Crude Steadies, But Remains Under Pressure

Crude oil is showing little movement on Wednesday. In the European session, WTI is trading at $53.14, up $0.20, or 0.38%. Brent crude is trading at $58.91, down $0.06, or 0.10%.

Is a U.S-China Trade Deal at Hand?

Investors are keeping a close eye on trade talks between the U.S. and China. There has been some optimism that a limited deal (“Phase 1”) can be hammered out, which would be the first of up to three “mini agreements”. This would enable to sides to remove tariffs, while at the same time, postpone the most intractable issues for another time. If the sides can reach any kind of a deal, growth will improve and the demand for crude will increase. However, investor confidence slipped earlier in the week, as the Chinese media reported that China would demand further talks before agreeing to a Phase 1 agreement. The U.S. has sounded optimistic about reaching a deal, and has canceled tariffs which were set to take effect this week. A new 15% on $160 billion in Chinese goods is scheduled to take effect on December 15, but would likely be rescinded if the sides can reach an agreement before then. Traders should be prepared for further volatility from crude, depending on the progress of the current round of trade talks.

Crude Inventories – Another Surplus?

Another important factor for crude movement is the Energy Information Administration (EIA) crude inventory report. The weekly report has been posted four successive surpluses, pointing to an oversupply of U.S. crude. Another large surplus is expected on Thursday, with a forecast of 3.0 million barrels. This streak of surpluses is putting upward pressure on crude prices, and another surplus could push crude higher on Thursday.

WTI/USD 4-hour Chart

Oil Price Fundamental Daily Forecast – Underpinned by Upbeat Brexit News, but Gains Capped by Trade War Concerns

U.S. West Texas Intermediate and international-benchmark crude oil futures are trading nearly flat to slightly better on Wednesday, underpinned by optimism over Brexit and new signs that OPEC and its allies are willing to make further supply cuts, but pressured by renewed concerns over U.S.-China trade relations and potentially bearish weekly inventories reports.

At 11:54 GMT, December WTI crude oil is trading $53.04, up $0.16 or +0.30% and December Brent crude oil is at $58.71, down $0.03 or -0.05%.

Traders Hoping for Favorable Brexit Deal

Traders are optimistic that the European Union and the United Kingdom will strike a deal that avoids a “hard” or no-deal Brexit. This should boost economic growth and consequently oil growth and prices.

Early Tuesday optimistic comments on Brexit from European negotiator Michel Barnier were backed up by reports that a draft legal text over the divorce was being drawn up.

“Our team(s) are working hard, and work has just started now today, this work has been intense over the weekend and yesterday, because even if the agreement will be difficult, more and more difficult, to be frank, it is still possible this week,” Barnier told reporters in Luxembourg on Tuesday morning.

He added that “any agreement must work for everyone,” saying it is “high time to turn good intentions into a legal text.”

By mid-afternoon (Tuesday), one report suggested that a draft deal was in the works according to two separate sources familiar with negotiations.

Further Supply Curbs Possible

OPEC Secretary-General Mohammad Barkindo said OPEC “will do whatever (is) in its power” along with its allied producers to sustain oil market stability beyond 2020.

Daily Forecast

The markets are at a stalemate on Wednesday because of fading hopes of a trade deal between the United States and China after the latter threatened countermeasures against the U.S. for showing support for the Hong Kong protesters.

Traders are also looking for further developments over Brexit. A deal to allow the U.K. without hard ramifications should underpin prices.

Late in the session, the price action will be driven by the weekly inventories report from the American Petroleum Institute at 20:30 GMT. It is expected to show U.S. crude stocks probably grew for the fifth straight week, according to a Reuters survey.

The report has been delayed one day because of Monday’s U.S. bank holiday. The Energy Information Administration will report on Thursday.

Global Equity Markets Roar

Third-quarter results for UnitedHealth group were better than expected and led it to raise profit guidance for the year, with similarly upbeat reports also from Johnson and Johnson and JPMorgan. European equities were mostly up, too. Gold struggle in the face of surging US bond yields and the general risk-on fervour 

Brexit

The Pound galloped higher overnight, leaving the currency around 4% stronger over the past week. RTE News’ Tom Connelly, who broke the original Brexit ‘deal’ story, writes that the EU and UK sides are the closest they have been and that there is some optimism now. He has Irish sources typically, so this is another positive sign.

