Inverse Dollar Trade

All eyes will be on the US dollar as the risk aversion trade and news whether a bailout will or will not happen out of Europe continues to be the driving force. As noted in our commentary Monday we expect some type of resolution and the flow of money that went into Treasuries and the dollar last week to find its way back to equities and commodities.
Now for the trades: Oil put in an impressive showing today closing virtually 3% higher. We would still suggest waiting for the inventory number this week before committing fresh capital. We should have some new suggestions in the coming sessions. RBOB was higher by 2%; clients are long June call spreads anticipating a trade back near $2.15/2.20. Natural gas could go either way; we will look at longs closer to $5 and shorts closer to $6. In the middle of the range we have NO interest. Indices are rallying; we expect 1084 and then potentially 1100 in the S&P. On that we will be buying clients June 1000 puts. Today’s price $1800, we will be working limits for less in the coming days. USDA report was friendly to most agriculture products; as for softs cotton was up the daily limit and OJ a gainer by 2.5%.Clients own no cotton but they are long OJ. They are still looking for a trade up to $1.50 and have gtc profit orders working.
If we get a bailout in Europe expect Treasuries to fall back; we may look at selling NOB spreads in the coming sessions (short 30-yr/long 10-yr).Clients continue to scale into shorts in long dated Euro-dollars. I would’ve hoped for more out of corn today though prices were still higher on the day. We did not get a bullish reaction from the USDA but in 2 weeks if we get talk of planting delays or 6 weeks from now we get a bullish planting intentions report these levels may not be seen for some time. We like long exposure with a 3-6 month time frame. Clients were advised to take off their April live cattle calls at a profit today and to buy June futures against their April shorts. We expect this trade to play out with a move lower from here (exit April) and then a resumption of the uptrend (long June). On the exit clients made approx. $600 which is about the same amount they are down on their April futures. The difference is they raised cash and lowered their exposure and margin. April lean hogs were unable to penetrate the trend line and closed back below the 20 day moving average. For now sit on your hands.
Silver and gold were higher but we need to see an interim top in the US dollar to feel comfortable adding to client’s positions. If gold has consecutive closes back above the 50 day moving average I will reconsider; in April at $1086. Nothing new in silver; clients hold light long exposure. The Euro/Yen cooperated today for a change as clients picked up just over $1800 on their spread. With some luck they will be out of this trade at a profit in the coming 48 hours. A trade to 1.3900 in the Euro or 1.1000 in the Yen is what we would be looking for. The dollar traded below the 20 day MA but closed above; use that level as your pivot point at 79.80.
Risk Disclosure: The risk of loss in trading commodity futures and options can be substantial. Past performance is no guarantee of future trading results.


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