Bloomberg Access:{OIAR<GO>}

Live cattle:

April live cattle advanced 1.775 cents on volume of 55,116 contracts. Total open interest declined by a massive 3,070 contracts, which relative to volume is approximately 120% above average, which indicates that market participants were liquidating heavily on yesterday’s sharp advance. The February contract, which expires shortly lost 2,922 of open interest.

As this report is being compiled on February 3, the April contract is trading close to unchanged, but has made a daily high 116.175, which is above yesterday’s print of 115.875. On January 30, OIA announced that April live cattle generated a short term sell signal, and currently remains on an intermediate term buy signal. No recommendation.

British pound:

The March British pound lost 1.53 cents on heavy volume of 135,586 contracts. Total open interest declined by 5,028, which relative to volume is approximately 30% above average indicating that liquidation was substantial on yesterday’s large decline. The catalyst for the move was decision by the United Kingdom to keep interest rates steady. As this report is being compiled on February 3, the March contract is trading 13 pips lower. Despite yesterday’s sharply lower move, the March contract remains on short and intermediate term buy signals. We have no recommendation.

Mexican peso:

The March Mexican peso advanced by a strong 57 pips on volume of 44,952 contracts. Total open interest increased by a massive 2,712 contracts, which relative to volume is approximately 140% above average and this indicated that new buyers were flooding into the peso in large numbers and driving it to a new high for the move of .04869.

As this report is being compiled on February 3, the March contract is trading higher again, up 37 pips or +0.76% and has made a new high for the move of .04906, which is the highest print since .04961 made on December 12. On January 30, OIA announced that the March Mexican peso generated a short term buy signal and as of February 3 remains on an intermediate term sell signal.

Today’s low of .04832 is below OIA’s key pivot point for February 3 of .04847 for an intermediate term buy signal to occur. The daily low must be above the pivot point. This afternoon, the COT report will be released and we will have a much better idea of the extent to which leverage funds have liquidated short positions. In our research note of January 30, we recommended bullish positions using options and these should continue to be held.

Gold:

April gold advanced $11.10 on volume of 243,120 contracts. Total open interest increased by 5,457 contracts, which relative to volume is approximately 10% below average, and a total open interest increase on yesterday’s advance is positive. Yesterday, the April contract made a high of 1227.50, which is the highest print since $1225.50 made on November 22.

As we mentioned in yesterday’s research note on silver, the real test for gold will be when the dollar begins to strengthen, which we think is imminent. At this juncture, the net long position in gold is actually quite small and according to last week’s COT report managed money was long gold by only 1.79:1 and this was only slightly above the previous week of 1.71:1 and 1.70:1 the ratio of two weeks ago. This means when gold corrects, there will be a relatively small speculative position to exert selling pressure. At this juncture, we think it is premature to enter bullish positions.