Fundamental Forecast for USOIL: Bullish
- Trump ‘Trade War’ effect on global demand for commodities likely key driver for Oil
- Per BHI, U.S. Oil Rig Count falls by 4 to 796, helping support end of week rally
- Inventory drawdowns in the US keep hopes alive while the Oil price remains above $58/60
- IGCS shows growing net-long retail positioning in WTI – US Oil, favoring downside pressure
The resilience of Crude Oil has been impressive this week. US Production is at an all-time high while talks of a brewing Trade Wars with key commodity consumers like China currently has more questions floating around than answers. Traders have also seen a demand premium drop when looking to front-month futures contracts trading at a premium to longer-dated contracts.
Additionally, the EIA Crude Oil Inventory Report showed the 11th straight weekly decline in Cushing, OK alongside a drawdown in distillate inventories helping to support that demand remains robust.
NFP-Fueled Risk-Rally Saves Oil from Multi-Week Decline
Through this, Crude has remained above key chart support of $58/60 per barrel. Friday also saw buying pressure remain while internal fundamentals weakened thanks in part to a risk-rally and a weaker US Dollar. The risk-rally was attributed to a ‘Goldilocks’ US Non-Farm Payroll number that showed wage inflation pressures cooled down from a month ago and absolute numbers of jobs handily beat expectations.
Futures Spreads Narrowing As Demand Premium Shrinks
When looking at futures spreads to see demand premium, it likely concerns Bulls who are still near record levels, are seeing a falling short-term premium. Per Institutional Positioning Data, Crude Net-Long is slightly off extremes seen in January. A breakdown further in the demand premium seen in a backwardation environment that recently hit the lowest levels since December could see traders exit their longs and put pressure on the Bulls.
Front-Month Crude Futures Contract (Orange) Falling With Spreads (Blue)
Data Source: Bloomberg, Chart created by Tyler Yell, CMT
There’s a global rise in oil demand! Click here to see our Q1 forecast on what outcomes we’re watching!
Technical Focus for Crude Oil – Bullish Resumption
The technical focus on WTI Crude Oil remains at $63.62/27 as resistance, the January 30 low and March 6 high respectively. Bulls of WTI should remain encouraged as the price of the front-month contract continues to trade sideways, yet above support despite concerns of a Trade War brewing due to Trump’s newly enacted Tariff’s.
Concern that the Bull market is about to enjoy a spring break would happen with a close below the trendline drawn off the August higher-low near $60/bbl. The zone of support extends down to the February low of $57.80/bbl. A move below $57.80 would open up the historically pivotal 200-DMA at $55.43.
A move and close above $63.62/27 would align with a Bullish breakout per the Ichimoku cloud, which has been applied to the Crude Oil chart.
Learn how to utilize Ichimoku Cloud in our FREE guide here
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Crude Oil Price Holds Support As Stocks and US Bond Yields Rise Post-NFP
Chart Source: ProRealtime, IG UK Price Feed. Created by Tyler Yell, CMT
Next Week’s Data Points That May Affect Energy Markets:
The fundamental focal points for the energy market next week:
- Monday 03:00 PM ET: EIA’s Monthly Drilling Productivity Report
- Tuesday, Day of 2: Oil & Finance Conference in Oslo
- Tuesday 04:30 PM ET: API issues weekly US Oil Inventory report
- Wednesday 10:30 AM ET: EIA issues weekly US Oil Inventory Report
- Wednesday 12:00 PM ET: EIA releases its monthly supply report
- Thursday 05:00 AM ET: IEA monthly Oil Market Report
- Fridays 1:00 PM ET: Baker-Hughes Rig Count at
- Friday 3:30 PM ET: Release of the CFTC weekly commitments of traders report on U.S. futures, options contracts
Crude Oil Insight from IG UK Client Sentiment:: Contrarian view of retail positioning favors downside
We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests Oil – US Crude prices may continue to fall. Traders are further net-long than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger Oil – US Crude-bearish contrarian trading bias.
Discuss this or other markets you’re trading with me below!
—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.
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Dollar, Euro and Pound Trading Over the Coming Days is Going to Be Fraught
- The severe tumble in risk trends last week wasn’t threatening market stability through the open session of this new week
- DXY has offered little clarity on direction as primary motivation is itself unclear, meanwhile the deficit hit a 6-year high
- Euro and Pound are seeing the quiet before their respective Italian and Brexit storms, be mindful of your trade intent with each
What do the DailyFX Analysts expect from the Dollar, Euro, Equities, Oil and more through the 4Q 2018? Download forecasts for these assets and more with technical and fundamental insight from the DailyFX Trading Guides page.
