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Brent Breaks $80/bbl As UST Yields Jump

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Brent Crude Oil Price Forecast Talking Points:

  • The ONE Thing: Brent has all the signs of a trend with favorable momentum being maintained. Whether you look at cross-asset correlation like US Treasury yields breaking 3.1% or the spread between Brent to WTI blowing out showing that Brent tightness is accelerating while the US is producing all it can and experiencing bottlenecks in the process.
  • Brent crude oil is historically a helpful signpost for understanding the economic cycle as higher oil prices tend to validate broader economic trends and the current rally in Brent is aligning with the 2006 move higher in Brent that had a few years of fuel left in the tank (excuse the pun.)
  • The latest extension in the rally higher was backed by Total leaving Iran that is compounding on recent bullish EIA data on gasoline and crude exports.
  • Brent Crude Oil Technical Analysis Strategy: Uptrends are naturally overbought.An inability to close below the 26-day midpoint shows the trend remains in force as prices just broke above a key level on the long-term chart.
  • Access our recent Crude Oil Fundamental Forecast here

Wednesday’s EIA Crude Oil Inventory reports showed that the US refiners are aggressively processing the massive amounts of crude produced by shale firms and exports continue to aggressively rise. On the other side of the world, sanctions on Iran and lack of CapEx from historically major producers like Venezuela are causing a blow-out in the spread between the US crude futures contract and the international benchmark, Brent.

US Crude Discounts May Continue To Brent As Spread Blows Out

Please add a description for the image.

Data source: Bloomberg

The takeaway from the chart above is the exceeding premium that Brent is receiving in the markets right now as tightness in Brent is meeting maxed out production in the United States.

Oil as an Economic Cycle Sign-Post

Most of the talk around the research desks have been on the flattening yield curve in the US as signs of an advanced economic cycle. However, the gains in crude oil also point to a stronger global economy. While the sanctions and geopolitical risk premium cannot be ruled, they also cannot be credited for the entire trend higher.

From a multi-asset investor approach, keep an eye on the equity market tilt toward energy and commodity companies, which are likely to see the healthiest profit margins as the US 10-Year yield taps 3.1%. Put simply, fighting Brent crude’s gains has been a losing fight and may continue to be for some time.

Unlock our Q2 18 forecast to learn what will drive trends for Crude Oil in a volatile Q2

Technical Views: Overbought May Show Health, Not Shorting Opportunity

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Chart Source: Pro Real Time with IG UK Price Feed. Created by Tyler Yell, CMT

The chart above shows Brent crude since late 2016 with multiple overbought signals via the RSI(5).

While selling at overbought can help your ego upon entry in thinking you sold high, the broader underlying uptrend shows that the better play is likely to hold on if you’re already long (check) or look to reestablish or further tilt your portfolio toward crude on any subsequent pull-backs in a seemingly strong trend that has more upside yet (check, again.)

Short-term support can be found at the range of the 9- & 26-day midpoint at $76.53-75.66/bbl. These are Ichimoku levels applied to daily trading data that have provided a clear view of bullishness since mid-March.

Not familiar with Ichimoku? You’re not alone and you’re in luck. I created a free guide for you here

New to FX trading? No worries, we created this guide just for you.

More Trading Resources You:

Are you looking for longer-term analysis on Crude Oil and other popular markets? Our DailyFX Forecasts for Q2 have a section for each primary currency, and we also offer an excess of resources on USD-pairs such as EUR/USD, GBP/USD, USD/JPY, AUD/USD. Traders can also stay up with near-term positioning via our popular and free IG Client Sentiment Indicator.

Forex Trading Resources

DailyFX offers a surplus of helpful trading tools, indicators, and resources to help traders. For those looking for trading ideas, our IG Client Sentiment shows the positioning of retail traders with actual live trades and positions.

Our trading guides bring our DailyFX Quarterly Forecasts and our Top Trading Opportunities, and our real-time news feedhas intra-day interactions from the DailyFX team. And if you’re looking for real-time analysis, our DailyFX Webinars offer numerous sessions each week in which you can see how and why we’re looking at what we’re looking at.

If you’re looking for educational information, our New to FX guide is there to help new(er) traders while our Traits of Successful Traders research is built to help sharpen the skill set by focusing on risk and trade management.

—Written by Tyler Yell, CMT

Tyler Yell is a Chartered Market Technician. Tyler provides Technical analysis that is powered by fundamental factors on key markets as well as t1rading educational resources. Read more of Tyler’s Technical reports via his bio page.

Communicate with Tyler and have your shout below by posting in the comments area. Feel free to include your market views as well.

