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LEJ8: .975 at 112.95, trading in a range of 3.80
LEM8: 2.90 at 102.525, trading in a range of 5.55
GFJ8: 4.10 at 134.625, trading in a range of 6.45
GFK8: 4.10 at 135.075, trading in a range of 6.60
Cattle Commentary: The bulls feel vindicated today as the market surged higher mid-session putting prices right back to where we were on Thursday. Retaliatory tariffs early this morning was released from China and beef was included on the list of 106 products. At first glance to you would think this is the most bearish headline ever and you would probably be right, but it is just that, a headline. China is not a significant buyer of our beef and what they do buy has likely been put into the market already. In yesterday’s report we mentioned wanting to see panic and capitulation, this somewhat misleading headline gave us that panic which we viewed as a gift. We were reaching out to clients via call/text/email letting them know that we like buying the panic. Some clients prefer futures, but we were primarily interested in shopping for calls (primarily 105 June calls), this gives us the ability to sit through a volatile market with defined risk. The market rallied hard off of that panic open and sucked in bottom pickers, the market ran out of steam and likely shook some of those bottom pickers out, only to rally back and closing near limit up. Again, this is why we like options in this market environment. Tariffs in the grain markets sent those markets lower which helped offer some support to the feeder market which finished near limit up. April fats struggled to get as much momentum with cash continuing to fall.
PM Boxed Beef / Choice / Select
Current Cutout Values: / 218.17 / 206.18
Change from prior day: / (1.51) / (3.15)
Choice/Select spread: / 11.99
Live Cattle (June)
After the breakdown from 106 we cautioned that the 96 handle was not out of the cards, we got close to that today with the low coming in at 97.075. Today’s trade was a “key reversal” by definition with new lows on the move made but closing at the highs, the volume on the move was very encouraging as well. As of right now we are viewing this as a relief rally and trying to temper expectations; a bottom is likely in but is it THE bottom. The RSI was at 14 yesterday, today’s rally resurrects that indicator to 29, still in “oversold” condition. The first barrier in tomorrow session comes in from 104.00-104.60 with the ultimate objective coming in closer to 106. From there we would expect to see a bit more of a tug of war and consolidation.
Resistance: 104.00-104.60**, 106.00-106.45****
Support: 96.40-96.75****, 92.70-93.05***
Feeder Cattle (May)
Feeder cattle managed to firm up nicely and like the fat cattle, they staged a “key reversal” by definition. We continue to believe that bottoms are a process not a point so although today’s price action was encouraging, we recommend tempering the expectations. To keep things in perspective, this is basically where we finished Friday. Today’s rally brought the RSI out of “oversold “conditions, finishing the day at 38.27. With new lows come new Fibonacci retracement levels, the first line in the sand comes in at 135.75, a break and conviction close above could encourage a run back towards 139.275-140.25.
Resistance: 135.40-135.726**, 139.275-140.25***, 143.15-143.50****
Support: 128.90-129.05***, 124.85-125.90****
Lean Hog Commentary and Technicals (June)
June live cattle futures punched below our 4-star support level at 70.50, marking a low of 70.25 the rebounding to finish the day up 1.65 after trading in a range of 3.535 for the session. The additional tariffs from China likely led to weakness on the open but this has already been baked in. Today did mark a “key reversal” by definition but we would error on the side of caution for buyers. You don’t have to go back too far to see a similar day like this (March 28th). With new lows comes new Fibonacci retracement levels, the first line of resistance tomorrow comes in at 73.95. If the market can chew through and close above here, we would then expect to see a continuation of this relief rally towards 76.25.
Resistance: 73.95**, 76.00-76.25**, 78.05-78.175***
Support: 70.25-70.50****, 66.00****
Session close: Settled at 1.23485, up 13.5 ticks
Fundamentals: Price action has been much more subdued this week than one would have imagined even with the main event, Nonfarm Payroll, Friday. Since ripping higher this morning on U.S Dollar weakness in the wake of China announcing tariffs on U.S goods, the Euro stayed in a range of less than a half penny through the rest of the session. Early this morning it was confirmed that Eurozone headline CPI strengthened YoY while Core CPI remained stagnant at 1.0% though failing to meet expectations at 1.1%. U.S ADP Payrolls came in much better than expected at 241k vs 208k but the economy is close to full employment and we view this as a less important read these days. The bigger story is that no other piece of data today beat expectations; ISM Non-Manufacturing, Services PMI, Durable Goods Orders and Factory Orders all missed. Still, the U.S Dollar held ground. Additionally, St. Louis Fed President Bullard said there is no need for further rate hikes at the moment. Still, the U.S Dollar held ground. Tomorrow starts off with German Factor Orders at 1:00 am CT. Regional Markit Composite and Services PMIs begin at 2:15 am CT and lead into the Eurozone read at 3:00 am CT. Eurozone PPI and Retail Sales is at 4:00 am CT. Out of the U.S Challenger Job Cuts is due at 6:30 am CT, Trade Balance and weekly Jobless Claims are due at 7:30 am CT. Atlanta Fed President Bostic speaks at noon CT.