European stocks rallied to levels not seen in more than a year as speculation that a Brexit deal is imminent prompted traders to scoop up shares across the board.
Of course, any ‘breakthrough’ between the EU and the UK must still face the British house parliament.

But traders remain favourably positioned for the ‘white smoke’ moment hoping for domestic ratification on Brexit.
Framing out the “feel good” risk-on vibe, the US-China trade discussions seem to be making some progress, and the prospect of a genuine truce has risen.
Asia open

While Asian cash market looks set to gain however entering the morning session, traders have hit the pause button possibly awaiting the outline of a Brexit agreement to judge the likelihood of parliamentary approval, which suggest there still much wood to be chopped before pen gets put to paper.

As well, investors are looking for more clarity around the various phases of the US-China trade talks. Individually, Chinas firm commitment to buy $50 billion in US farm goods, details around December tariff detente, possible first-level tariff rollbacks and any signs progress on lifting the US export ban on Huawei, yup lots of wood to chop there also.

Oil market

Crude fell for a second day amid a weakening global growth outlook and as US oil producers defensively hedge against copious crude supplies in the world’s largest economy.

Oil markets continued to struggle overnight under the weight of a dreary macro scrim as back to back miserable China data prints (bad trade data and factory gate inflation) were compounded by a Germany’s sickly ZEW survey which pressured prices.

However, a lower base is being tentatively held in check after OPEC Secretary-General Mohammad Barkindo reiterated his “whatever it takes” to sustain oil market stability mantra.

While corporate earnings reports and phase one of the US-China trade talks is buttressing general risk sentiment, without an implicit rollback of existing tariffs, a tariff detente will have minimal effects on shifting the global growth dial to a more pleasant setting and therefore limited impact on oil prices. In other words, a detente means things may not necessarily get worse, but it doesn’t suggest that global economic conditions will improve any time soon.

But the fact that the losses are very sticky at these downcast levels it could be another worrying sign for oil bulls.

Gold market

The robust US corporate earnings reports coupled with positive developments on the Brexit front has triggered a market rotation out of bonds into equities resulting in US 10-year bond yields significantly rising which is weighing on the opportunity cost of holding gold.

Roaring US equity markets and an upsurge in US bond yields are possibly two of the worst flatmates for gold; as a result, gold toppled nearly $20 top to bottom overnight.

Also, The NY Fed manufacturing survey lifted a better-than-expected 2pts in October, giving the hawks on the FOMC “something to talk about” and perhaps hawkishly influencing their October policy decision process.

Currency markets

Japanese Yen

The “Risk on” environment has propelled the USDJPY higher within reach of the psychological 109 level as the S&P 500 had a peak above the equally cerebral 3000 markers.

Australian Dollar

The market is still debating the RBA’s monetary policy gymnastics. But given the RBA Board is expressing some doubts about the efficacy of dropping rates further operating in what for the RBA is uncharted territory, it could mean slowing the pace of rate cuts but doesn’t necessarily alter their dovish bias. Despite a frothy global “risk-on” environment, the Aussie dollar is trading 20 pips off yesterday’s session tops.

The Yuan

The Yuan may remain stable within the current 7.05-7.10 level while the phase one trade deal gets chiselled out.

Back to back weaker economic data out of China (Trade and factory inflation gate) provided a stark reminder if not a reality check that a weaker Yuan from a pure fundamental landscape may still be in the cards. As such the USDCNH has traded with a better bid overnight.

But given there remains a strong possibility of a Phase 1 deal getting inked, at minimum USDRMB topside should remain capped and we could see the CNH outperform in the weeks ahead assuming phase 2 and 3 of the propose US-China trade deal comes to fruition.

This article was written by Stephen Innes, Asia Pacific Market Strategist at AxiTrader

Crude Oil Price Forecast – Crude Oil Markets Bounce Back

WTI Crude Oil

The WTI Crude Oil market initially fell during Tuesday but found enough support near the $52.50 level to turn around and form a supportive looking candle. Ultimately, what I find interesting about this is that we have seen quite a bit of buying pressure at $52.50 over the last week or so anyway, and of course the uptrend line underneath will have its influence as well. All things being equal, the $51 level kicks off significant support down to the $50 level, and therefore it makes sense that value hunters have come back into the market.

