CRUDE OIL & GOLD TALKING POINTS:
- Crude oil prices snap five-day win streak as Syria worries ease
- API inventory flow data next to guide price trend development
- Gold prices may break deadlock on incoming Fed commentary
Crude oil prices turned sharply lower, snapping a five-day winning streak. The move seems to have reflected easing concerns about escalation in Syria after US President Trump signaled a weekend rocket attack meant to punish the government for using chemical weapons was a one-off. Trump also backed away from sanctions aimed at penalizing Russia for its support of Syrian President Bashar al-Assad.
Meanwhile, gold prices marked time as ebbing geopolitical risk translated into firming risk appetite, boosting Fed rate hike bets while simultaneously undercutting support for the US Dollar. The latter effect seemed to reflect ebbing haven demand as well as the re-emergence of the view that broadening global recovery will see top central banks narrow the US central bank’s lead down the path to stimulus withdrawal. This put gold’s roles as anti-fiat and benchmark non-interest-bearing asset in conflict, translating into standstill.
FED COMMENTARY, API INVENTORY DATA DUE
From here, crude prices are eyeing the weekly US inventory flow statistics from API. The release will be judged against forecasts calling for a meager 600k outflow to be reported in official EIA statistics due the following day. A larger draw might send prices higher. Alternatively, an unexpected build may help extend yesterday’s selloff.
Meanwhile, gold may turn its attention to a steady stream of comments from Fed officials. Remarks from San Francisco branch president John Williams may prove most potent since he has been tapped to take over at the helm of the influential New York Fed after its Bill Dudley steps down. That will put Williams at the forefront of managing the mechanics of Fed tightening, including balance sheet reduction.
Mr Williams has long emerged as an important bellwether for the consensus view on the rate-setting FOMC committee. His new role – due to be assumed in summer – will make his opinions all the more important. With that in mind, a somewhat hawkish tone might revive the greenback’s fortunes to the detriment of the yellow metal.
See our quarterly crude oil forecast to learn what will drive prices through mid-year!
GOLD TECHNICAL ANALYSIS
Gold prices continue to stall below resistance in the 1353.87-57.50 area (double top, falling trend line). Breaking above it on a daily closing basis opens the door for a test of the July 2016 high at 1375.15. Alternatively, a move below near-term rising trend support – now at 1336.63 – exposes long-standing range support at 1307.25.
CRUDE OIL TECHNICAL ANALYSIS
Crude oil prices recoiled from resistance cluster in the 66.63-67.49 area (January 25 high, rising channel top, 38.2% Fibonacci expansion). From here, a move back below the 23.6% level at 63.90 opens the door for a test of channel floor support at 62.50. Alternatively, turn above 67.49 sees the next upside barrier at 70.38, the 50% Fib.
COMMODITY TRADING RESOURCES
— Written by Ilya Spivak, Currency Strategist for DailyFX.com
To contact Ilya, use the comments section below or @IlyaSpivak on Twitter
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AUD/USD May Fall With Asia Stocks After Wall Street Volatility
Asia Pacific Market Open Talking Points
- British Pound and New Zealand Dollars climbed. Former enjoyed Brexit news, latter rallied on CPI
- S&P 500 recovered after risk-aversion dominated US markets on shutdown news. USD depreciated
- AUD/USD may fall as market mood sours in Asia, jobs data misses expectations. Eyes chart support
See our study on the history of trade wars to learn how it might influence financial markets!
The British Pound and New Zealand Dollar were some of the best performing majors on Wednesday. Sterling continued rallying amid ebbing ‘No-Deal’ Brexit bets despite UK Prime Minister Theresa May leaving the door open to one. Meanwhile, the Kiwi Dollar enjoyed fading expectations of an RBNZ rate cut this year after a better-than-expected local inflation report.
For pro-risk currencies such as the Australian Dollar, the US trading session offered little fuel to extend their gains. White House Economic Adviser Kevin Hassett spoke and warned the continuation of the government shutdown could result in near-zero growth. After gapping higher, the S&P 500 traded lower as domestic government bonds rallied. After a slight rally later, the index closed +0.22%.
This signaled a flight-to-safety as risk capital flowed into haven assets. The US Dollar, which tends to benefit in this scenario, failed to capitalize on gains and ended the day cautiously lower. Falling yields alongside a fading Fed rate hike bets may have been a more prominent influence. Meanwhile the anti-risk Japanese Yen still ended the day lower, perhaps due to the Bank of Japan lowering inflation expectations.
Earlier in the day, US President Donald Trump warned China that tariffs could increase should a trade deal not be reached. As the markets then transitioned into Thursday’s session, the White House requested data on if the shutdown prolongs into March. This showed that it may continue for the time being. As such, these developments may adversely impact Asia Pacific benchmark stock indexes as markets turn risk-averse.
