Bloomberg Access: {OIAR<GO>}

WTI crude oil:

July WTI crude oil lost 14 cents on volume of 1,070,296 contracts. Total open interest increased by 8,363 contracts, which relative to volume is approximately 60% below average. The July contract accounted for a loss of 7,611 of open interest. As this report is being compiled on May 31, the July contract is trading sharply lower, down 1.29 or -2.62% and has made a new low for the move of $47.73 which takes out the previous low for the move of 48.18 made on May 26 and is the lowest print since 47.70 made on May 12.

The daily moving averages on the continuation chart are in a bearish set up: the 20 day moving average stands at $48.59, 50 day, 49.57 and 100 day moving average stands at 50.93. The 200 day moving average is 49.61. The July contract will generate a short term sell signal and reverse the May 19 short term buy signal if the daily high is below OIA’s key pivot point for May 31 of $48.70. At this juncture, we see no reason to be involved in the crude oil market.

From the May 26 note on WTI crude oil:

“On Friday, the July contract made a low of $48.18, and the market should find support above this level. A violation of Friday’s low would be negative in our view.”

‘While we have no strong feeling about crude oil at this juncture, we tend to think the market will trade in a sideways to slightly higher pattern. On May 19, July and August WTI crude oil generated short term buy signals, but continue to be on intermediate term sell signals.”

Natural gas: On May 30, July and August 2017 New York natural gas generated short term sell signals. Both contracts remain on intermediate term buy signals.

July natural gas lost 6.5 cents on slightly elevated volume of 493,212 contracts. Total open interest increased only 1,742 contracts, which relative to volume is approximately 80% below average. However, the total open interest increased does indicate that new short-sellers were entering the market, but at a very tepid rate. The June contract accounted for a loss of 157 of open interest.

As this report is being compiled on May 30, the July contract is trading lower again, down 7.3 cents or-2.32% and has made a daily low of $3.063, which is the lowest print on the continuation chart since 3.022 made on April 25. The moving average setup is definitely bullish. On the continuation chart the 20 day moving average stands at 3.243, 50 day 3.200, 100 day 3.122 and 200 day stands at 3.096.

We are seeing a normal seasonal decline that occurs during the months of June July and August. Unfortunately, the market began its slide during the Memorial day weekend shortened session and the decline has been relentless since then. A counter trend rally can occur at any time and this would be the opportune time to initiate bearish positions. Do not chase this decline. 

Gold: On May 30, June and August 2017 New York gold generated intermediate term buy signals after generating short term buy signals on May 25.

August gold lost $5.70 on heavy volume of 433,520 contracts. Total open interest declined by a massive 31,057 contracts and the reason for this was the imminent first notice day for the June 2017 contract, which lost 58,358 of open interest. As this report is being compiled on May 31, the August contract is trading higher, up $8.90 or +0.72% on low volume and has made a high of $1276.80, which is the highest print since 1275.70 made on May 1.

As we said in the May 26, we think higher prices are ahead, but our concern is that the euro, which is substantially overbought relative to its key moving averages begins its long-awaited correction, which would give a bid to the dollar index and temporarily depress gold and precious metal prices. As long as the dollar index remains subdued, gold will work its way higher.

Once the correction in the euro takes hold, gold will correct. Year to date, August 2017 NY gold is leading silver, up 9.6% versus July 2017 NY silver gaining 8.1% through May 31. This explains why silver has not generated an intermediate term buy signal.

From the May 26 note on NY gold:

“We think higher prices are ahead, but the market may trade in a sideways pattern until gold enters its strong seasonal time frame beginning in August. As we have pointed out in prior notes, the danger to gold in the short term may be a temporary rally in the dollar. We are expecting the euro to correct in the coming weeks and this could temporarily lift the dollar index causing it to generate a short term buy signal. We think this would be temporary and that the signal would reverse, but the rally could dampen the enthusiasm for gold and the precious metals in general.”

Yen: On May 30, the June and September 2017 Japanese yen generated intermediate term buy signals after generating short term buy signals on May 22.

The June yen advanced 44 pips on volume of 166,527 contracts. Total open interest declined by 402 contracts, which relative to volume is approximately 85% below average. As this report is being compiled on May 31, the June contract is trading higher again, up 16 pips and has made a new high for the move of .9057. As we said in yesterday’s research note on the yen, we expect it to rally the 200 day moving average of .9149. We have no recommendation.

British pound: On May 30 the June and September 2017 British pound generated short term sell signals. Both contracts remain on intermediate term buy signals.

The June British pound advanced 61 pips on volume of 132,238 contracts. Total open interest declined by 3,139 contracts, which relative to volume is approximately 10% below average. The June contract accounted for a loss of 3,202 of open interest. As this report is being compiled on May 31, the June contract is trading 34 pips higher and has made a daily high of 1.2964 and takes out yesterday’s print of 1.2930 and is the highest since 1.2983 made on May 26.

The pound is likely to be extremely volatile between now and next Thursday when the Prime Minister will attempt increase her majority. If trading the pound, we recommend liquidating the position prior to Thursday’s election. As we said in yesterday’s note, we expect a rally lasting 1-3 days and this is the opportune time to initiate bearish positions if you are so inclined. Again, all positions should be liquidated prior to Thursday’s election.

From the May 26 note on the pound:

“Currently, the September contract is trading below the 20 day moving average of 1.2933 and we tend to think this will be a significant point of resistance. It is trading above the 50 day moving average of 1.2737 and the 100 day moving average of 1.2566. The 200 day moving average stands at 1.2618. Although, the daily moving averages are in a bullish set up, we think this is about to change.”

“Looking at the longer-term moving averages, the setup is distinctly bearish. The 20 week moving average stands at 1.2597, 50 week, 1.2703 and the 100 week moving average stands at 1.3775. The monthly moving averages reflect the same bearish set up with the ten-month moving average standing at 1.2667 and the 20 day moving average of 1.3555.”

“In summary, longer-term the setup for the pound is bearish and we expect that after a 1-3 day rally, which we think will be rather weak, the pound will turn lower. One mitigating factor against substantial bearishness is the seasonal tendency for the pound to bottom during the month of May and rally through June and July, then turn lower in August. We tend to think this pattern will not play itself out in 2017.”