% retracement of the move down from the December peak.
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Gold – Daily Chart

The rally off the December low has briefly taken the gold price above resistance at 1260.60/1272.56 (December peak and August low) to 1279.13 before reversing lower.

No daily close above this resistance zone has been made, though, which means that we keep our neutral outlook.
The non-confirmation of recent gold strength by the silver price, which hasn’t significantly risen, also makes us weary of this latest advance in the gold price.
Only a daily close above this week’s 1279.13 high will make us change our forecast to a bullish one. In this case the area seen between the 200 day moving average at 1317.88, the July peak at 1349.31 and the mid-September and October highs at 1362.23/1375.37 will be in focus.
Should the gold price be rejected by resistance at 1260.60/1279.13, though, a retest of the 1225.00/1211.57 (early December low) looks to be on the cards.
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EUR/PLN – Daily Chart

Resistance line break is bullish with the 4.3000 region being eyed on a rise above 4.2260

EUR/PLN’s surge higher took it to 4.2260 on Friday, thus slicing through the 2013-14 resistance line at 4.1946.
EUR/PLN’s surge higher took it to 4.2260 on Friday, thus slicing through the 2013-14 resistance line at 4.1946.
This view and the bottoming formation will be confirmed by a daily close above Friday’s high at 4.2260.
Upside targets are the 4.2403 late September high and the 50% retracement of the June-to-December descent at 4.2495 as well as the 61.8% Fibonacci retracement at 4.2782 and the 4.2979/4.3098 region. The latter is where the August and September highs were made.
Support is seen around the 4.1926 January 10 high and then along the 55 day moving average at 4.1764. As long as EUR/PLN trades above the January 21 low at 4.1531, we will retain our bullish forecast.
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FX Week

Emerging markets spillover

Emerging markets moved centre-stage on Friday, causing risk aversion to boost G10 currency safe havens like the JPY and CHF at the end of the week. Argentina’s decision to step back from its daily intervention to defend the Argentine peso (ARS) was the catalyst for broader pressures on emerging markets to develop. These included Turkey, with the TRY hitting another record low, and Ukraine and Thailand, where political pressures have been building for some time, and which in Ukraine’s case is increasingly spilling over into violence. It also drew in South Africa (the ZAR hitting a 5-year low), India and Indonesia which have large current account deficits and which are most vulnerable to Fed tapering and the shift towards tighter global monetary conditions. In the broader context, renewed violence in Egypt as well as little headway being made in talks over Syria is likely to have further reinforced the mood of risk aversion, while signs of renewed weakness in China’s economy late last week probably did not help matters either, with its PMI index moving back into contraction territory in January.
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Commodity Spotlight Energy

How the US supply of LNG will change the gas market in future

In future, the US intends to supply liquefied natural gas (LNG) to gas markets overseas. Even though the additional US supply is small by comparison with the volumes supplied by Australia (the second emerging major player on the LNG market), it might dampen international prices in the long term because it is not linked to oil prices and is more flexible. Since the US will additionally be stepping up its gas exports by pipeline, the Henry Hub price is likely to rise slightly. Thanks to the high availability of gas, however, the knock-on effect should be limited. What is more, the high conversion and transport costs of LNG are likely to preclude any levelling out of international prices.

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EUR/BRL – Daily Chart

Is heading towards the October 2008 high at 3.3487 and may reach the 2008 peak at 3.4738

EUR/BRL made a new five year high, this time at 3.3379, and nears the October 2008 peak at 3.3487.
If overcome, the minor psychological 3.4000 region and the 2008 high point at 3.4738 will be in focus as well.
We will retain our short term bullish forecast while the currency pair trades above the January 20 3.1562 low.
Support above this level can be seen between the 2013 peak at 3.2811 and the early December high at 3.2637.
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Maintain a negative bias EUR/USD, but allow for some consolidation circa 1.3485, the 55 MONTH m.a.

EUR/USD continues to ease back from the 2008-2014 downtrend, at 1.3905. We maintain that the high at 1.3894 is an intermediate turning point for the market (top) and continue to look for further weakness. The market remains directly offered below 1.3700 the high charted in the middle of January. It has so far sold off towards the 1.3485 55 month ma – it is possible that we will see this hold the initial test ahead of losses to 1.3353./ 1.3295 (200 day ma and the November low) and the 1.3155 2012-2014 support line.
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NZD/USD – Daily Chart

Still oscillates between the .8408/37 resistance area and the .8213/.8084 support zone

NZD/USD’s rejection by the .8408/37 resistance area, made up of the September/November highs, has so far taken it to the .8213 level.
We expect to see further range trading between the above mentioned resistance area and the .8213/.8084 significant support zone in the week ahead and thus remain neutral.
In case of a daily close above .8437 being made, though, we will have to allow for the .8500 region and the October peak at .8545 to be revisited.
While no daily chart close above .8437 is being made the 55 day moving average at .8250 and the five month support line at .8196 could be retested on a fall through the .8336/.8296 support area (December and early January highs and January 20 low).
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