Starting with a look at the action in Cocoa #7 (CAU24), +9.86%, there is again increased volatility in this last week on this contract - and expect more to come.
After the selloff from April, the 20-unit exponential moving average (EMA) proved to be a solid support. Despite reassurances in Ghana about recovering crops, that is for next season, and the market still fears insufficient beans supply this year. Moreover, top producer Ivory Coast has reduced forward sales for next season by -35%, adding to concerns on supply.
The fundamentals have not improved much, but Commitment of Traders (COT) data on the U.S. contract shows again increasing positions from speculators on this last rally. Added to that, the forward curve is sharply pointing downwards (backwardation, with Dec 24 at 6,836), which could indicate that this rally is for the short term.
The European Cocoa contract is facing an important resistance at 8,300, and this is the second week it was tested and rejected as a warning to long traders. Prices are moving above the 10, 20, and 50 EMAs indicating (until Friday) a solid uptrend. The candle is showing a candlestick "dragonfly" pattern, which still validates the direction.
Also supporting the directional trend is the rising volume (last marking 8,254) and open interest (last marking 54,290). The 10 EMA (green line on the chart) is the main dynamic support, andstatistically has been very reliable to add positions on uptrends.
However, a full candle below that average will certainly trigger a selloff caused by stop losses, and could signal an end to the trend.
Top European Commodity Winners
UK Natural Gas (NFN24) +6.22%
The completion of repairs at Norway's offshore Sleipner Riser platform has removed supply concerns to the UK. However, Norway's Gassco has been reporting outages, and the fact that UK self-sufficiency in gas is about 50% means that any more bad news from Norway will certainly increase prices.
As predicted in previous articles, UK Natural gas prices are showing a cautious, weak uptrend after weeks trading in a range. Since December 2022, the weekly 50 EMA at 93 has been a tough resistance, tested 4 times and never crossed. If prices break it to the upside, expect increased volatility and a rush to join long positions. For now, this seems to be what the market is waiting for to end the current lethargy.
Gasoil Low Sulphur (LFN24) +5.46%
The contract follows closely the action in crude oil markets, and the sector is rising this week as there are expectations for a tight supply-demand balance in the third quarter of 2024. As we are getting into the peak summer season, there are concerns about reductions of inventories in the U.S.
The Gasoil contract on a weekly basis is attempting a trend reversal after a sharp drop from April, but still remains under the 10, 20, and 50 EMAs. The rising weekly volume (131K), the increasing open interest (179K), and a "Morning Star" pattern are all positive news for the bulls so far.
The weekly RSI at 49 is also pointing upward for further support on this rise.
Top European Commodity Losers
Nickel 3M (Cash) (P8Y00) -4.78%
Nickel remains a fundamental metal for clean energy, and as a component of EV batteries. Indonesia is back supplying the market, but on the other hand, we have still the riots in New Caledonia.
In April, the UK and the U.S. banned the delivery of Russian-origin metals into COMEX and the LME, adding pressure to inventories. The final bearish push in early 2024 was the expectation of rising interest rates. Current low levels are attracting new positions for long investors.
Nickel 3M has broken down all of the key 10, 20, and 50 EMAs in a sharp trend reversal after topping the key resistance of 21,500 back on May 20. If the crash continues, it will target the supportof 15,900 very soon. That should provide a unique opportunity to enter long positions for those waiting on the sidelines.
Copper Grade A Cash (P9Y00) -3.71%
European copper found its top at 10,900 on May 20, and has crossed down the 10 EMA on weekly candles.
Like nickel, a rising dollar and improving inventories (up 28% last month) are pushing prices downwards in the last weeks. The Federal Reserve is helping the bearish mood, too, as it is not rushing to cut interest rates this year.
The trend is down so far, but the reported global deficit in copper in the next months and years might limit the downside.
On the date of publication, Cesar Marconetti did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
