After failing to sustain a move above $500/metric ton in Wednesday, Thursday and Friday's session, canola broke out above resistance on Monday following a similar move through the $10 level by soybeans.
Resistance breached on Monday includes the contract's 50-day moving average (blue line) at $499.30/mt, the 33% retracement of the move from the November high to the December low at $499.50/mt, psychological resistance at $500/mt, as well as the 38.2% retracement of the November/January downtrend at $501.80/mt.
This move clears the path for a potential continued move to the next level of resistance in the $507/mt area. This includes the 50% retracement of the discussed downtrend at $507/mt, the contract's 100-day moving average at $507.30/mt as well as the contract's 200-day moving average at $507.50/mt.
As is seen on the March soybean chart, today's move was driven by speculative trade and despite concerns of unfavorable weather in Argentina, the nearby March/May spreads ended close to unchanged from Friday. Commercial traders have taken a cautious approach in today's trade, while reports of a cancelled U.S. soybean sale to China did not help. The lower study shows today's move taking place given the weakest volume seen in six sessions.
Another sign of an indifferent approach from the commercial side is seen in cash basis levels, with Monday's average prairie basis weakening slightly to $19.73/mt under the March. While basis weakened modestly on the front-end, modest strength was seen for delivery in May.
Should canola continue to rally, it will have to ignore the trend seen in the soybean oil market. Monday's March soybean oil contract closed lower for the fourth straight session while reaching the lowest level seen since last June, showing signs of bearish commercial selling.
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Cliff Jamieson can be reached at firstname.lastname@example.org
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