Discuss this market with Tyler in the live webinar, FX Closing Bell, Weekdays Monday-Thursday at 3 pm ET.

Talk markets on twitter @ForexYell



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Top Tier Data, Risk Aversion Portend Volatility

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Financial markets may face breakneck volatility as a steady stream of heavy-duty scheduled event risk is compounded by wild swings in sentiment.

US Dollar Forecast: US Dollar Rally Poised to Continue as Market Sentiment Sours

The US Dollar may continue to push higher as haven demand amid deteriorating market sentiment takes over from Fed policy bets as the catalyst du jour.

British Pound Forecast: Oversold or Still in a Downtrend?

There is an argument to be made that Sterling has suffered enough and that most, if not all, of the bad economic backdrop has been priced in. But is next week the week to have that argument?

Australian Dollar Forecast: Australian Dollar’s Fall Could Resume If US Numbers Hold Up

The Australian Dollar faces a week full of US economic data, but much shorter of domestic numbers. This could see USD back in the ascendant, if only for lack of AUD-specific impetus.

Chinese Yuan Forecast: Yuan May Benefit from Capital Inflows, Trade Talks and Chinese PMI

Capital inflows could remain high around June 1, when A shares are officially included in MSCI indices; trade talks may solve some discrepancies; PMI gauges could boost the outlook of a sustainable recovery.

Crude Oil Forecast: Crude Spills on Saudi’s Proposed Increase, Short-Term Top Likely

Crude oil hit a wall as OPEC and its allies are said to increase production while total US inventories swelled by the most since February.

Equities Forecast: S&P, Dow, DAX & FTSE – A Cautionary Pause Begins to Show

While US equities remain in a state of consolidation, matters are a bit more worrisome across the Atlantic, as both the DAX and the FTSE have put in bearish reversal formations.

Weekly Forecast: Top Tier Data, Risk Aversion Portend Volatility

See what live coverage is scheduled to cover key event risk for the FX and capital markets on the DailyFX Webinar Calendar.

See how retail traders are positioning in the majors using the IG Client Sentiment readings on the sentiment page.



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Euro Moving Towards Key Support to Curb Persistent Selling

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EUR/USD TECHNICAL HIGHLIGHTS:

  • EURUSD selling shows no signs of abating, close below Jan 2017 trendline sets up further weakness
  • Key risk events on the calendar come in the form of Eurozone inflation and US NFP report

For the intermediate-term fundamental and technical outlook on EUR/USD, check out the recently released DailyFX Quarterly Forecast.

The theme of selling EURUSD has shown no signs of abating with the pair now trading around the mid-1.16 area. Last week saw the trendline dating back to January 2017 offer some mild support on Wednesday, however, another bout of Euro weakness saw the trendline support ultimately breached. A close below the trendline could provide a telling sign that another leg lower will be in store for the pair.

As we look ahead to next week, risk events on the calendar for the Euro will come in the form of the Eurozone inflation and the latest US NFP report. In terms price action, the aforementioned breach of the Jan’17 trendline sets up run in on the 2016 high situated at 1.1616, while a weekly low from November 7th at 1.1553 looks to be pivotal, a break below will likely see an extension of the bear run. Resistance on the topside resides at 1.1709, marking the 38.2% Fibonacci Retracement of the 1.0340-1.2556 rise, alongside 1.1750 (May 24th high).

EURUSD bulls on the longer term may find comfort in the fact that the Relative Strength Index on the daily chart is in oversold territory, which could indicate that the pair may see a modest reversal in the near-term. However, when the pair has previously been in oversold territory the rebound has been mild at best and followed by another wave of selling.

EURUSD CHART: DAILY TIMIE-FRAME (Sep 16-May-18)

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Chart by IG

HELPFUL RESOURCES FOR FOREX TRADERS

Whether you are a new or experienced trader, we have several resources available to help you; indicator for tracking trader sentiment, quarterly trading forecasts, analytical and educational webinars held daily, trading guides to help you improve trading performance, and one specifically for those who are new to forex.

— Written by Justin McQueen, Market Analyst

To contact Justin, email him at Justin.mcqueen@ig.com

Follow Justin on Twitter @JMcQueenFX



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Crude Spills on Saudi’s Proposed Increase, Short-Term Top Likely

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Crude Spills on Saudi's Proposed Increase, Short-Term Top Likely

Fundamental Forecast for USOIL: Neutral

Talking Points:

  • The ONE Thing:Saudi turning on the spigots may lead to lower prices, but bullish environment remains. OPEC rhetoric is rightly center stage as oil traded notably weaker toward week’s end. Saudi Arabia’s oil minister, Ali-Falih, said he sees a ‘likely’ oil supply boost in H2 2018.
  • Per BHI, U.S. Oil Rig Count rises to 859, US total count at 1059
  • Crude Oil Price Forecast: Brent Premium Favors OPEC Induced Volatility
  • The technical analysis picture of crude oil shows a sharp pullback off 3-year highs. Chart support comes in for the WTI front-month contract at $67.50/$64.50 per barrel.

