Oil prices remain heavily dependent on the stock and currency action, seemingly unable to move uncorrelated to those markets. That being said, the euro could get hit hard ahead of and following a bearish U.S. employment report on Friday. Look for heavy selling in crude oil over the next two weeks to signal a top in that market. A Monday morning rally should be sold into with bear put spreads.
My Currency Cataclysm forecast released on the 16th is well underway, with a strong dollar being a major catalyst to these moves. The stock market pressure, and likely top, is helping to put the dollar into a full-on bull breakout. It will take a long time to see the true destruction of the euro currency, and in the meantime the dollar will likely see continued foreign investment from those bailing on the euro. Friday’s employment report is perhaps the most critical report this year, with a bear surprise potentially wreaking havoc on the stock and currency markets. Bonds remain a premium collection opportunity with upside exposure that should be hedged. The Japanese yen has had some resistance form here, but to me its congestion ahead of another big move after a near term U.S. dollar rally subsides and frees up the yen to make its run to 140. I continue to stand by my forecast that:
The Japanese Yen futures will hit 140 before it hits 80 or I will quit writing the Weekend Commodities Review...forever.
The grain descent has begun and the markets are getting beat up on a strong dollar and weakening global demand outlook. This time of year becomes all about speculating on 2012 planting prospects and demand for harvested crops. Will there be high carryover inventory heading into the 2012 harvest? I personally do not believe it matters very much. Grains have evolved since 2008 into a demand-focused market. I believe this sector has changed dramatically from a supply-side focused market into a global demand and usage sector. If I am right then this sector represents a great opportunity – if the rest of the market participants are focused on supplies and plantings while global demand slips, then a short play will continue to fight the market psychology and offer a great downtrend over time as opposed to a sudden collapse. That being said I do expect downside shocks to the market coupled with entry opportunities on temporary bounces. I suspect a 2 steps lower and 1 step higher style selloff is underway.
Cattle is screaming downtrend, as a double top and trend line resistance has formed nicely in the near term. Two recommendations to play the downside in cattle are recommended in this week’s Week Ahead report. Get your free trial to my premium service before the offer expires tomorrow by visiting http://futurespress.com/lp/FP_BlackFriday/. No credit card information is required.
Metals continue to deflate as a rising dollar and declining commodity prices diminishes demand for the overpriced metals sector. I expect strong selling to coincide with a stock market fallout in coming weeks.
Coffee has congested and is setting up for a volatility event, with my gut calling for a breakdown below $2. Cocoa is failing and front month took a bath during first notice period, indicating a demand failure in this market. Look for sub-2000 prices shortly. Cotton is also seeing some downside after a long period of congestion – be weary of a fakeout here as normally the first move after a period of congestion following a market failure is a false signal. However, general bearishness for commodities here suggests cotton will have a tough time remaining in this price range. Sugar and OJ are strong sells at current levels.
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