Oil Forecast Video 16.10.19

Brent

Brent markets also fell rather hard during the Tuesday session initially but has found support just as the WTI market has. Ultimately, this is a market that is probably getting a bit of a boost due to the fact that there are still tensions with the Iranians, and of course there’s also the possibility that the Brexit gets done and that could drive up demand in theory as well. Either way, there is significant support underneath, and that’s probably the most important thing to pay attention to. The 50 day EMA is close to the $60.75 level and breaking above there could open up the door to the $62.50 level, possibly even the $64 level after that. To the downside, I see the $56 level as the beginning of a massive amount of support that extends down to the $55 level. Ultimately, I believe that we are rallying from here to form a larger range.

Please let us know what you think in the comments below

Crude Steady as Investors Eye U.S-China Trade Talks

Crude oil is showing limited movement on Tuesday. In the European session, WTI is trading at $53.37, down $0.14, or 0.26%. Brent crude is trading at $59.18, down $0.04, or 0.02%. U.S. crude oil posted a late-week rally, climbing over 5%. However, the rally fizzled out, as crude reversed directions on Monday and dropped below the $53 level earlier on Tuesday.

Trade Deal Optimism on Hold

The ongoing trade war between China and the U.S. has taken a toll on both economies and contributed to weaker global growth. Recent figures show that the Chinese economy has been hit hard, which may force the Chinese to show some flexibility in the current round of talks between the sides. In September, Chinese exports to the U.S. declined by 22%, on an annualized basis. The Chinese manufacturing sector is sputtering, as the Chinese Manufacturing PMI has pointed to contraction for the past four months.

The markets were brimming with optimism last week, as the U.S. and China renewed trade talks after a long break. Previous rounds of negotiations have ended without success, but these talks are taking a different approach, with a focus on achieving a limited deal, which is being labeled “Phase 1”. The aim is to reach a partial agreement and leave thorny issues such as intellectual property theft for another day. However, China is saying that additional talks will be needed before a limited agreement is reached. In the meantime, the Trump administration suspended higher tariffs which were set to take effect this week. Still, tariffs that are scheduled to take effect in December remain in place. The level of progress in these talks can have a significant effect on crude prices, since a trade agreement between the two largest economies in the world would re-energize the world economy and increase demand for crude from China and other major economies.

WTI/USD 4-hour Chart

Oil Price Fundamental Daily Forecast – Choppy Trade Expected as US-China Hammer Out Details of Trade Deal

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are trading lower on Tuesday, after clawing back most of its early session losses. The catalyst behind the second day of weakness is worry over U.S.-China trade relations that is raising concerns over the weakening global economy and declining demand growth.

At 11:55 GMT, December WTI crude oil is at $53.29, down $0.36 or -0.68% and December Brent crude oil is at $59.04, down $0.31 or -0.56%.

Weak data from China is also pressuring prices. Earlier on Tuesday, the National Bureau of Statistics (NBS) reported that China’s factory gate prices declined at the fastest pace in more than three years in September. That follows customs data on Monday that showed Chinese imports had contracted for a fifth straight month.

On Friday, the announcement of a partial trade deal between the United States and China helped boost prices, but these gains were erased on Monday when China said it wanted to continue discussions before agreeing to the first phase of the deal. This news rekindled concerns over demand ground.

However, the market did get a slight boost on Tuesday after OPEC Secretary-General Mohammad Barkindo said OPEC and its allies “will do whatever (is) in its power” to sustain oil market stability beyond 2020.

Rising tensions in the Middle East are also providing some support on concerns over a possible support disruption after President Trump imposed sanctions on Turkey and demanded the NATO ally stop a military incursion in northeast Syria that is rapidly reshaping the battlefield of the world’s deadliest ongoing war.

According to CNBC, the move highlights increasing instability in the Middle East amid months of attacks on tankers and oil sites in and around the oil-exporting Gulf region.

Daily Forecast

It seems U.S.-China trade relations will be the main focus for traders for several weeks or until the two economic powerhouses sign the “Phase One” trade agreement. So expect a volatile two-sided trade.

Short-term investors will be watching U.S. inventories. Prices could get a boost this week as investors are expecting a drawdown in crude inventories in the United States.

This week’s American Petroleum Institute (API) and U.S. Energy Information Administration (EIA) inventories reports are expected to show a slight draw down.

