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Today, we will skip reporting on activity in the grain complex and concentrate on some major changes occurring in currencies.

Coffee:

March coffee lost 5.15 cents on volume of 28,800 contracts. Total open interest increased by 715 contracts, which relative to volume is average. As this report is being compiled on December 14, the March contract is trading 2.95 cents lower and has made a daily low of 1.1790. It appears likely that the March contract is headed for a short-term sell signal, which will reverse the short-term buy signal of December 9. As we pointed out in previous reports, coffee has had a pattern this year of generating buy signals, which are then quickly reversed. We have no recommendation.

WTI crude oil:

January WTI crude oil lost $1.14 on volume of 1,113,602 contracts. Total open interest increased by 7,127 contracts, which relative to volume is approximately 65% below average, but the January contract lost 41,283 of open interest, which means there were sufficient open interest increase in the forward months to offset the decline in January and increase total open interest. This is bearish.

As this report is being compiled on December 14, the January contract is trading 54 cents above Friday’s close after making a new contract low of 34.53. Additionally, the Brent contract has made a new contract low of $36.33 basis the January contract. Heating oil has made another contract low of 1.0874, which remarkably is the lowest print since July 2004 (1.0120).

Additionally, heating oil is trading at the lowest price for the month of December since December 2003 (91.46). Natural gas is sharply lower as well, down 5.28% and trading at the lowest price for the month of December since December 1998.

In summary, the petroleum complex has entered into one of the most severe market bear markets of the post-World War II era. The problem is simple: producers expanded dramatically during the years of high prices which was fed by depressed global interest rates, and now petroleum companies must continue to produce product just to pay the interest on the debt. This cycle will be broken once large numbers of bankruptcies occur, which will take out the overproduction. We have no recommendation.

Dollar index: The March dollar index will generate a short-term sell signal on December 14, but will remain on an intermediate term buy signal.

March dollar index lost 40.9 points on volume of 55,538 contracts. Total open interest declined by 1,422 contracts, which relative to volume is average. The December contract, which expires today, lost 7,590 of open interest. As this report is being compiled on December 14, the March contract is trading 15.1 points lower and has made a daily low of 97.310 and a daily high of 97.990, which is below OIA’s key pivot point for December 14 of 97.998. This triggers the short term sell signal. We have no recommendation.

Euro: On December 14, the March euro will generate a short-term buy signal, but will remain on an intermediate term sell signal.

The March euro advanced 55 pips on volume of 397,776 contracts. Volume fell dramatically from December 10 when the euro lost 90 pips on volume of 631,421 contracts and total open interest declined by 47,998. On December 11, total open interest declined by 9,915 contracts, which relative to volume is average. The December contract lost 53,667 of open interest. Based upon Friday’s action, short sellers were powering the market higher and it appears that the euro is experiencing the first stages of capitulation by the massive contingent of short-sellers, who according to the latest COT report are short the euro by ratio of 4.25:1.

As this report is being compiled on December 14, the March contract is trading 28 pips higher and is made a new high for the move of 1.1077, which is the highest print since 1.1081 made on November 2. In summary, the market has rallied from its contract low of 1.0490 made several days ago through today’s high, a move of almost 6.00 cents or approximately $7,500.

This which means there are large numbers of short-sellers who are carrying substantial losses and will be forced to cover as prices continue to move higher. The euro is overbought, and now that it is on a short-term buy signal, the currency is likely to experience a pullback lasting from 1-3 days.

Although we think the euro can work its way higher, we are really viewing this as an opportunity to establish bearish positions once a sufficient number of short-sellers have been blown out. We recommend a stand aside posture.

Swiss franc: On December 11, the December and March Swiss franc generated short-term buy signals, but remains on intermediate term sell signals.

The March Swiss franc advanced 67 pips on volume of 36,141 contracts. Total open interest declined by a massive 5,795 contracts, which relative to volume is approximately 450% above average meaning liquidation was extremely heavy on the advance. The December contract accounted for loss of 6,494 of open interest, and it was distressed short-sellers powering the market higher.

According to the latest COT report, leverage funds are short the Swiss franc by ratio of 4.42:1, which is above the short ratio for the euro. As this report is being compiled on December 14, the March contract is trading 4 pips lower and has made a new high for the move of 1.0263. We have no recommendation.

Yen: On December 14, the March yen will generate a short-term buy signal, but will remain on an intermediate term sell signal.

The March yen advanced 58 pips on volume of 247,677 contracts. Total open interest declined by 5,838 contracts, which relative to volume is approximately 10% below average. The December contract lost 20,749 of open interest. As this report is being compiled on December 14, the March contract is trading 8 pips above Friday’s close.

According to the latest COT report, leverage funds are massively short the yen by a ratio of 5.97:1. In our view, the yen is headed higher, and the huge number of short-sellers will provide some of the fuel for the continued advance. The yen should have a pullback lasting 1-3 days before resuming the uptrend. We have no recommendation.

S&P 500 E-mini: On December 11, the December and March S&P 500 E-mini generated short-term sell signals, but remain on intermediate term buy signals.

The March S&P 500 E-mini lost 39.50 points on huge volume of 3,923,791 contracts. Total open interest declined by 91,294 contracts, which relative to volume is approximately 10% below average, the December contract accounted for loss of 384,892 contracts, which means there were heavy open interest increases in the forward months to offset a good portion of decline in December.

As this report is being compiled on December 14, the March contract is trading 1.00 point above Friday’s close and has made a new low for the move of 1983.25, which takes out the recent low of 1991.75 made on November 16 and is the lowest print since 1978.00 made on October 15.

In the November 30 report, written on December 1, we recommended the initiation of short call positions in the December 2015 E-mini, and this position has been profitable from the beginning. Continue to hold it into expiration on December 18.