Last Week's European Commodity Winners
The conflict in the Middle East is driving prices of Brent crude oil (CBZ24) up (+8.23%), particularly with reports that Israel is considering a retaliatory attack on Iran´s oil facilities.
However, President Biden says he is pushing Israel to avoid this course of action. OPEC levels of production and Libya output are keeping a healthy supply, so last week´s rally could be short-lived if there is no escalation from Israel.
In my previous article, I mentioned that Brent was in a downtrend since the start of July 2024 and that the key resistance was the 50-day exponential moving average (EMA) at 75. This resistance was broken last week, and now the contract is trending north of the 10, 20, and 50 day EMAs.
This puts an end to the previous downward channel, and as long as prices remain above the 50 EMA (currently at 75.92 USD), the trend remains higher.
The next target level is $80. The RSI marks 60.82, which has room to run to 70 if prices keep rising.
As a warning to long traders, RSI levels above 70 have produced mostly pullbacks in the past. Also, the forward Brent curve is bearish, with quotes at $75.96 in February 2025 and further declining for the rest of that year. If prices go back below the 50 EMA, the currently emerging uptrend will be over.
VSTOXX Futures (DVV24) +7.35%
European markets are showing signs of nervousness amid rising oil prices, the coming elections in the U.S., and sluggish growth in Germany.
In this bearish mood, the benchmark volatility index (VSTOXX) has broken the 10, 20 and 50 EMAs and hit a high of 20.70, last seen at the start of September.
The current level has hit a technical resistance and traders will probably "trade the channel," shorting at 20.70 and buying at 15, in the absence of major news.
The RSI of this volatility indicator statistically does not last above 70 for long. At the current level of 63.75, long traders should be cautious of a pullback.
UK Natural Gas (NFX24) +6.43%
In my last article, I mentioned that natural gas was marking a seven-week high, mainly fueled by the situation in the Middle East. Also, I mentioned that the contract is in recovery mode from the lows of Feb. 19, 2024, and that it was trading above the daily 10, 20, and 50 EMAs.
The bullish RSI has also held as anticipated, and is now at 61. The main factors, as with Brent crude, are the current Middle East conflict, which holds potential for massive supply disruption, and and the low gas storage in the UK (currently at only 57%).
European natural gas futures are also hitting a 10-month high (currently at EUR 40.5 Megawatt/hour), but in contrast to the storage level there is enough for the season.
This is a technical trade for long traders where the 10 EMA (currently at 96.4 GBP pc) can be a reliable support and below which a stop loss will be activated.
Last Week's European Commodity Losers
Robusta Coffee 10-T (RMX24) -7.57%
The forward curve is down well into September 2025 (4,121 USD/Mt), which indicates expectations of improving supplies in the next months.
Reuters reports that Brazil exported 4.05 million bags (arabica type) in September, which is over 36% compared to last year. For now, the probabilities are to the downside where short traders might increase their bets.
After the massive rally from October 2023, the market will pay attention at the closing of this week as it is attempting to break down the key weekly 10 EMAs (4,895). A full candle below this level will send a very bearish signal to the market.
Cocoa #7 (CAH25) -4.95%
Similar to the coffee futures contracts, the forward curve points sharply downwards well into the end of 2025 (quoting 3,656 GBP for Dec. 25), giving an edge to short traders.
Cocoa had its boom and bust in 2024, topping above 10,000 back in April 2024 and coming back down to the 5,000 mark. The main reason was a massive crop disease that severely shrunk supplies in West Africa.
The market is anticipating a surplus for the first time in 4 years, with good weather in the Ivory Coast and Ghana, which might encourage more short positions in the next weeks.
Technically, the mood is bearish, with prices well below the 10, 20, and 50 EMA, and with the 10 EMA just breaking down the 50 EMA.
However, the market seems to have found support around 4,300 GBP in the last four weeks. Watch out for this level, as this will decide if the trend continues or if a reversal is coming.
IBEX 35 (EFV24) -2.92%
The last time the Spanish index was above 11,500 was in June 2015. That created a sharp pullback, with the weekly RSI at a similar level as it is now (around 60). The index just had its worst week in two months.
There are concerns that rising oil prices will trigger further inflation and subsequent interest rate hikes.
Current prices are above the 10, 20, and 50 EMAs, and for now the trend is upward. However, the rally might be looking for a break now, as a correction is well overdue.
Last week has shown a "bearish engulfing" candle pattern that should be taken as a warning. Any full weekly candle below the 10 EMA (currently at 11,462) will worry long traders, and certainly activate stop losses.
On the date of publication, Cesar Marconetti did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
