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WTI crude oil:

July WTI crude oil gained 79 cents on volume of 1,415,108 contracts. Volume was the strongest since May 25 when the July contract lost $2.46 on volume of 1,841,408 contracts and total open interest declined by 9,386. On June 6, total open interest declined by 3,091 contracts, a minor number, however it indicates that short-sellers were powering the market higher, not new buying. The July contract accounted for a loss of 27,716 of open interest.

As this report is being compiled on June 7 after the release of the EIA storage report, the July contract is trading sharply lower, down $2.29 on heavy volume and the July contract has made a new low for the move of 45.78, which takes out the May 9 low of 45.92. The catalyst for today’s sharp move lower was the EIA report, which showed a stock build of 3.3 million barrels.

On June 2, OIA announced that July WTI crude oil generated a short term sell signal and at the time was already on an intermediate term sell signal. As we said in the June 2 note on crude oil, the July contract is headed towards a test of the May 5 print of 44.13.

From the June 2 note on WTI crude oil:

“It appears that the July contract is headed for a test of the three-month low of $44.13 made on May 5. There is no reason to be involved in the crude oil market at this time.”

The Energy Information Administration announced on June 7 that U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) increased by 3.3 million barrels from the previous week. At 513.2 million barrels, U.S. crude oil inventories are in the upper half of the average range for this time of year. Total motor gasoline inventories increased by 3.3 million barrels last week, and are above the upper limit of the average range. Both finished gasoline inventories and blending components inventories increased last week. Distillate fuel inventories increased by 4.4 million barrels last week and are near the upper limit of the average range for this time of year. Propane/propylene inventories increased by 3.3 million barrels last week but are in the lower half of the average range. Total commercial petroleum inventories increased by 15.5 million barrels last week.

AUD/CAD: AUD/CAD will generate a short term buy signal on June 7. This reverses the May 22 short term sell signal. It appears likely that an intermediate term buy signal will be generated during the next day or two.

Yen:

The June Japanese yen advanced by 76 pips on heavy volume of 221,699 contracts. Total open interest exploded higher, up 14,308 contracts, which relative to volume is approximately 50% above average. This indicates that new buyers were flooding into the yen and taking it to highs last seen in April of this year.

The COT report released last Friday revealed that leverage funds added 543 contracts to their long positions and also added 4,278 to their short positions. As of the May 30 tabulation date, leverage funds were short the yen by a ratio of 1.73:1, up from the previous week of 1.65:1 and slightly above the ratio two weeks ago of 1.71:1.

The daily moving averages on the continuation chart continue to show a bearish set up with the 20 day standing at .8966, 50 day of .9000, 100 day .8919, 200 day of .9123. The weekly moving averages show a mixed picture, but the longer-term 10-20 month moving averages show a longer-term bullish set up with the 10 month moving average on the continuation chart of .9093 and the 20 month standing at .9028.

As this report is being compiled on June 7, the June contract is trading 10 pips higher and has made a new high for the move of .9168, which is the highest print since .9191 made on April 21. On May 22, OIA announced that the June yen generated a short term buy signal and an intermediate term buy signal on May 30. We have no recommendation.

Gold:

August gold gained $14.80 on volume of 268,651 contracts. Total open interest skyrocketed by 26,323 contracts, which relative to volume is approximately 300% above average. The August contract made a high of 1298.80 and this has not been taken out on June 7, but is the highest print since 1300.30 made on April 17.

The COT report released last Friday revealed that managed money added 13,411 contracts to their long positions and also added 326 to their short positions. Commercial interests added 2,296 to their long positions and also added 11,703 to their short positions. As of the May 30 tabulation date, managed money was long gold by a ratio of 3.43:1 up from the previous week of 3.18:1 and the ratio two weeks ago of 2.00:1.

The daily moving averages on the continuation chart are in a bullish set up with the 20 day standing at 1256.90, 50 day 1258.20, 100 day, 1241.10, 200 day standing at 1243.40. The weekly moving averages on the continuation chart are in a bullish set up with the 10 week standing at 1263.90, 20 week 1246.50 50 week of 1257.20 and the 100 week moving average standing at 1212.60. Additionally, the 10 and 20 month moving averages are in a bullish set up with the 10 month moving average standing at 1245.50 and 20 month of 1229.80.

On May 25 OIA announced that August gold generated a short term buy signal and an intermediate term buy signal on May 30. As we pointed out in previous notes on gold, our concern is that a rally in the dollar is overdue and the euro is substantially overbought. A correction in both could cause gold to fall sharply, although we think this will be temporary.

As a consequence, gold could generate a short term sell signal until such time as the dollar rally exhausts itself. Another fly in the ointment is the specter of increasing interest rates, which is negative for gold and precious metals. Also, gold is trading at multi-months highs and this could increase hedging by producers. We recommend a stand aside posture for now.

Corn: July and September 2017 Chicago corn will generate short and intermediate term buy signals on June 7.

July corn advanced 4.25 cents on heavy volume of 462,190 contracts. Total open interest increased by 17,443 contracts, which relative to volume is approximately 30% above average. The July contract accounted for a loss of 4,122 of open interest. Yesterday, the July contract made a high of 3.79 3/4 and this has been taken out in today’s trade with a new print of 3.87, which is the highest level since 3.80 made by the March 2017 contract on February 13, 2017 and 3.98 1/4 made the week of June 27, 2016 by the July 2016 contract.

The COT report released last Friday revealed that managed money liquidated 1,440 of their long positions and added 23,486 to their short positions. Commercial interests added 7,785 to their long positions and liquidated 20,997 of their short positions. As of the May 30 tabulation date, managed money was SHORT corn by ratio of 1.93:1, up from the previous week of 1.80:1 has slightly below the ratio two weeks ago of 1.97:1.

In summary, there is plenty of fuel for a continued upside move supplied in part by distressed short sellers. Now that corn is on short and intermediate term buy signals, we expect a pullback lasting 1-3 days and this would be the opportune time to initiate bullish positions.

It should be noted that June and July are very weak months for corn on a seasonal basis. However the moving averages are in a bullish set up on a daily and weekly basis and we will expand on this in tomorrow’s note. Wait the pullback before entering new bullish positions.