Risk Trends Steady to Start the Week, the Threats Remain Numerous
Like a life raft encircled by sharks, the risk-leaning benchmarks opened this week with an air of stability while the fundamental threats to the system remain distinctly unresolved. Following last week’s painful collapse in US indices – a move that motivated risk aversion far and wide – Monday’s steadfast conditions were welcomed by harried bulls. The balance was not simply isolated to US equities. European and Asian shares markets registered small movements, the emerging markets offered a measured gap lower without hitting new lows and the Yen-based carry trade eased up on its retreat. Yet, despite the implications such a correlation across diverse markets represents, there is more loaded speculative potential packed into the next move from the S&P 500, Dow and Nasdaq. These indices are still running a considerable premium to nearly every other high-profile ‘risk’ metric even after the deeper rout. The technical picture accurately reflects the circumstances moving forward. All three are hovering just above major trendline support which could readily signal a medium-term reversal in trend if cleared – in concert, the move would get on far more radars. Far more important is the sheer number of possible catalysts that can tip us back into selling pressure – or cue a notable rebound. Anticipation of the US Treasury’s call on Chinese polices keeps trade wars in focus (see the history of a century of trade wars here). Yields are at the mercy of risk trends and US Treasury yields specifically at the command of China. Growth forecasts were downgraded this past week for an otherwise ‘mundane’ threat. Earnings season hits its first ‘FAANG’ update (Netflix) Tuesday after the bell. Then there are the regional threats, which we discus below.
SPX Daily Chart
Dollar Is a Fundamental Stalemate with Too Many Charges to Keep Tabs On
When trading FX, it is difficult to avoid the US Dollar. However, given the state of its fundamental predicament, that may be an effort worth making. Whether we reference the trade-weighted DXY Dollar Index or an equally-weighted measure, there is a distinct lack of bearing on the benchmark. The picture is appropriately reflect via EURUSD, the most liquid currency bar none. There is a multi-year head-and-shoulders pattern that the pair tentative broke in August only to reverse course before conviction could take. What eventually resulted was an inverse variation of the same pattern where the break above 1.1725 again fell apart. Now trading around 1.1600, the Greenback has shown little intent to champion either bullish or bearish interests for the time being. That is not likely due to a lack of meaningful fundamental charge but instead it is more likely a side effect of an overabundance of meaningful themes tugging at the currency. For risk trends, there is not enough intensity to raise the focus on the currency’s safe haven status, but even its carry position has yet to be provoked this week. One fundamental signal that was prodded this past session but still abstract for most is the currency’s position as the unquestioned reserve leader. This United States deficit for 2018 was projected to $779 billion which equates to a 3.9 percent ratio to GDP. That is the largest dip into lending for the government since 2012 and furthers the concern that the country pushing the financing tolerance of the ratings agencies. Until we see one of these key themes take command of the currency’s bearings, it will prove difficult to trace its course.
DXY Daily Chart
Euro and Pound Tension Will Only Build into the Wednesday-Thursday EU Summit
As the Dollar flounders fundamentally, its largest counterparts are honing in on very specific fundamental themes. Yet, where there performance is riding on a single track, the outcome and timing of these uncertainties are problematically open-ended. Form the Euro, we were reminded that the currency’s future is under pressure. Following the growing discord between the Italian government and their EU/Eurozone counterparts this past weeks, the Italian Deputy Prime Minister Salvini remarked that the country doesn’t feel bound by the EU’s deficit rules – making a finer point to previous remarks that the country could increase spending if they don’t meet a generous GDP forecast and their belief that the European Central Bank (ECB) would bail them out should financial conditions grow strained. Prime Minister Conte’s remarks today and the two-day EU Summit Wednesday and Thursday will prove crucial. These particular events will very likely be more market critical than the Eurozone and Italian trade reports or the region’s investor sentiment survey from ZEW. The British Pound will also have a lot invested in the two-day meeting of the European leaders. This is a crucial ‘crunch’ event for the UK and EU to hash out a clear path for the divorce known as ‘Brexit’ (learn about the different possible Brexit outcomes in this special report). If this summit ends without resolution, the Pound is likely to tumble. Just as readily, a positive outcome will trigger a rally. Yet, after the collapse of talks between chief negotiators over the weekend and Prime Minister May’s remarks in Parliament Monday, the Cabinet meeting ahead will more likely set this event for a crash landing.
