Eurozone cash infusion whacks dollar, lifts commodities

Market Commentary Week ending June 29, 2012

Precious Metals: August gold closed at $1,604.20, up $53.80 per ounce tied to the global “euphoria” as a result of the EU agreeing to provide bailout funds for the Spanish banks and others. Gold is dollar denominated and the heavy selling the dollar Friday provided the impetus for a price correction for gold, the Euro, and other dollar denominated commodities. September silver closed at $27.455 per ounce, up $1.164 on heavy shortcovering after recent weakness and tied with gold to dollar weakness. We do not feel this is a renewed interest in precious metals, and would not be inclined to buy precious metals. Our expectation is for continued concern over the Eurozone debt crisis and ultimately cause a continued disconnect with precious metals or other risk assets. October platinum closed at $1,452.10 per ounce, up $62.80 with September palladium gaining $18.30 per ounce to close at $58220. We prefer the sidelines.

 

Grains and Oilseeds: September corn closed at $6.28 ½, per bushel, up 2.25¢ with gains tied to concern for hot weather which could impact yields. The weak dollar provided the impetus for strength in dollar denominated commodities. We prefer the sidelines. September wheat closed at $7.57¼ per bushel, up 11.25¢ also tied to the weak dollar and also concern over weather. We prefer the sidelines in wheat as well.

 

August soybeans closed at $14.81¾ per bushel, up 35.5¢ while November soybeans gained 24.25¢ to close at $14.27¾ per bushel. Recent cuts in yield estimates continue to provide strength for bean prices and the selling in the dollar added to the strength for soybeans. We continue to recommend soybeans but after Friday’s gains would hold off until a short correction is completed.

 

Meats: August cattle closed at $1.2045 per pound, up 1.125¢ as buyers stepped in to bid at auction. However the strength prompted by the selling in the dollar against the Eurozone currencies could result in long liquidation as the extreme Midwest heat and dryness could push cattle to slaughter and prompt selling pressure on prices. We like cattle but would hold off new purchases pending the completion of a price correction early in the week. August hogs closed at 94.775¢ per pound, up 8.75¢ also tied to the dollar weakness and weather concerns as well as expensive feed that could lead to pushing animals to slaughter. We prefer the sidelines in hogs.

 

Coffee, Cocoa and Sugar: September coffee closed at $1.7070 per pound, up 7.65¢, their highest settlement since May22nd. However, for the quarter, coffee lost 7.7% and the buying on Friday could be attributed to dollar weakness as well as shortcovering. We prefer the sidelines from here. September cocoa closed at $2,291 per tonne, up $61 and the highest price since May 11 on heavy volume. The buying was prompted by the weakness in the U.S. dollar, but ongoing selling by Ivory Coast via its new auction system could halt forward price momentum. We prefer the sidelines for now until some clarity is forthcoming. October sugar closed at 41.01¢ per pound, up 48 points. The expiring spot at 21.81¢ was on good volume and for the second quarter lost 11.7%. For the month of June however, sugar gained 12% and was up 7.8% for the week. Sugar deliveries for the July contract was over 21,700 contracts or 1.11 million tonnes, which would be the highest since July of 2009, according to trade sources. We prefer the sidelines in sugar for now, awaiting fresh fundamentals from growing areas.

 

Cotton: October cotton closed at 71.57c per pound, up 2.06c while December gained 1.82c per pound to close at 71.33c. The market fluctuated in early trading as reports that China cancelled orders for 600,000 running bales of cotton and the U.S. reported net export sale cancellations of 602,100 bales for the 2011-12 crop as of last Thursday. Prices had been under pressure on June 20th and 21st when prices for the October contract high 67¢. The June 5th low of 65¢ was reached before recovering to 75¢ on June 20th just before the report came out. One June 21st cotton sold off to 67.06¢ before stabilizing. We continue to favor the long side of cotton but would raise trailing stops in the even the buying was exclusive to dollar weakness. Weather remains a factor in all growing areas of the U.S.

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About the Author
John Caiazzo

John has over 40 years experience at major U.S. Brokerage firms as Manager and Director of various International Divisions and is the founder of his own trading and brokerage firms. Over the years John has gained a wealth of knowledge and experience in all aspects of investments and trading. He was also a floor trader at the Commodity Exchange in New York. He formed Acuvest in 1999 and can be reached at futures@acuvest.com.

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