Bloomberg Access:{OIAR<GO>}

WTI crude oil: On May 19, July and August 2017 WTI crude oil generated a short term buy signal and remains on an intermediate term sell signal.

July WTI crude oil advanced $1.01 on volume of 1,166,511 contracts. Volume was only slightly higher than May 18 when the July contract gained 25 cents on volume of 1,143,078 contracts and total open interest declined by 12,487.

On May 19, total open interest declined by 22,256 contracts, which relative to volume is approximately 20% below average. The June contract accounted for a loss of 51,128 of open interest. Friday’s action was a disappointment and the relatively low volume and total open interest decline confirms skepticism on the part of market participants and would be market participants.

The COT report released on Friday revealed that managed money liquidated 6,405 of their long positions and also liquidated 6,114 of their short positions. Commercial interests added 6,867 to their long positions and also added 8,204 to their short positions. As of the May 16 tabulation date, managed money was long WTI crude oil by a ratio of 1.65:1, fractionally above the previous week of 1.63:1, and sharply lower than the ratio two weeks ago of 2.19:1.

Now that the July contract is on a short term buy signal, the market should experience a pullback that lasts from 1-3 days and this would be the opportunity to initiate bullish positions. The OPEC meeting occurs on May 25, just three days away and crude should trade firmly until the meeting. After the results are known, crude should have its pullback if this has not transpired prior to the meeting. The exception would be a surprise in the announcement that takes the market off guard. We advise a stand aside posture until crude has corrected. Call for specific recommendations.

Soybeans: On May 19, July 2017 Chicago soybeans generated a short term sell signal, which reversed the May 2 short term buy signal. The July contract remains on an intermediate term sell signal.

On Friday, July soybeans advanced 8.25 cents on volume of 166,962 contracts. Total open interest rocketed higher by 7,936 contracts, which relative to volume is approximately 75% above average and this means that new buyers were rushing into soybeans and driving prices to a high of 9.56 1/4. The July contract gained 4,564 of open interest.

On May 18, the July contract made a low of 9.42 3/4 and on May 19 a low of 9.44 1/2. This is above the April 11 low of 9.41 1/4. Though soybeans are trading at the low-end of the range, we recommend against initiating new short sales at current levels. The planting and growing season is ahead and anything can happen.

The COT report released on Friday revealed that managed money liquidated 2,122 of their long positions and also liquidated 1,163 of their short positions. Commercial interests added 728 to their long positions and also added 1,458 to their short positions. As of the May 16 tabulation date, managed money was short soybeans by ratio of 1.42:1, up slightly from the previous week of 1.40:1, but down from the ratio two weeks ago of 1.61:1. We recommend a stand aside posture.

Canadian dollar: On May 19, the June and September Canadian dollar generated short term buy signals, but remain on intermediate term sell signals.

The June Canadian dollar gained 57 pips on volume of 78,370 contracts. Total open interest declined by 1,833 contracts, which relative to volume is approximately 10% below average. The open interest decline comes as no surprise when looking at the latest COT report. According to the report, which was tabulated on May 16, leverage funds liquidated 7,384 their long positions, but added 6,530 to their short positions.

As of the tabulation date, leverage funds were short the Canadian dollar by a ratio of 3.26:1, up sharply from the previous week of  2.54:1 and the ratio two weeks ago of 2.43:1. Because we expect higher crude oil prices in the near term, the Canadian dollar should be supported and the large net short position held by professional investors should help the Canadian dollar generate an intermediate term buy signal. This will occur if the daily low is above OIA’s key pivot point for May 22 of 74.72.

The moving average setup is bearish with the 20 day moving average standing at 73.30, 50 day at 74.21, 100 day and 75.00 and the 200 day moving average of 75.40. In summary, the aforementioned moving averages will likely serve as resistance to the advance. Continued strength of crude oil and some favorable news from the Canadian economy will be needed to move the loonie substantially above the 200 day moving average of 75.40.

AUD/CAD: AUD/CAD will generate short and intermediate term sell signals on May 22. These reverse the April 28 short and intermediate term buy signals.