A Fragile State Of Trade War Neutrality

Beyond chiselling out those details, doubts continue to swirl whether China and the U.S. can reach a full trade agreement to end the trade spat. Investors were reluctant to jump on the rally bus while enthusiasm about the potential for a significant U.S.-China trade breakthrough waned.

But this possibly goes well beyond a tariff detente as trade friction has also spread to technology and financial sectors in the past few months. Suggesting, the U.S. administrations attitude towards China does not appear to have improved significantly.

Given the recent economic war escalations, it might suggest we remain in a fragile state of “phase one” trade war neutrality unsure if it may last or even what sweeteners and apparatus have been constructed to ensure both parties compliance.

While bullish momentum has faded somewhat, risk steadied overnight when Treasury Secretary Mnuchin said U.S. and China reached “fundamental agreement” on several trade issues last week and a tweet from the Global Times’ editor-in-chief sketched a more cheerful outlook.

Oil markets

Oil dropped the most in two weeks amid concern that the recent U.S.-China trade talks won’t lead to a deal reinforcing the fact that the outcome of the agreement is probably the most significant near-term factor for oil sentiment.

Indeed, a definite conclusion of trade talks, even a phase one deal, could do a great deal to alleviate those gnawing emotional concerns about global demand as traders continue to wear demand sensitivities on their sleeve.
But oil prices stabilised after calming trade talk comments from Treasury Secretary Mnuchin.

While oil traders are all too knowing that chasing headline risk is fraught with peril. But demand erosion from the trade war is such an overwhelming pervasive bearish skew; it might be impossible for traders to ignore the ebb and flows from headline risk.

Currency market

The Japanese Yen

Risk markets fell under pressure after headlines reported China wants more talks before it signs up to the tentative trade deal announced by the U.S. on Friday.

USDJPY slipped to 108.05 from 108.20 but remained bid on the dip after risk market steadied

The British Pound

The Pound looked a little perky slicing through 1.2600 in the late New York afternoon possibly due to the absence of any negative headline suggesting that the talks are not breaking down.

The Chinese Yuan

The Yuan may remain stable while the phase one trade deal gets chiselled out within the current 7.05-7.10 level While the Yuan rallied convincingly in Asia yesterday down to 7.05 USDCNH level , the weaker China trade data provided a stark reminder if not a reality check that a weaker Yuan from a pure fundamental landscape may still be in the cards.

But given the extremely high probability of a Phase 1 deal getting inked, a subsequent Yuan currency accord and China’s ongoing commitment to stabilising the Yuan, 6.90 USDCNH now appears to be a reasonable target for USDCNH at the end of 2019 assuming phase 2 and 3 remain on target.

Of course, this view differs wildly by 30 “big figures” from some banks analyst who are pegging year-end USDCNH at 7.20 expecting no significant developments from the phased-in trade talks.

ADXY

Yesterdays USDAsia selling flows were reversed overnight after a run of not so friendly trade talk headlines. But with markets zeroing in on ADXY 103.70 resistance which has thwarted several rallies in 2019, the reversal may also have been compounded by some profit-taking.

While positive momentum is building and the rally in local currencies may extend further particularly on the basket of THB/SGD/IDR/MYR/KRW, traders may be waiting for this fundamental level (103.7 ADXY) to breach on a closing basis to confirm the next bullish leg higher.


Bloomberg

Gold markets

Gold is trading firmer this morning but off overnight highs. Headline risk will continue to dominate, but at the end of the day, what matters most for gold is lower interest rates. And through all this tangled web of headline and phased in confusion, there is one essential narrative that seems to be getting lost.

There is a difference between detente and a deal. A detente means things don’t get worse, but it doesn’t implicitly suggest that global economic conditions get better at once. So, with the latest run of weaker financial data implying that central banks may keep interest rates lower for longer, gold could remain supported short term.

And despite hopes building on a trade truce and a Brexit breakthrough, defensive positioning remains high. And predictably so as if trade talks are struggling at this soft-pedalled level, discussions may not get more comfortable when the complicated intellectual property and technology transfer issues get tabled.

But over the near term, gold could face significant fundamental headwinds in the form of higher US yields and improved equity market risk sentiment especially as we move through to phase 2 and 3 of the US-China trade deal. And if a comprehensive trade deal is inked in November, then the extremely extended long gold positions might be prone to a significant correction lower.

