In the coming days we are calling for a dollar rally so consider yourselves warned. The simple logic that the dollar bear trade has become far too crowded and we have month and quarter end this week…that simple. A breach of the 20 day MA in May Crude should confirm a break lower; that level in May is at $103.50. Aggressive traders can start scaling into shorts or get positioned in bearish option strategies. We are expecting a trade back to $97/98 in the coming weeks. The recent appreciation in natural gas has exceeded our expectations but at these levels we say the sidelines or start exploring shorts. A 20% advance in less than one month may not be justified.
Seven out of the last eight sessions the indices have made their way to positive territory but the easy money on longs has been made…we suggest the sidelines. Continue to fade rallies in the Euro, the Cable and the Yen as a US dollar dead cat bounce is around the corner…in my opinion. Live cattle are approaching record highs once again…we’ve pulled the remaining of our longs for clients today and will be looking to re-establish bullish plays on a pullback. Mixed bag in metals today with silver marginally higher and gold closing slightly lower. We are looking for a trade lower in both metals and advised aggressive traders to get short gold today via bear put spreads in June contracts with a target of $1375/1380 in June futures.
Cotton traded down the limit while sugar gave up nearly 3% and coffee 2% today. We continue to like the short side in the softs complex suggesting bearish plays for mainly coffee and cotton. Buy the dip in Ag this week ahead of Friday’s USDA report…our favored plays are November soybeans and December corn. We advised clients to book a profit on their bearish 10-yr note trades today and will be looking for an exit door on a further decline in Euro-dollars…stay tuned.
Risk disclosure: The risk of loss in trading commodity futures and options can be substantial. Past performance is no guarantee of future trading results.