March 24, 2010

 

US Wheat Outlook on Wednesday: Down on dollar rally, technical selling

 

 

A rally in the U.S. dollar that is pressuring commodities is expected to drag down U.S. wheat futures early Wednesday.

 

Nearby Chicago Board of Trade May wheat is called to open 2 to 4 cents per bushel lower. In overnight electronic trading, CBOT May wheat dipped 2 3/4 cents, or 0.6%, to US$4.74.

 

Deepening concerns about European sovereign debt levels pushed the dollar to a fresh 10-month high against the euro. The move sparked widespread selling of commodities, including grains and soybeans, due to the perception that a strong dollar reduces investors' appetite for risk and makes U.S. products less attractive to foreign buyers.

 

"I think the wheat markets are going to go the same direction as the corn and the soybeans: lower," said Tom Leffler, owner of Leffler Commodities. It's "mainly because we saw the dollar making new highs for 2010," he said. "I think that's going to be the whole gist for everything that's going on today."

 

CBOT May wheat in overnight trading touched a fresh low for 2010 of US$4.72. Follow-through technical selling could add pressure to prices, a trader said.

 

The markets could find some support if short funds buy back their previously sold positions. Non-commercial speculative funds, which follow trends in the markets, are heavily short in CBOT wheat, which leaves the market vulnerable to bursts of short-covering. Funds that are short buy back, or cover, previously sold positions when the net short position becomes too heavy.

 

There is a lack of fresh fundamental news for traders to digest. Global wheat supplies are large, and the U.S. continues to struggle on export market because of stiff competition from lower-priced European and Black Sea wheat.

 

"The only thing that's going to help this market is short-covering out of Chicago," Leffler said.

 

The next downside price objective for bears is pushing and closing CBOT May wheat below solid technical support at the low of US$4.72, a technical analyst said. The bulls' next upside price objective is to push and close the contract above solid technical resistance at US$5.00, he said.

 

First resistance is seen at Tuesday's high of US$4.89 and then at US$5.00, a technical analyst said. First support lies at the March low of US$4.75 1/2 and then at US$4.72, he said.