FX Traders who are caught offside may look for opportunities to pare back currency risk aversion trades, as such gold investors need to respect the underlying movement on the Yuan and Yen. USDCNH 7.0 and USDJPY 109.00 are a hugely critical “risk-on” sentiment level

This article was written by Stephen Innes, Asia Pacific Market Strategist at AxiTrader

Crude Oil Price Forecast – Crude Oil Markets Pull Back

WTI Crude Oil

The WTI Crude Oil market pulled back from the psychologically significant $55 level, to reach down and fill a slight gap from the Friday open, but then reached below the $53 level. That is a significant amount of support just waiting to be had underneath there, so it’s not a huge surprise that we have bounced a bit from there. Ultimately, this is a market that continues to be very volatile, but at this point we are close enough to structural support that I do believe that the buyers are going to step back in and trying to take control.

Crude Oil Video 15.10.19

Brent

Brent markets also have pulled back a bit from the 50 day EMA, an area that of course will always attract a lot of attention from a technical standpoint. Ultimately, we have filled a bit of a gap from the Friday open, and now have bounced a bit at the $59 level. At this point, the 50 day EMA will of course cause quite a bit of attention, so as long as that’s going to be the case, and a lot of longer-term traders pay attention to it, it makes sense that it will be difficult to break above. This of course is a very negative looking candle stick at first glance, but the fact that the gap is trying to hold tells me that there are plenty of buyers underneath and that we will eventually push to the upside. This doesn’t mean that it starts a major uptrend, rather that we are simply trying to find balance between the $55 level on the bottom and the $70 level on the top.

Please let us know what you think in the comments below

Oil Price Fundamental Daily Forecast – Traders Not Too Impressed by Partial Trade Deal

U.S. West Texas Intermediate and international crude oil futures are trading sharply lower early Monday as traders question the materiality of the partial trade deal agreed upon by the United States and China on Friday. While President Trump is touting the phase one trade as “very substantial”, analysts are saying it appears to be more of a “temporary truce” than a real deal.

At 08:01 GMT, December WTI crude oil is trading $54.10, down $0.68 or -1.24% and December Brent crude oil is a $59.72, down $0.79 or -1.31%.

Concerns over the partial trade deal were actually revealed late Friday when traders showed little reaction to the announcement. Furthermore, the markets were primarily supported by the news that an Iranian oil tanker had been attacked by two rockets off Saudi Arabia’s coast in the Red Sea.

Prices were also being supported by comments from Saudi Arabia on Thursday, which indicated OPEC and its allies would discuss reducing production further in the wake of lower demand growth due to the global economic slowdown.

Today’s early weakness may have been slowed by a report that showed China’s demand for oil remains strong, however, with its September imports reflecting a 10.8% rise from a year earlier as refiners ramped up output amid stable profit margins and solid fuel demand.

Daily Forecast

Today’s early weakness suggests the trade deal may have already been priced into the market and without any fresh developments, traders are reluctant to drive prices beyond Friday’s high.

Furthermore, some traders feel the partial deal didn’t go far enough to reduce or eliminate the tariffs that are currently slowing global economic growth and consequently demand growth.

“We think the ‘substantial’ first-stage deal made by Trump with China looks more like a truce than a genuine deal,” said Christiaan Tuntono, senior economist for Asia Pacific at Allianz Global Investors.

Mizuho Bank’s Head of Economics and Strategy Vishnu Varathan told CNBC on Monday:  In terms of the real thorny issues, none of that is thrashed out.”

“So the ‘substantial’ is for the low hanging fruits- it’s a bit lower than the low hanging fruits actually. And we haven’t seen anything of real material yet,” he added.

Little Reaction to Rocket Attack on Tanker

The markets are also showing little reaction to the rocket attacks on the Iranian tanker on Friday. First of all, there was little oil spilled. Secondly, no one anticipates an escalation of tensions in the Middle East due to military action by the U.S. Many believe a war wouldn’t solve anything.

Geopolitics are not likely to lead to a sustainable rally unless there is an actual supply disruption.

Return of Trade War Neutrality

Global equities rallied again, and treasuries sold-off Friday, aided mainly by an agreement on US-China trade the US president has described as a “very substantial phase-one deal”. The S&P500 closed +1.1%, with European equities stronger as well. US 10-year treasury yields lifted 6bps to 1.73%. Oil was up 2.2% amid reports of a possible missile attack on an Iranian oil tanker off the Saudi coast. Gold fell 1.2 %.