Crude had the first weekly decline for the month of May as OPEC’s comments spooked bulls. More oil coming out of Saudi & Russia is helping to narrow a popular futures calendar spread that helped to visualize the bullish support for crude that weakened this week.

Shortage Fears Wane on OPEC+ Rhetoric

Crude Spills on Saudi's Proposed Increase, Short-Term Top Likely

Data source: Bloomberg

Seemingly bearish rhetoric took hold of the Oil market causing the price to fall on Friday. Multiple reports came about OPEC, and their allies that are collectively known as OPEC+ as rolling back production cuts. There remains uncertainty about Venezuelan and Iranian supply that has likely supported these comments from OPEC+.

The front-month WTI crude contract broke back below $70 and calendar spreads between December 2018 to December 2019 futures contracts narrowed to the weakest levels in more than a month. The wide spread aligned the move above key resistance levels.

Additionally, owners of oil producer equities are likely not as concerned as an exposed futures traders given that many producers have been locking in high prices through hedging via options.

Crude has nearly erased May’s Gains With ~3.5% Drop Last Week

Crude Spills on Saudi's Proposed Increase, Short-Term Top Likely

Data source: Bloomberg. Created by Quasar Elizundia

Once again, WTI and Brent crude has become the market everyone is discussing! Unlock our forecast here

Big Pullback on 240-Minute Chart

Crude Spills on Saudi's Proposed Increase, Short-Term Top Likely

Chart Source: Pro Real Time with IG UK Price Feed. Created by Tyler Yell, CMT

The sharp pull-back is seen well with RSI(5) on the four-hour chart. The RSI(5) has hit the lowest point since crude began its impressive ascent from $58/bbl in February to above $72/bbl earlier this week.

Since the news came that Saudi and Russia are considering easing global output cuts, the price dipped aggressively lower. Oil has its first weekly loss for the month on Friday’s nearly 3% loss.

Traders can look to trendline support zone and prior structure support points near $64.50/67.50 as likely support on the pullback. A deeper move below this zone would shift me from neutral to cautiously bearish, but the broader cycle change favoring commodities makes this a difficult view to hold.

Not familiar with Ichimoku? You’re not alone, and you’re in luck. I created a free guide for you here

Next Week’s Data Points That May Affect Energy Markets:

The fundamental focal points for the energy market next week:

  • Monday: US Memorial Day
  • Monday: Statistics Norway releases quarterly survey on planned investments in the oil industry
  • Wednesday (delayed for holiday) 04:30 PM ET: API Weekly Oil Inventories Report
  • Thursday (delayed for holiday) 11:00 AM ET: EIA issues weekly US Oil Inventory Report
  • Thursday 12-2pm: EIA releases monthly report
  • Friday 1:00 PM ET: Baker-Hughes Rig Count
  • Friday 3:30 PM ET: Release of the CFTC weekly commitments of traders report on U.S. futures, options contracts

Forex Trading Resources

DailyFX offers a surplus of helpful trading tools, indicators and resources to help traders. For those looking for trading ideas, our IG Client

Sentiment shows the positioning of retail traders with actual live trades and positions.

Our trading guides bring our DailyFX Quarterly Forecasts and our Top Trading Opportunities; and our real-time news feedhas intra-day interactions from the DailyFX team. And if you’re looking for real-time analysis,

our DailyFX Webinars offer numerous sessions each week in which you can see how and why we’re looking at what we’re looking at.

If you’re looking for educational information, our New to FX guide is there to help new(er) traders while our Traits of Successful Traders research is built to help sharpen the skill set by focusing on risk and trade management.

—Written by Tyler Yell, CMT

Tyler Yell is a Chartered Market Technician. Tyler provides Technical

analysis that is powered by fundamental factors on key markets as well as

trading educational resources. Read more of Tyler’s Technical reports via his bio page.

Communicate with Tyler and have your shout below by posting in the comments area. Feel free to include your market views as well.

Discuss this market with Tyler in the live webinar, FX Closing Bell, Weekdays Monday-Thursday at 3 pm ET.

Talk markets on twitter @ForexYell

Join Tyler’s distribution list.

https://www.dailyfx.com/free_guide-tg.html?ref-author=Yell



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