EUR/GBP: EUR/GBP will generate an intermediate term buy signal after generating a short term buy signal on May 16.

The moving average setup for the pair is bearish with the 20 day moving average standing at .8490, 50 day .8532, 100 day .8556 and the 200 day moving average standing at .8594. Despite this, we think the bearish moving average setup will gradually shift to a bullish tilt because we anticipate continued strength in the euro in the intermediate term and think pound is beginning to look tired at current levels.

British pound:

The June British pound advanced 91 pips on volume of 96,312 contracts. Total open interest increased by a massive 5,206 contracts, which relative to volume is approximately 120% above average. This means that new buyers were moving aggressively into pound futures, which sent the June contract to a high of 1.3052, the highest print since $1.3076 made the week of September 26, 2016.

The COT report revealed that leverage funds added 1,119 to their long positions and liquidated 5,486 of their short positions. As of the May 16 tabulation date, leverage funds were short the British pound by ratio of 1.09:1, down sharply from the previous week of 1.23:1 and the ratio two weeks ago of 1.22:1. This is one of the lowest readings seen during the past several months and as we have pointed out in previous notes, the top in the pound will be made once leverage funds assume a net long position. At that point the upside move will be on borrowed time. Stand aside.

Euro:

The June euro advanced 1.00 cent on volume of 201,021 contracts. Surprisingly, volume was the lowest since May 15 when the June contract gained 53 pips on volume of 134,615 contracts and total open interest increased by 2,489. Additionally, volume was below that of May 17 when the June contract gained 53 pips on volume of  247,714 contracts and total open interest increased by 1,473. Volume was also below that of May 16 when the June contract advanced 1.17 cents on volume of 232,950 and total open interest increased by an astounding 12,575.

On May 19, total open interest increased again, this time by 6,609 contracts, which relative to volume is approximately 25% above average. The open interest action in the euro on price advances has been outstanding and it is remarkable that leverage funds still remain net short the euro.

According to the latest report tabulated on May 16, leverage funds increased their long positions by 5,254 and liquidated short positions by 12,149 contracts. Still, this left leverage funds short the euro by a ratio of 1.61:1, down sharply from the previous week of 2.02:1, which was also the same ratio two weeks ago (2.02:1).

The moving average setup is becoming increasingly bullish with the 20 day moving average standing at 1.0998, 50 day 1.0847, 100 day 1.0769 and the 200 day moving average standing at 1.0930. As is evident from the moving averages, the June contract is massively overbought and we continue to advise a stand aside posture until such time as it has corrected down to at least the 20 day moving average, which is approximately 257 pips from the current price.

Copper: July 2017 New York copper will generate a short term buy signal on May 22. The July contract remains on an intermediate term sell signal.

The New York July copper contract gained 5.00 cents on Friday on volume of 95,361 contracts. Total open interest increased by a massive 4,233 contracts, which relative to volume is approximately 75% above average. This means that new buyers were flooding into the copper market and driving the July contract to a high of $2.5880.

The COT report released on Friday revealed that managed money added 1,443 to their long positions and liquidated 6,744 of their short positions. Commercial interests added 8,469 to their long positions and also added 6,894 to their short positions. As of the tabulation date of May 16, managed money was long New York copper by a ratio of 1.94:1, up from the previous week of 1.63:1, but down from the ratio two weeks ago of 2.40:1.

The moving average setup tilts bearishly with the 20 day moving average standing at $2.5568, 50 day at 2.6037, 100 day at 2.6361 and the 200 day moving average standing at 2.4737. In summary, for the moving averages to move into a bullish tilt, copper prices must stay elevated for a substantial period of time

As this report is being compiled on May 22, the July contract is trading 1.65 cents higher on the day and has made a new high for the move of 2.5980, the highest print since 2.6395 made on May 3. Due to the volatility of copper and options on futures liquidity is nonexistent, we recommend trading the copper ETF JJC, which does an admirable job of tracking New York copper.