GBP Index Daily Chart
New Zealand Dollar Jumps after CPI Beat, Reminds of the Virtues of Discounted Majors
As convoluted as the backdrop seems for the likes of the Dollar, Euro and Pound; there are still options for the studious FX traders. The Canadian Dollar was given a serious charge this past session when the third quarter business sale survey from the Bank of Canada (BoC) showed an significant improvement. The general sentiment figure and lending survey were decidedly less encouraging, but these were reading taken before the breakthrough on the stalled NAFTA negotiations. Now the focus for the Loonie will more likely fall to BoC intent, so the next major update comes from Friday’s inflation update. Meanwhile, the New Zealand Dollar was prompted to a rally of its own with the release of the third quarter CPI (consumer price index) update. The 1.9 percent clip is still a ways from the upper threshold on the Reserve Bank of New Zealand’s (RBNZ) tolerance band for price pressures, but it nevertheless makes the next move decidedly more hawkish rather than dovish. Given the deep discount on the Kiwi these past months and the lack of response from the currency to last week’s risk flush, there is naturally more response to the positive news. I would expect the same for the Australian Dollar moving forward, but there the key event risk comes with the local employment report and third quarter business sentiment survey which will hit the wires at the same time. We discuss all of this and more in today’s Trading Video.
AUD/NZD Daily Chart
If you want to download my Manic-Crisis calendar, you can find the updated file here.
Written by John Kicklighter, Chief Currency Strategist for DailyFX.com
Weekly Short Positions Increase 14% Sparking Bullish Bias
Weekly Net-Long Positions Increase 17%
GBPUSD: Retail trader data shows 57.7% of traders are net-long with the ratio of traders long to short at 1.37 to 1. In fact, traders have remained net-long since Sep 20 when GBPUSD traded near 1.31492; price has remained unchanged since then. The number of traders net-long is 0.7% lower than yesterday and 19.9% lower from last week, while the number of traders net-short is 10.4% higher than yesterday and 14.9% higher from last week.
Having trouble with your strategy? Here’s the #1 mistake that traders make.
GBPUSD Sentiment Suggest That Price Could Rise
We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests GBPUSD prices may continue to fall. Yet traders are less net-long than yesterday and compared with last week. Recent changes in sentiment warn that the current GBPUSD price trend may soon reverse higher despite the fact traders remain net-long.
— Written by Jake Schoenleb, DailyFX Research
Euro Reversal Eyes Initial Resistance Hurdle
Euro reversed off confluence support last week with the advance now approaching the first major resistance hurdles. Here are the updated targets and invalidation levels that matter on the EUR/USD charts heading into the start of the week. Review this week’s Strategy Webinar for an in-depth breakdown of this setup and more.
EUR/USD Daily Price Chart
Technical Outlook: Earlier this month in my EUR/USD Weekly Technical Perspective we highlighted a key support zone at in Euro at 1.1436/97 (low-week reversal close and the 61.8% retracement of the August advance). Price registered a low at 1.1432 on October 9th with the subsequent rebound faltering just ahead of a key resistance confluence at 1.1617/27 – a region defined by the monthly open & opening-range highs, the 50% retracement of the late-September decline and the 100-day moving average. A breach above this level targets 1.1669 (breakout-zone for the Euro). Initial daily support rests at 1.1529 backed by the monthly low-day close at 1.1491.
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EUR/USD 240min Price Chart
Notes:A closer look at near-term price action shows Euro trading within the confines of an ascending pitchfork formation extending off the October lows. Note that the upper parallel converges on the 1.1617/27 resistance zone and further highlights the technical significance of this region. Initial resistance rests with the median-line (currently 1.1550s) backed by 1.1521/29 with near-term bullish invalidation now raised to 1.1497-1.15.
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Bottom line: EUR/USD is approaching near-term resistance targets which could see prices pullback a bit. From a trading standpoint, look for possible price exhaustion on a rally into 1.1617/27 – the trade remains constructive while above 1.15 with a breach above 1.1669 needed to fuel the next leg higher in price. The October opening-range is set – for now, I’ll favor fading weakness while within this formation. Keep in mind the EU-UK summit is on tap this week as well and may fuel increased volatility in the Euro & GBP crosses.
For a complete breakdown of Michael’s trading strategy, review his Foundations of Technical Analysis series on Building a Trading Strategy
EUR/USD Trader Sentiment
- A summary of IG Client Sentiment shows traders are net-long EUR/USD – the ratio stands at +1.12 (52.8% of traders are long) – extremely weak bearishreading
- Traders have remained net-long since October 1st; price has moved 0.2% lower since then
- Long positions are7.8% lower than yesterday and 13.5% lower from last week
- Short positions are 5.9% higher than yesterday and 0.3% higher from last week
- We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests EUR/USD prices may continue to fall. Yet traders are less net-long than yesterday & compared with last week andthe recent changes in sentiment warn that the current EUR/USD price trend may soon reverse higher despite the fact traders remain net-long.
See how shifts in EUR/USD retail positioning are impacting trend- Learn more about sentiment!
Relevant EUR/USD Economic Data Releases
Active Trade Setups
– Written by Michael Boutros, Currency Strategist with DailyFX
Follow Michael on Twitter @MBForex or contact him at firstname.lastname@example.org
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