China instructs banks to increase reserves against loans and the dollar strengthens

Weekly Futures Report

01.20.10

Filed Wednesday 3:45 pm

ALL CHARTS THIS WEEK ARE Daily Bars

Last Last Week (1.13)

Mar Crude 77.57 80.15

Mar Heat 203.19 210.78

Mar XRB (Blended Gas) 205.27 207.74

Crude oil came under selling pressure on Wednesday as the dollar

strengthened against most major foreign currencies and the trade

expected the Department of Energy report to show an increase in

supplies. The DOE report will be delayed until Thursday due to the

holiday for Martin Luther King which was observed on Monday. The

dollar strengthened particularly against the European currency.

Another negative for the market was news that China was instructing

banks to increase reserves against loans and to tighten credit. Crude oil

is linking again to the strength and/or weakness of the dollar. As China

is now the world's best customer, any news regarding restriction of

lending limits is enough to take the speculative air out of many markets.

Also, there is concern that Greece might be forced out of the EC if they

continue to have credit problems. Traders are expecting tomorrow's

Department of Energy report to show that crude supplies climbed about

2.1 million barrels. The report is also expected to show an increase in

gasoline supplies of 2 million barrels. With the current structure of the

market, crude oil is too expensive in relationship to its products so

expect continued selling pressure in crude.

Support Resistance

Mar Crude 76.20 81.00

Mar Heat 199.00 210.00

Mar Gas 200.00 211.00

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METALS

Last Last Week

Feb Gold 1111.8 1137.40

Mar Silver 17.925 18.575

April Platinum 162.60 1575.00

Gold fell sharply on Wednesday as a surging dollar reduced the demand

for metals. The dollar was higher against a basket of major foreign

currencies as there’s a growing concern that China will continue to

tighten lending practices leading to a slowdown in the global recovery.

This has a negative impact on the price of metal. Over the past year

gold gained 36% and also recorded a new record high. But with today's

decline several key technical support levels were broken, notably 1125

basis April gold. Gold also pierced the 20 day moving average of 1118.

At least lower prices for gold would bring some relief to the jewelry

industry. Platinum had been on a tear lately due to the introduction of a

platinum-based ETF. Prices recently traded to a 17 month high because

of this. After trading as high as 1654 on Wednesday prices reversed to

close lower on the day. Platinum is up 4.4% since the beginning of

trading this year. The platinum/gold spread ration is the highest since

September 2008. Money flow in gold remains negative. Money flow and

silver still remains positive as it does in platinum.

Support Resistance

Feb Gold 1100.00 1149.00

Mar Silver 17.50 19.00

April Plat 1576.00 1650.00

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SOFTS

Last Last Week

Mar Coffee 139.45 145.85

Mar Sugar 29.29 28.04

Coffee dropped to the lowest price in two weeks due to a stronger

dollar. The dollar gained the most against a basket of currencies since

December 4. The idea that China may actually increase interest rates

for the first time in more than two years, reverberated throughout the

commodity sector. The CRB index of 19 raw materials is trading at a

one month low. Coffee was up 22% last year. The trade is expecting

commodities generally to retrench in price for the next several weeks as

China continues to make moves to rein in credit.

Sugar continues to hold onto high prices as India, the world's largest

sugar consumer, continues to buy to meet demand. Not only India but

Indonesia, Iraq, Egypt and Pakistan are all expected to import sugar to

prevent inflationary prices for local product. Sugar trading in London

reached its highest level since January 1989. Drought in India and

excessive rain in Brazil have hurt the international sugar crop.

Support Resistance

Mar Coffee 137.00 143.00

Mar Sugar 27.50 29.80

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Last Last Week

Mar Soybeans 9.50 9.932

Mar Corn 3.68 3.83

Mar Wheat 4.974 5.346

Corn and soybeans dropped to two-month lows as the dollar maintained

its recent strength against major foreign currencies. The grain complex

continues to feel the effects of the most recent Department of

Agriculture report. The stronger dollar curbs export demand for US

products. Additionally, both corn and soybeans are under the pressure

of bumper crops. World output in corn may reach a record level of 31.4

billion bushels. The corn harvest basis the United States jumped 8.8%

as of the report released January 12. Corn supplies increased to their

highest levels in four years according to the Department of Agriculture.

Global soybean harvest should increase 20% from last year. The

increase in production from Brazil and Argentina should be 33%

higher. Wheat will also see near record production. Stockpiles for wheat

according to the Department of Agriculture are forecast to jump 19%

Money flow in wheat is negative. Money flow in corn is also negative.

Money flow and soybeans has been negative and continues to be so since

January 8.

Support Resistance

Mar Soybeans 9.25 9.90

Mar Corn 3.50 3.784

Mar Wheat 4.80 5.22

Chuck Kespert

NY/NY