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Grain bounce likely and more $ weakness

We are broadly bearish about grains as we are about most other commodity markets, but have not found suitable circumstances to give a fresh ‘short-sell’ recommendation. The last grain advice we provided was in the July 2nd edition when we warned existing shorts (from the May 31st edition) that a bounce was likely. This bounce happened, followed by fairly general renewed weakness  a few weeks later and now it is time for another ‘bounce warning’ as soya oil has made a couple of daily-scale bottom extensions in the last few days.

The current market dynamic ensures that soya oil is the ‘natural short’ choice from all the grains because its production has expanded as a by-product of the increased pace of crushing soya beans to make cattle feed for newly meat-hungry China. The old balance, in which soya meal and soya oil were both desirable products has shifted as a result, meaning that soya oil tends to be in generous supply. As a result it is getting cheaper. This makes it the ‘default short’ in the grain markets as we have mentioned before but that doesn’t mean it will fall endlessly. It now looks to be ready for a bounce, which in turn will probably spill into the other grains.  This is a daily-scale signal, with the usual shelf-life of three weeks or so and will probably lead to a good opportunity to re-establish shorts after this over-extended condition has 'worked off'. Soya meal is compressed at this same time, so any upward movement there will break the compressions to the upside, which would trigger a ‘buy’ recommendation from us. Charts:

Elsewhere, we have an outstanding recommendation to be short of the US $ via long positions in £ and the Swiss Franc. This advice from the 10th July was based on daily-scale signals and we have now had weekly-scale confirmations that mean we need to ‘lengthen out’ this advice. The $ vs. the € made a weekly-scale compression which has apparently broken in the direction of a weaker $, as did the $ index:

Keep the existing Swiss Franc and £ longs and add some Yen. This is a much more difficult trade to advise, as it goes directly against the Japanese government’s strong desire to ‘get the Yen down’. We will argue this more closely later in the week, but fresh signs show that the Yen will appreciate against both the US $ and Canadian $.