Technicals: Today put in a higher low than yesterday and continued to move off first key support at 1.23235-1.2349. This is constructive just the Euro has been trading for the better part of the last year. A lot of data is due tomorrow and Friday and technicals have already taken a back seat but holding support as it did today paves the way for better price action from this data. We need to see a close out above first key resistance in order to get the bull engine going and encourage further buying.
Resistance: 1.24035-1.2427**, 1.2475-1.24915**, 1.2547***, 1.2659***, 1.2725****
Support: 1.23235-1.2349**, 1.2254***, 1.2040-1.2079***
Session close: Settled at .94145, down 13 ticks
Fundamentals: We discussed yesterday how the poor session has finally Neutralized our Bias in the Yen. Though we are long term believers in the upside because we envision a weaker Dollar and tighter than expected policy out of Japan, for now we must stay out of the way as equity markets look to push higher and soothe the safe haven bid at least for a session or two. The Yen spiked early this morning upon the tariff news, but the gains quickly dissipated as equity markets held crucial technical levels.
Technicals: Today’s early rally and failure puts tremendous pressure on major three-star support at .9393-.9410; a close below here opens the door for the bears. The 9-day moving average still stands above the 21-day and has since the first week of 2018, however, a move below support will cross the two. The long-term uptrend would and does remain intact, but for now the risk is to the downside. Still, we cannot get on board with a short because of the upcoming data and our Bearish Bias on the U.S Dollar. Only a close back above .9498-.9504 will turn the tape immediate-term bullish.
Resistance: 9498-.9504**, .9530-95415**, .96145***, .9729***
Support: .9393-.9410***, .9382*, .9310-.9342***, .9120-.9145***
Session close: Settled at .7707, up 26 ticks
Fundamentals: The Aussie traded higher last night on strong Retail Sales data but took a beating upon the U.S and China trade war news as morning came. Still, the currency was able to shake things off and put in a bottom at 5:00 am CT. Equity markets held ground well through the cash open too. Sentiment was so negative early, that it could not get any more negative. When this happens, things reverse and that is exactly what we saw today from an already constructive Aussie Dollar. Trade Balance data is due tonight at 8:30 pm CT and U.S reads tomorrow will surely push it around, however, it feels like the coast is clear for higher price action.
Technicals: Though this morning’s low took out yesterday morning’s, it did not make a new low on session versus session. This is extremely constructive as price action secured a close above the crucial pivot level of .7674-.7691. Though it’s not far, momentum should take it to major three-star resistance at .7757-.7784.
Resistance: .7757-.7784***, .7848**, .7902-.7921**, .7986***, .8035**
Session close: Settled at .7829, up 11 ticks
Fundamentals: The Canadian put in another strong session though its recent strength was almost a casualty to the global risk-off trade. After a strong move out of its consolidation pattern yesterday, the U.S and China trade war put pressure on the commodity currency overnight. However, sentiment shifted this morning and equity markets and Crude Oil put in strong sessions to which the Canadian benefited. There has been no data out of Canada yet this week but upbeat talk on NAFTA has benefited the currency. The next two days will be crucial though with Trade Balance data tomorrow at 7:30 am CT and jobs data on Friday.
Technicals: We became outright Bullish the Canadian on yesterday’s session and believe there should be follow through. Today’s electronic session finished right against first key resistance and traders do want to have a bit of caution ahead of data, but this is beginning to feel like a technical bottom and one that will help the Canadian reinvigorate its strength from early this year. Near-term momentum is signaling higher as the 9-day moving average crossed out above the 21-day on Monday.
Resistance: .7840**, 7904-.7908***
Support: .7735**, .77075**, .7633**, .7550***
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