Cocoa Prices Disconnected from Reality? // Breakout Time in Oil and FX
The Commodity Report #196
Breakout Time in Oil and FX
During the last week there occurred many breakout patterns as the volatility in financial markets has risen significantly after president Trump introduced tariffs on Mexico and Canada. The Ukraine-drama also doesn’t really help to calm market participants at the moment either.
We just highlight the technical pattern and add a few words about our current framework and how we view these markets at the moment. Keep in mind that trading patterns alone are probably not the best way to make money in the markets consistently and long-term. You need a solid strategy and framework - especially in cyclical commodity markets.
Crude Oil
This is the crude oil future on an unadjusted basis, trading at a major support zone
Euro - Dollar Weakness
The EURUSD chart was putting in a strong reversal candle during the week. (We’re short the USD-Index since 14.02.25)
How nervous market participants recently got is also visible in fund flow behavior of investors in Europe. The two largest military defense ETFs saw the largest outflows since inception during January and February.
The Future of Defense Ucits ETF with the ticker NATO from the provider Hanetf. broke through the €1 billion mark in assets for the first time after its launch in June 2023. In the first two months of the new year, €450 million has already flowed into the British ETF company's product.
The largest defense ETF on the market, the VanEck Defense Ucits ETF, has collected €850 million in inflows since January, increasing the fund volume from €100 million at the start of 2024 to €2.5 billion.
Cocoa Prices Disconnected from Reality?
Chocolate maker Hershey said the ICE New York cocoa futures market is currently disconnected from the reality of the global physical market due to exchange actions that have reduced liquidity and increased volatility.
Tricia Brannigan, Hershey's vice president for procurement, told Reuters on Tuesday that high margin calls on ICE's cocoa futures market drove commercial players away, reducing open interest and causing sharp price swings.
"We believe physical market prices are significantly lower right now," Brannigan said, adding that considering stocks-to-grind ratios, a measure of demand, prices should be in the range between $3,000 to $5,000 per ton in New York. They closed at $8,500 on Friday.
Brannigan also suggested that ICE could investigate speculators' activities to check if there are any disruptive behavior.
"ICE is not providing an orderly market for buyers and sellers," said Brannigan, noting that the cocoa futures market is no longer providing price transparency or helping companies to hedge risks.
"The (futures) market is not functioning properly. Commercial players are leaving the market," Brannigan said, referring to chocolate companies and commodities traders who normally use futures to reduce risks from price swings.
In Other News…
This week, look out for the following:
JOLTS Job Openings on Tuesday
CPI data on Wednesday
PPI data on Thursday
Research Service
If you’re an institutional investor, check out our research products for commodity-related futures or equities here.
Till next Monday, Lukas
If you have any questions in the meantime, please feel free to contact me via X or Mail.