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.
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—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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Demand for Safe Havens Weakens as Market Sentiment Improves
Safe haven prices, news and analysis:
– Confidence is returning to financial markets, lessening the demand for safe-haven assets.
– However, the recovery is precarious and they could soon be back in favor.
Check out the IG Client Sentiment data to help you trade profitably.
Market sentiment picks up
Indications that China’s central bank is looking to ease monetary policy are offsetting the continuing concerns about a US-China trade war, lifting market sentiment and prompting investors to move out of safe-haven assets into those seen as more risky and therefore potentially more profitable.
Prices of all the traditional safe-havens, including the Swiss Franc, the Japanese Yen, Gold, US Treasuries and German Bunds, are weakening Wednesday although many hurdles remain, including the possibility that the trade wars could flare up again.
Looking at these individually, USDJPY rose modestly Wednesday after three successive days of falls and the uptrend in the pair remains in place.
USDJPY Price Chart, Daily Timeframe (Year to Date)
Similarly, USDCHF is rallying and it too remains in an uptrend.
USDCHF Price Chart, Daily Timeframe (Year to Date)
The price of Gold continues to fall and is now down from a high of $1,365.36 per ounce on April 11 to $1,272.17 although any return of risk aversion would slow its decline. The yield on the benchmark US Treasury note – which moves inversely to its price – has increased from a low of 2.77% on May 29 to 2.90% and the yield on the 10-year German Bund is up from 0.255% to 0.367% over the same period.
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— Written by Martin Essex, Analyst and Editor
Most Asian Shares Rise, Sentiment Better. ASX 200 Tests Breakout
Asian Stocks Talking Points:
- Most Asian shares recover as trade war worries settled down, anti-risk Yen fell
- Next, markets eye a central bank panel with commentary from important officials
- ASX 200 is testing a breakout, opening the door to a resumption of its uptrend
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As expected, Asian shares took a breather from yesterday’s aggressive selloff which was sparked by increased trade tensions between the US and China. A lack of updates as traders await further escalation allowed some stock markets to consolidate.
BACKGROUND: A Brief History of Trade Wars, 1900-Present
In Japan, the Nikkei 225 rose more than 0.30 percent by Wednesday afternoon trade. Most of the gains were from the telecommunication services and health care sectors. Chinese shares were held down though with the Shanghai Composite falling about 0.60 percent. Australia’s ASX 200 climbed, pushed higher by financials and information technology. The KOSPI pulled ahead, rising more than one percent.
On the FX side of things, the lull in trade war rhetoric diminished demand for safe havens. The anti-risk Japanese Yen was cautiously lower while the sentiment-linked Australian and New Zealand Dollars appreciated.
From here, aside from updates on tariff retaliations, all eyes will be on a central bank policy panel that takes place in Sintra, Portugal. We will get commentary from Fed’s Jerome Powell, ECB’s Mario Draghi, RBA’s Philip Lowe and BoJ’s Haruhiko Kuroda.
Amidst last week’s monetary policy announcements from the Fed and ECB, speeches from Mr. Powell and Mr. Draghi can arguably have more potential for FX volatility. If the Fed Chair reiterates last week’s hawkish tone while the ECB President sticks to a more dovish one, then we may see some US Dollar gains at the expense of its European counterpart.
ASX 200 Technical Analysis: More Gains Ahead?
On a daily chart, Australia’s ASX 200 was stuck right below immediate horizontal resistance levels as of Tuesday’s close. These are a combination of the January, May and current June highs between 6,158 and 6,149. However, as of today’s cooldown in trade war fears, the index is attempting a push to the upside for a new 2018 high.
This opens the door to more gains in the coming days as the ASX 200 resumes its uptrend from early April. From here, a push above resistance exposes the 50 percent midpoint of the Fibonacci extension at 6,202 followed by the 61.8% level at 6,264. On the other hand, a turn below if resistance holds places the 23.6% extension as the first target at 6,064. Under that, the index faces a near-term rising support channel going back to late-May.
ASX 200 and other equities Trading Resources:
— Written by Daniel Dubrovsky, Junior Currency Analyst for DailyFX.com
To contact Daniel, use the comments section below or @ddubrovskyFX on Twitter
USD/JPY Could Be Set To Bounce
JAPANESE YEN TECHNICAL ANALYSIS TALKING POINTS:
- The Japanese Yen has seen broad gains against its developed market peers
- However, its overall downtrend remains in place in many cases
- This week could see it reasserted
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The Japanese Yen has caught a quite strong haven bid this week as trade tensions between China and the US bubble back to the surface of market concerns once again.
Technically speaking however, US/JPY has tested the bottom of a minor uptrend channel which has been in place since May 30. It has survived, just but in any case the broader, longer uptrend which has bounded trade all through the year’s second quarter remains very much in place.
The Japanese Yen remains under considerable fundamental pressure from widely diverging interest-rate differentials with the US. The Federal Reserve has just raised interest rates once again and seems determined to continue the process for as long as the data allow. The Bank of Japan meanwhile has been forced to watch the modest inflation resurgence seen early this year collapse, taking with it any prospect that its own ultra-loose monetary policy can be unwound anytime soon.
This week’s official Japanese inflation numbers are likely to underscore that weakness and may put the Yen under renewed pressure, provided that no more bad news appears on market radar from the direction of global trade. Another bout of Yen weakness could see USD/JPY back up to its recent highs of 110.74 in quite short order. That said a return to late May’s peaks in the mid 111s seems unlikely unless some clear resolution to trade difficulties is seen- an unlikely short term prospect.
Reversals for the pair are likely to find support at this week’s 109.49 lows, with the broader channel base of 109.20 waiting below that.
The Japanese Yen’s haven bid has been pretty universal, with the Australian Dollar a particular target. AUD/JPY has been returned to the lows of late May which had not previously been seen since November, 2016.
The cross is now skirting 50% Fibonacci retracement of its long climb up from the lows of mid-2016 to the highs of September, 2017. That comes in at JPY81.40 and seems to be failing. A weekly close below that level would probably bring the next, 61.8% retracement into Aussie bear’s sights. That comes in some way below the market at JPY79.54.
Worryingly for Australian Dollar bulls the currency does not yet look notably oversold, judging by the cross’ Relative Strength Index, and it is likely that momentum to the downside has yet to dissipate.
RESOURCES FOR TRADERS
Whether you’re new to trading or an old hand DailyFX has plenty of resources to help you. There’s our trading sentiment indicator which shows you live how IG clients are positioned right now. We also hold educational and analytical webinars and offer trading guides, with one specifically aimed at those new to foreign exchange markets. There’s also a Bitcoin guide. Be sure to make the most of them all. They were written by our seasoned trading experts and they’re all free.
— Written by David Cottle, DailyFX Research
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