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Fed Chairman Bernanke's comments trigger the selloff

WEEKLY FUTURES REPORT

06.22.11

Filed 9:05 pm

Last Last Week

Aug Crude 94.39 95.26

Aug Heat 294.58 299.84

Aug Gas (Blended) 290.83 287.71

Oil rallied for the first half of the trading session on Wednesday as the EIA report showed that US stockpiles declined for a third consecutive week and refinery operations increased to their highest levels in 10 months. Crude oil rallied by over 1.2% after the Department of Energy stated that inventories dropped by 1.71 million barrels to 363.8 million barrels for the latest reporting week. Refinery runs were higher at 89.2% of capacity, the highest level since last August. Oil also rallied in the early going as the dollar was weaker immediately after the Greek prime minister won a vote of confidence. But then there was the FOMC meeting. As was widely expected interest rates were left unchanged. The selloff was triggered when Fed Chairman Bernanke gave his press conference. It became apparent that at this point in the economic cycle he is not particularly interested in a third round of quantitative easing and consequently a further devaluation in the dollar. As most of these markets have rallied due to the accommodative monetary policy of the Federal Reserve, they were somewhat disappointed when it became apparent that further stimulus was not probable. Consequently, the dollar strengthened against major foreign currencies and commodities fell in price. Equity markets and oil both ended up on the lows of the day. The spread between Brent crude oil and West Texas intermediate continues to be very wide with the European benchmark trading at a premium $18.90. Supplies at Cushing, Oklahoma actually rose for the first time in four weeks as inventories climbed by 273,000 barrels. Trade was looking for decline of 1.83 million barrels. If dollar strength persists due to the end of QE2, the normalization of interest rates and

further problems in the euro zone, crude oil should trade back to the mid $80 range by the end of July. Crude oil fell 6.3% last week on the signs that US economic growth may be contracting. This sent crude oil to its lowest level since February. Goldman Sachs also stated on Wednesday that exports from Libya could increase by as much as 355,000 barrels a day as rebels pledged to resume shipments. Goldman analysts said that over the short-term the rebels could resume shipments of about 200,000 barrels a day as some fields and export terminals are largely intact. Another negative was the unilateral increase in production by Saudi Arabia.

Support Resistance

Aug Crude 91.90 96.00

Aug Heat 282.50 301.00

Aug Gas 275.50 295.00

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METALS

Last Last Week

Aug Gold 1547.9 1526.20

July Silver 36.33 35.41

July Platinum 1747.00 1774.42

Gold rose to a seven week high as there were expectations going into the Federal Open Market Committee Meeting that the Fed may be planning a third round of quantitative easing. This doesn’t seem to be the case, however. The Fed did leave rates unchanged at record low levels and this remains a gold market positive. The dollar however has gained some strength over the past several weeks as the situation in the Euro Zone continues to be problematic. There is speculation that the Greek government will have a hard time passing austerity measures to avoid eventual default. Gold has largely decoupled from dollar trading. Gold is higher by 25% over the past 12 months. Gold is trading more like a currency than a barometer of inflation. Given the growth of global money supply and the desire of central banks to own gold as a reserve currency, gold will find buyers on breaks. Base metals such as platinum however paint a different chart; the same could be said for copper. Silver seems to be caught between the base metals and precious metals.

Support Resistance

Aug Gold 1525.00 1560.00

July Silver 35.30 37.00

July Plat 1727.00 1762.0

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SOFTS

Last Last Week

July Coffee 243.75 262.65

July Sugar 27.23 25.08

July coffee traded to a fresh five month low over the past five sessions. A negative influence was the report from the US Department of Agriculture stating that Vietnam’s production would increase by 10% from last year’s levels. Another negative was news that exports from Vietnam last month were downwardly revised by almost 11%. Dollar strength was also a negative feature. Also, weather models for Brazil

suggest that temperatures will remain well above freezing for key growing areas. Money flow in coffee remains negative.

Sugar has maintained its technical strength over the past five sessions. The recent run may be coming to an end, however. The stronger US dollar will provide a headwind to further advances. Short-term supplies for sugar remain tight while the world should see a significant production surplus in the months ahead. Over the past five sessions sugar traded to its best levels since March 8. The commitment of traders report shows speculators very long this market, a negative. Expect liquidation pressures in the sessions ahead.

Support Resistance

July Coffee 240.00 250.50

July Sugar 26.00 28.50

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Last Last Week

July Soybeans 13.302 13.68

July Corn 6.774 7.256

July Wheat 6.382 7.084

Corn fell the most in six weeks on Wednesday and soybeans also declined on the idea that favorable weather will boost yields in the United States, the world’s largest grower of grains and oilseeds. The

latest weather models from the National Weather Service indicate a shorter period of hot weather for the coming week and this will allow crops to develop in near-perfect conditions. Increased soil moisture from rains earlier this week will only improve growing conditions. Corn ended up down the daily limit of $.30 as did wheat. 70% of the corn crop and more than 60% of the soybean crop are in perfect condition as of June 19. Money flow in soybeans is negative. Money flow in corn is also negative. Money flow in wheat is negative as well. World demand seems to be sluggish for soybeans. Higher than expected yields for the wheat harvest and improving weather for Europe as well as the expectation that Russia and the Ukraine will be aggressive sellers of wheat are all working to press the price of this commodity lower. Expect to see dollar strength continue over the next five sessions.

Support Resistance

July Soybeans 13.00 13.56

July Corn 6.50 7.26

July Wheat 6.00 6.90

Chuck Kespert from NY/NY

HYPOTHETICAL PERFORMANCE RESULTS HAVE MANY INHERENT LIMITATIONS, SOME OF WHICH ARE DESCRIBED BELOW. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN. IN FACT, THERE ARE FREQUENTLY SHARP DIFFERENCES BETWEEN HYPOTHETICAL PERFORMANCE RESULTS AND THE ACTUAL RESULTS SUBSEQUENTLY ACHIEVED BY ANY PARTICULAR TRADING PROGRAM.

ONE OF THE LIMITATIONS OF HYPOTHETICAL PERFORMANCE RESULTS IS THAT THEY ARE GENERALLY PREPARED WITH THE BENEFIT OF HINDSIGHT. IN ADDITION, HYPOTHETICAL TRADING DOES NOT INVOLVE FINANCIAL RISK, AND NO HYPOTHETICAL TRADING RECORD CAN COMPLETELY ACCOUNT FOR THE IMPACT OF FINANCIAL RISK IN ACTUAL TRADING. FOR EXAMPLE, THE ABILITY TO WITHSTAND LOSSES OR TO ADHERE TO A PARTICULAR TRADING PROGRAM IN SPITE OF TRADING LOSSES ARE MATERIAL POINTS WHICH CAN ALSO ADVERSELY AFFECT ACTUAL TRADING RESULTS. THERE ARE NUMEROUS OTHER FACTORS RELATED TO THE MARKETS IN GENERAL OR TO THE IMPLEMENTATION OF ANY SPECIFIC TRADING PROGRAM WHICH CANNOT BE FULLY ACCOUNTED FOR IN THE PREPARATION OF HYPOTHETICAL PERFORMANCE RESULTS AND ALL OF WHICH CAN ADVERSELY AFFECT ACTUAL TRADING RESULTS.