Fundamental Forecast for Crude Oil: Neutral
– News early in the week that OPEC would be canceling their April meeting initially help Crude Oil prices rally into their highest level since November 12.
– As more of the US Treasury yield curve sinks into inversion territory, concerns about the state of the US economy and global growth in general have flared – hitting oil prices hard by the end of the week.
– The IG Client Sentiment Indexshows that retail traders are buying the Crude Oil dip – a contrarian signal that more losses may be yet to come.
Crude Oil Weekly Price Recap
After climbing through the first four days of the week to hit their highest level since November 12, Crude Oil prices dropped dramatically on Friday as a fresh wave of concern over the state of the global economy provoked a sell-off in high beta assets, growth-related commodities, and the risk-correlated currencies. The -1.97% drop on Friday saw Crude Oil cut its gain for the week down to 0.89% overall. Heading into the last week of the month, Crude is up by 3.18% since the start of March.
OPEC Meeting Cancellation Suggests Supply Will Remain Tight
The positive performance by Crude Oil last week can be attributed directly to a report on Monday that said that OPEC would not meet in April. Evidently displeased with the state of global demand, the major oil producing countries are intent on keeping the supply cuts in place until at least their next meeting in June. Against a backdrop where the Trump administration may announce fresh sanctions on Iran and Venezuela, a prospective constrained supply picture over the next few months has quickly emerged.
Global Growth Concerns Rise as US Treasury Yield Curve Continues to Invert
Even as it appears the global energy supply will be constrained over the near-term horizon, markets may have reached their breaking point with respect to concerns over the global economy. The March Fed meeting on Wednesday jumpstarted the drop in yields on Wednesday, but the US Treasury yield curve’s inversion by the end of the week may have been the proverbial straw that broke the camel’s back.
While the US Treasury yield curve has been inverted at various points since late last year, it was only recently that we started to see the key spreads – the 3m5s and 3m10s – move into inversion territory for the first time since 2007.
Why does the US yield curve inversion matter? In the post-war era, every occasion in which the 3m5s and 3m10s yield curves have remained inverted for two consecutive quarters has pre-dated a US recession 100% of the time. Crude Oil prices may prove to be disadvantaged in an environment where global growth concerns begin to pick up.
Inventory Data Due Out on Wednesday
The latest round of API inventory data showed that US crude inventories dropped by an unexpected 10M barrels, but a look under the data’s hood shows that nearly 70% of the drawdown was related to an uptick in exports (reflecting the aforementioned supply concerns). Amid market participants proving increasingly jittery over global growth, another round of data that show supply remains tight could prove to help buoy Crude Oil prices come mid-week.
Latest COT Data Shows Longs Continued to Build
Finally, looking at positioning, according to the CFTC’s COT for the week ended March 19, speculators increased their net-long Crude Oil positions to 414.8K contracts, up from the 362.3K net-long contracts held in the week prior. Net-longs have now climbed for the past five consecutive weeks after bottoming out during the week of February 12, 2019. Positioning remains a significant distance from the highs seen over the past two years, which were 739.1K net-longs during the week of February 6, 2018.
IG Client Sentiment Index: Crude Oil (March 22, 2019)
Retail trader data shows 54.1% of traders are net-long with the ratio of traders long to short at 1.18 to 1. The number of traders net-long is 2.0% higher than yesterday and 4.4% lower from last week, while the number of traders net-short is 19.7% lower than yesterday and 15.0% lower from last week.
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.
FX TRADING RESOURCES
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— Written by Christopher Vecchio, CFA, Senior Currency Strategist
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Weekly Trade Levels for US Dollar, Euro, Sterling, Loonie, Gold & Oil
DXY, Euro, Loonie Monthly Opening-Ranges Intact
The US Dollar Index is trading into the monthly opening-range highs into the start of the week and the focus is a reaction around the 98.05/10 resistance zone- note that the monthly ranges in Euro and Loonie also remain intact. In this webinar we review updated technical setups on DXY, EUR/USD, USD/CAD, GBP/USD, Crude Oil (WTI), Gold, USD/JPY, AUD/USD, EUR/AUD & SPX.
Why does the average trader lose? Avoid these Mistakes in your trading
Key Trade Levels in Focus
DXY – Immediate focus is on topside resistance at 98.05/10. Initial support at 97.87 with near-term bullish invalidation raised to 97.71.
EUR/USD – Euro is coiling into the monthly opening-range just above slope support. Immediate focus is on support at 1.1140. Initial resistance at 1.1187 with near-term bearish invalidation at monthly-open resistance at 1.1215– look for a bigger reaction there IF reached. A break lower would expose 1.1110.
