C Market: Support the Resistance
This week in macroeconomics, the US Labor Department reported the smallest gain in non-farm payrolls, a key indicator of economic well-being. Considering the overall slowdown in the American economy in the first quarter as evidenced by reported downturns in retail and manufacturing output, the payroll report simply adds to the tepid sentiment already felt in lagging wage growth and lessens the probability of another US Federal Reserve rate hike. The US Dollar took the news poorly, devaluing broadly against all other major currencies and ending the day at BRL 3.52, JPY 106.51 and EUR 1.137. A weaker dollar lends support to commodities and grains, metals and softs posted gains in today’s market session. Fundamental news indicates heavy rains delaying exports from Brazil and hindering the drying of current crop while Colombia notes a lack of rain during a phase of crop development. Happy Friday.
In the last report, we touched upon the idea that levels of resistance and support can swap roles and in the following two weeks, the market adhered to this rule of thumb. The white line in the daily chart below indicates a trend traced from an off-chart high of $1.3820 through the gap on 5/10/16 to the low of $1.1960. This slope supports and resists market movements throughout the month of May, with C pricing clinging to it on the downside last week and then rebounding off it on June 1st.
Looking to the longer term weekly chart, there is a possibility for C pricing to further consolidate gains above $1.2515, if this prior barrier can become a floor for the market. This would re-configure the market between $1.3440 and $1.2515 for the next week, though the technical track record for C pricing staying above this level is not solid. Another devaluation in the USD as well as increasing delays in Brazil could serve as reasons for support, and pricing continues to edge its way out of the lowest 30% of average pricing. As a green buyer, any day with the market within striking range of $1.25/lb is a good day to lock in a purchase.