The past two weeks have offered choppy trade in the dollar and stock market, but Friday's employment report changed the dynamic of the markets for weeks to come. It takes negative employment data like what was seen on Friday for economists, analysts, fund managers and traders to begin to accept that the recession was only temporarily bailed out. The economy is not out of a recession. Housing is not recovering. Global demand is weak. Unfortunately the recession appears to be alive and well.

Energies

Oil prices remain bearish as a strong dollar, concerns over China growth, and global economic panic suggest declining demand for oil in the 2nd half of 2010. Natural gas continues to be a bull play against a short crude oil.

Financials

Stocks plummeted on Friday after unemployment rose to near 10% levels once again. This is likely going to plunge consumer confidence and pressure stocks on any rally attempt. Bonds spiked on the news and rightfully so, since the prospects for corporate growth are no longer gaining ground and a flight to quality is in order. The dollar set fresh highs as its inverse relationship to stocks along with a continued 'walk-out' on the euro currency has the dollar screaming higher. Critical long term pennant resistance is a major hurdle for this market to overcome, but in my opinion the dollar will bust through that price resistance and test 91 in short order. This upward action in the dollar will push the euro to about 115 at which point it will likely be a buy. The Japanese yen is going to be a safe haven for those who want out of the euro currency and either want no part of the U.S. dollar or who just seek diversification. A push higher in bond prices will also be a catalyst for more yen buying. The Australian dollar remains a strong short. The Canadian dollar has shown support following a hike in interest rates, which for all intensive purposes was more for show than practicality. In fact if they continue to hike rates then they could force a major economic collapse there. I recommend selling into this support.

Grains

Grains fell out of bed the last two weeks and the selloff is clearly on! Beans are holding a base line support but I would not anticipate that lasting much longer. The grain market is reeling from a shift in global economic growth expectations. Without global demand grain prices will likely fall 20% or more. Wheat remains a value play as a spread buy against a short bean or corn.

Meats

Cattle remains bearish on declining grain prices and fears of reduced global demand. Hogs broke trend-line support and have turned bearish as of Friday's market collapse. I would not get short this market just yet as I am not convinced that this move is real. A close below Friday's low would, however, be a confirming indicator.

Metals

Gold continues to hold support and diverge from silver as large foreign flight to quality demand boosts price. Gold remains a safe haven, but as the dollar gains strength and gold continues to surge, the disparity to foreign investors is growing wider and wider. What I mean by this is that to someone holding euros the price of gold has actually increased about $60 per ounce more than what a U.S. dollar gold buyer would pay in just the last two weeks because of the near 5% decline in the euro currency over that time. That is just a small part of the bigger move that has occurred over the past several months. Eventually the demand from these beaten up currency holders will dissipate and leave a diminished buying pool that will have a tough time holding up the price. Silver has taken a beating and illustrates that without that fund and foreign buying demand that gold would likely be significantly lower.

Softs

Coffee is holding up very nicely amid a dollar rally, showing its resilience and ability to rally when the dollar eventually retraces. Cocoa remains a strong sell, with a total market failure expected on a break below 2728. Cotton continues to be a buy on dips as the long term outlook suggests more upside ahead despite a global demand slowdown. OJ is a sell to 110. Sugar is a buy with a bounce expected to 1900. Lumber is a strong buy after extreme selling plunged this market about 32% in under two months.


James Mound is the head analyst for www.MoundReport.com, and author of the commodity book 7 Secrets. For a free email subscription to James Mound's Weekend Commodities Review and Trade of the Month, click here.