March 20, 2009
CBOT soy surge to fresh 4-week high
Chicago Board of Trade May soybean futures Thursday hit a four-week high of US$9.52 ¾ as Prices produced a rare and technically bullish gap-higher opening on the electronic trading daily bar chart.
The soy bulls now have gained fresh upside near-term technical momentum and their next upside price objective is to push prices above the US$9.80 area, basis May futures, which is trend-line resistance from a downtrend line drawn from the January and February highs.
Above that price level lies major psychological resistance at US$10 a bushel.
The soy bears would regain some fresh downside near-term technical momentum by pushing and closing May futures prices below psychological support at US$9 a bushel.
From an important psychological market perspective, Wednesday afternoon's Federal Open Market Committee announcement was a shocker to most of the commodity markets, as the Fed said it will buy massive amounts of US Treasuries and mortgage debt. At first blush, the surprising move by the Fed appears inflationary, which is why the value of the US dollar has plummeted and most commodity markets have rallied, led by gold. Inflationary price pressures are music to a commodity market bull's ears.
However, there is also compelling evidence inflationary pressures will be held in check and that deflationary pressures could intensify. The aggressive move by the Fed on Wednesday suggests the top economic officials in the US believe the financial and economic situation is more dire than many thought. To extrapolate, the recession could drag on and be worse - even an economic depression - than earlier believed by most analysts.
The second compelling notion supporting the deflationary pressures is that the US government is now ostensibly controlling interest rates, which are presently zero to just under 3 percent, depending on the security. The Federal Reserve has repeatedly said it will keep interest rates low in the coming years. With the Fed controlling interest rates and saying they will remain low for years, it's hard to imagine inflationary fires being stoked - amid slack worldwide industrial and consumer demand. Deflation is the archenemy of commodity market bulls.
