Fundamental Forecast for USOIL: Short-term Negative
WTI Crude Oil Fundamental Talking Points:
- The ONE Thing: The rebound in crude appears hollow as OPEC is expected to add to the global oil supply. The increase in supplies, which could come online quickly are already pressuring prices and adding to the coming supply, US oil inventories jumped by the most in a decade on higher US output.
- Per BHI, U.S. Oil Rig Count rises by 1 to 862, US total count at 1,062
- OPEC oil output remains in hot contention as Venezuela pleads for OPEC to fight sanctions as their rig count falls on unpaid drillers pulling projects
- The technical analysis picture of crude oil has a focus on the 61.8% at $65.60 that also aligns with the Ichimoku cloud. A breakdown from here, which the fundamentals are beginning to favor could see a broad breakdown toward $60/58 per bbl.
Crude oil may have a difficult time resuming the trend that was so prevalent in the first half of the year as OPEC plans to fight sanctions and increase productions while US oil inventories showed the sharpest increase in US oil stockpiles since October 2008.
The combination may make the recent bounce in price in WTI near $66 short-lived and hollow as bearish pressure is seen through the oil curve, which is flattening.
December ’18 – December ’19 Spread Breaks Down on Increasing Global Production
Data source: Bloomberg
An oil curve is often a guiding light for traders who like to combine technical analysis with moves in the correlated spot markets. The curve answers the simple questions: is there a premium or discount of this homogeneous product when comparing a near-dated futures contract to a later dated contract?
A premium of the near-month contract aligns with buying pressure or the desire to buy now because supplies are likely low relative to perceived demand. As the near-month contract converges or drops below the later-dated contract, we typically see a drop in price like you see above.
Either way, the falling blue line, which is the spread between December 2018-December 2019 NYMEX WTI contract helps to show that the premium in the front-month contract is waning and with it, so is the price of spot WTI.
Oil traders are getting conflicting information about supply from OPEC as Saudi Arabia and Russia are expected to wind down their production curbs, which has helped to flatten the spread above. Additionally, the crippling Venezuelan exports have been a two-headed monster of poor economic health reducing the production of oil as well as US sanctions.
Specifically, Venezuelan Oil Minister Manuel Quevedo has requested that at the June 22 meeting that the de-facto head of OPEC, Saudi Arabia, and key ally, Russia condemn the ‘unilateral sanctions’ of the US that are said to have brought about financial and economic aggression for the national oil industry of Venezuela.
Venezuela’s plea aligns with Iran’s, who is OPEC’s number 3 producer that recently received sanctions by the US.
Once again, WTI and Brent crude has become the market everyone is discussing! Unlock our forecast here
Crude Oil Sits On Broad Support With Weakening Fundamentals
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 Daily chart. RSI(5) has hit the lowest point since crude began its impressive in June. Crude’s spot price has stayed above the Ichimoku cloud on a daily basis, but counter-trend moves tend to happen in three-waves, and it appears premature to call the counter-trend move lower over. A breakdown below last week’s low at $64.18 would argue that we could see a move toward $60/58 per barrel.
Technical resistance, which is important given the recent reversal is coming off of 3-year highs would be at $68.61/bbl, which is the May 30 high.
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:
- Tuesday: President Donald Trump and North Korean leader Kim Jong Un meet in Singapore
- Tuesday: OPEC and the IEA release supply/demand forecasts and production data in monthly reports
- Tuesday 4:30 PM ET: API Weekly Oil Inventories Report
- Wednesday 10:30 AM ET: EIA issues weekly US Oil Inventory Report
- Wednesday 2:00 PM ET: FOMC Interest Rate Decision, Fed rate hike 100% priced into the market
- Wednesday 10:00 PM ET: China’s National Bureau of Statistics releases industrial output for May (includes oil refining)
- Friday: Energy ministers from G-20 nations, including Russia, Mexico, U.S. and Saudi Arabia, hold their annual meeting in Bariloche, Argentina
- 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
—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
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.
Resources to help you trade the forex markets
Whether you are a new or an experienced trader, at DailyFX we have many resources to help you: analytical and educational webinars hosted several times per day, trading guides to help you improve your trading performance, and one specifically for those who are new to forex. You can learn how to trade like an expert by reading our guide to the Traits of Successful Traders.
— 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
Just getting started trading equities? See our beginners’ guide for FX traders to learn how you can apply this in your strategy!
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
Find out what the #1 mistake that traders make is so that you never have to join them in it!
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
Follow David on Twitter@DavidCottleFX or use the Comments section below to get in touch!
Strategies & Ideas5 days ago
Timur Kuran Interview with Michael Covel on Trend Following Radio
Stocks7 days ago
A tremendous opportunity at the cross section of two markets
Forex6 days ago
EUR Plummets on ECB Dovish Rate Guidance
Forex6 days ago
XAU/USD Technical Outlook: Gold Price Breakout Stalls
Forex7 days ago
GBP/USD Lags Behind as U.K. CPI Fails to Boost Bets for BoE Rate-Hike
Forex7 days ago
Dollar and Equities Slip after Fed Hikes, Now It’s the ECB’s Turn
Latest News4 days ago
Siemens wins $2 billion contract to build new London Tube trains
Forex4 days ago
Gold Prices Take 2% Hit, Break Impasse with Fresh 2018 Lows