GBP/USD – Sterling broke below multi-month slope support last week with price responding to near-term pitchfork support into the open. Initial resistance at 1.2798 with bearish invalidation at 1.2859. Downside support objectives at the August low-day close at 1.2697 and the 100% extension at 1.2662.
Gold – Risk for near-term recovery while above the yearly / monthly low-day close at 1270. Initial resistance at 1280 with near-term bearish invalidation with the monthly open a 1283.
For a complete breakdown of Michael’s trading strategy, review his Foundations of Technical Analysis series on Building a Trading Strategy
Key Event Risk This Week
Economic Calendar – latest economic developments and upcoming event risk
Active Trade Setups:
—Written by Michael Boutros, Currency Strategist with DailyFX
Follow Michael on Twitter @MBForex
AUDUSD Soars on Shock Election, Apple Shares Slump, Risk of S&P 500 Drop
AUD: The Aussie outperforms following a shock election outcome, in which Prime Minister Scott Morrison secured re-election (full story). In reaction, the Aussie gapped higher at the Asia open, reclaiming the 0.69 handle against the greenback. However, as equity markets have headed lower throughout the European morning, risks are for gains to be faded. Alongside this, key headwinds in the form of trade war tensions and a potential RBA June rate cut are likely to limit upside. Reminder, RBA Governor Lowe due to speak tonight after RBA meeting minutes (calendar)
Crude Oil: Oil prices surged at the Asia open as Saudi Arabia signalled that cuts could be extended throughout the remainder of 2019 at the JMMC meeting, while President Trump had also stepped up his critical rhetoric towards Iran. Although, with equity prices beginning to push lower, oil prices have pared the majority of its initial gains.
Equities: US equity futures have headed lower amid the continued crackdown by the US on China’s Huawei, which in turn has chipmakers come under pressure, while Google also stated that they are to restrict the company’s use on android services. Elsewhere, Apple’s price target had been cut by HSBC to $174 (median street price target = $220), citing concerns over China, while tariff led price increases on Apple products could also have dire consequences on demand. Apple shares currently lower by 2.4% in pre-market.
Source: DailyFX, Thomson Reuters
DailyFX Economic Calendar: – North American Releases
WHAT’S DRIVING MARKETS TODAY
- “Gold Price Sell-Off Continues, Silver Price Hits a Six-Month Low” by Nick Cawley, Market Analyst
- “COT Report: Japanese Yen and Euro Shorts Collapse, USD Longs Reduced” by Justin McQueen, Market Analyst
- “Crude Oil Price May Be Carving Out a Top” by Paul Robinson, Currency Strategist
- “Using FX To Effectively Trade Global Market Themes at IG” by Tyler Yell, CMT , Forex Trading Instructor
— Written by Justin McQueen, Market Analyst
To contact Justin, email him at Justin.firstname.lastname@example.org
Follow Justin on Twitter @JMcQueenFX
Gold Price Sell-Off Continues, Silver Price Hits a Six-Month Low
Gold (XAU) and Silver (XAG) Price Analysis and Charts.
Gold (XAU) Needs to Support to Hold
The sell-off on gold continues with the precious metal down around $30 in less than a week. Gold is under pressure from a resurgent US dollar, buoyed by last Friday’s Uni of Michigan data which smashed expectations and hit a multi-year high. The important 61.8% Fibonacci retracement level at $1,287/oz. failed to provide any support when broken last week, while the $1,287 – $1,281/oz. zone made up of old horizontal support is being tested now. A clear break and close below opens the way to the recent double bottom around $1,266/oz. which is currently being guarded by the 200-day moving average at $1,268.6/oz. Below here the 50% Fibonacci retracement level at $1,262/oz heaves into view.
Gold (XAU) Daily Price Chart (August 2018 – May 20, 2019)
Silver (XAG) Nears a Fresh Six-Month Low
Another precious metal under heavy selling pressure. Silver is now at levels last seen in early December last year and is over 11% lower since making its recent high of $16.21/oz. in late February. The downtrend since the late-February high continues to be respected and it is possible that silver completely retraces all the way back down to the November 14 low at $13.89/oz. Psychological support at $14.00/oz. may slow the decline, while the CCI indicator shows that the market is extremely oversold.
Silver (XAG) Daily Price Chart (August 2018 – May 20, 2019)
IG Client Sentiment data show that retail traders are 79.1% net-long gold, a bearish contrarian indicator. Recent daily and weekly sentiment shifts give us a stronger bearish contrarian bias.
— Written by Nick Cawley, Market Analyst
To contact Nick, email him at email@example.com
Follow Nick on Twitter @nickcawley1
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