This could boost the Japanese Yen at the expense of the sentiment-linked Australian and New Zealand Dollars. Australia’s December jobs report will also cross the wires. Data out of the country has been tending to underperform relative to economists’ expectations as of late. Such an outcome could increase expectations of an RBA rate cut as AUD/USD falls. Overnight index swaps are pricing in a 34% chance of a cut later this year.
AUD/USD Technical Analysis
The continuation pattern outlined in my weekly Australian Dollar forecast appears to have been broken on the AUD/USD chart below. Typically, a “Pennant” is a continuation pattern. The descent under it may open the door to losses instead. Near-term support is at 0.70211 with resistance around 0.71645.
Each week I conduct a poll to see which Aussie crosses to cover in the technical forecast. You can participate in the poll by following me on twitter @ddubrovskyFX as well as to see timely updates on the Aussie Dollar.
AUD/USD Daily Chart
Chart created in TradingView
US Trading Session
Asia Pacific Trading Session
** All times listed in GMT. See the full economic calendar here
FX Trading Resources
— Written by Daniel Dubrovsky, Junior Currency Analyst for DailyFX.com
To contact Daniel, use the comments section below or @ddubrovskyFX on Twitter
Traders Net-Long Increases from Last Week
65.7% OF TRADERS ARE NET-LONG
EURUSD: Retail trader data shows 65.7% of traders are net-long with the ratio of traders long to short at 1.91 to 1. In fact, traders have remained net-long since Jan 10 when EURUSD traded near 1.1554; price has moved 1.6% lower since then. The percentage of traders net-long is now its highest since Dec 31 when EURUSD traded near 1.1464. The number of traders net-long is 2.0% higher than yesterday and 27.2% higher from last week, while the number of traders net-short is 8.2% lower than yesterday and 4.3% higher from last week.
To gain more insight to how we use sentiment to power our trading, join us for our weekly Trading Sentiment webinar.
EURUSD SENTIMENT CONTINUES TO SUGGEST A BEARISH BIAS
We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests EURUSD 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 EURUSD-bearish contrarian trading bias.
Having trouble developing your strategy? Here’s the #1 mistake that traders make.
— Written by Nancy Pakbaz, CFA, DailyFX Research
Oil Risks Larger Recovery as Inverse Head-and-Shoulders Takes Shape
Oil Talking Points
Oil prices remain bid even as the International Monetary Fund (IMF) reduces its global growth forecast for 2019 and 2020, and the ongoing efforts by the Organization of the Petroleum Exporting Countries (OPEC) to stabilize the energy market may spur a larger recovery in crude as an inverse head-and-shoulders formation takes shape.
Oil Risks Larger Recovery as Inverse Head-and-Shoulders Takes Shape
Fresh comments from OPEC Secretary-General Mohammad Barkindo suggest the group will continue to cut production over the coming months as the official insists that the ‘the market has started to respond positively’ at the World Economic Forum in Davos, Switzerland, and the current environment raises the risk for higher crude prices as Mr. Barkindo goes onto say that ‘we are beginning to see very sharp reductions in supply.’
In fact, OPEC and its allies may curb production throughout 2019 as updates from the U.S. Energy Information Administration (EIA) show field production climbing to 11,900K in the week ending January 11 after holding steady at 11,700K for three consecutive weeks, and the group may continue to combat the stickiness in Non-OPEC supply especially as Russia Minister of Energy, Alexander Novak¸ endorses a price range of $55-65bbl.
With that said, the advance from the December-low ($42.36) may gather pace as oil prices break out of the downward trend carried over from late-2018, with developments in the Relative Strength Index (RSI) fostering a constructive outlook for crude as the oscillator bounces back from oversold territory and carves a bullish formation. Sign up and join DailyFX Currency Analyst David Song LIVE for an opportunity to discuss potential trade setups.
Oil Daily Chart
- Crude stages a near-term rebound following the failed attempts to test the June 2017-low ($42.05), and oil prices may continue to track higher as an inverse head-and-shoulders formation takes shape.
- In turn, a break/close above the $55.10 (61.8% expansion) to $55.60 (61.8% retracement) region raises the risk for a larger reversal, with the next area of interest coming in around $57.40 (61.8% retracement) followed by the Fibonacci overlap around $59.00 (61.8% retracement) to $59.70 (50% retracement).
For more in-depth analysis, check out the 1Q 2019 Forecast for Oil
Additional Trading Resources
Are you looking to improve your trading approach? Review the ‘Traits of a Successful Trader’ series on how to effectively use leverage along with other best practices that any trader can follow.
Want to know what other markets the DailyFX team is watching? Download and review the Top Trading Opportunities for 2019.
— Written by David Song, Currency Analyst
Follow me on Twitter at @DavidJSong.
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