Despite signs of supportive buying from the commercial and noncommercial side of the market on Tuesday, old-crop canola inched towards a test of the upper-end of the range traded over the past five weeks, while momentum indicators (second study) are nearing a move into overbought territory above 80%, which could lead to a slower pace of speculative short-covering.
During the week of Dec. 27, the March contract traded over a $16.80/metric ton trading range between $485/mt and $501.80/mt, while has consolidated within this range since. Chart resistance lies at $499.50/mt, the 33% retracement of the move from the contract's November high to December low, as well as $501.80/mt, the 38.2% retracement of the same downtrend. A breach of this range could lead to a further retracement to $507/mt, which represents the 50% retracement of the November-December downtrend.
Support is seen at the contract's 20-day moving average which has set a floor for trade over the past seven sessions, which is calculated at $494.50/mt. Tuesday's move was seen on higher volume (lower study) with the 13,183 contracts traded in the March contract on Tuesday the largest volume seen in 17 sessions.
Canola prices could use help from a weaker Canadian dollar trade, which has posted weekly gains in five of the past six weeks. This week's trade has consolidated within last week's range in sideways trade while trade in the USD may be closely tied to Tuesday's State of the Union address by the U.S. President.
Forecasts for both Brazil and Argentina will continue to play a role in determining whether canola breaks higher. Supporting such a move is canola's seasonal trend with the start of its period of seasonal strength nearing. Also, the nearby March contract closed last week in the lower 20% of the range traded over the past five years for the same week, which could act as a floor for future trade.
Monday's Dec. 31 stocks report is the next release of official grain statistics in Canada, which will be closely watched. It is conceivable that the stocks will not support the current production estimate for 2017, which will result in a less bearish view of market fundamentals. Today's March/May futures spread of minus $6.60/mt is roughly 65% of full commercial carry as reported by the ICE Exchange and could be viewed as a neutral view of market fundamentals.
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