  • The ‘deal’ represents the most material breakthrough since the trade war started, but it neither rolls back existing tariffs nor reverses the damaging spillover of tensions into technology areas.
  • The RMB may strengthen further, especially if the fixings are lowered this week.

However, US equity market sold off into the close; traders view the deal in a tentative light as a tariff detent falls well short of bridging the critical trust gap which is an implicit removal of a significant chunk of existing tariff while the lack of specificity and even the fact this baby stepped agreement could take weeks to iron out, quickly cooled trader optimism.

But their remains this gnawing fear that phase one could end up being little more than the same old lather rinse and repeat trade detente followed by trade escalation, so indeed the next 48-72 trading hours are critical given memories of how quickly the post-G-20 trade calm evaporated.

This morning President Trump tweeted My deal with China is that they will IMMEDIATELY start buying very large quantities of our Agricultural Product, not wait until the agreement is signed over the next 3 or 4 weeks. THEY HAVE ALREADY STARTED! Likewise, financial services and other deal aspects start preparing. I agreed not to increase Tariffs from 25% to 30% on October 15th. They will remain at 25%. The relationship with China is very good. We will finish out the large Phase One part of the deal, then head directly into Phase Two. The Phase One Deal can be finalised & signed soon! –

However, the market is treading gingery at the open awaiting more specificity on the trade talks, as local currency traders sit patiently for the release of today’s USDCNY reference rate ( Yuan fixings) and whether it will be much lower than the 7.07 level it has been stabilised at over the past month or so

Relief and disappointment

It could be a day of mixed emotions as investors express a combination of relief and disappointment Relief because the next round of tariffs for October and December will be delayed indefinitely as a good-will gesture in exchange for further talks with China who have committed to buy more US farm goods. But disappointment by the baby stepped nature of the negotiations, as both sides kicked the can on the essential issues that have not been resolved. As such. the phased-in deal process, albeit more harmonious will be staged in through late 2019 early 2020, however, the most immediate tariff escalation concerns have been removed

Oil markets

Oil prices spiked higher Friday amid renewed concern about global oil supply after the explosion of an Iranian oil tanker in the Red Sea, and optimism over an amicable end to the trade talks.

Progress around the next phases of the trade negotiations is probably the most significant near-term factor for oil sentiment as harmonious negotiation leading to a definite conclusion could go a long way to alleviating global demand concerns.

But for immediate concerns trader will likely continue to monitor post-trade talk headlines to gauge the balance of this newfound level of trade war neutrality before taking on more risk.

Gold markets

Gold has been outperforming against JPY and CHF despite the market going “risk-on” mode amid bullish equity market outcome from the US-China trade negotiations suggesting the downcast economic data out of Europe and US may imply a lower interest rate scenario extends longer. And especially in Europe were more banks look to pass on negative interest rates to deposit customers which could be a boon for gold demand.

Still, with much of the global interest rates scenario factored into the gold forward curve, gold investors are in search of that next major catalyst that could take gold over the $ 1550 top.

As such, focus this week will be on the plethora of Fed speak and critical US manufacturing and consumption data, which could provide more clues about this months Fed policy meetings.

Currency markets

G-10

US-China trade talks led to a risk-on bias & selling of Yen and CHF while large buyers of Asia EM FX, particularly CNH and KRW emerged. And EUR cross buying pushed EURUSD through 1.1000, triggering a short-covering rally.

After constructive US-China and Ireland-UK talks, safe-haven currencies have been under pressure. Risk-sensitive euro crosses have performed the best, supported by EURUSD breaking back above the psychological 1.10 handle.

Asia FX

While the outcome from the latest US-China talks may still be mildly positive for the RMB in the near-term, even with hedge funds and asset managers who were thought to have pilled into the so-called “Yuan accord” trade. Also, there could also be a short-term positive reaction by other Asian currencies that are sensitive to RMB movements the KRW, TWD, MYR and the SGD. However much of the near-term market response depends on the Pboc reference rate this week, precisely how far the fixings are pegged below USDCNY 7.07

This article was written by Stephen Innes, Asia Pacific Market Strategist at AxiTrader

Oil Price Fundamental Weekly Forecast – Possible Additional OPEC Production Cuts Best News Last Week

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures settled higher for the first time in three weeks as geopolitical events encouraged bearish traders to lighten up on the downside. Despite the higher close, the markets remained inside the previous week, suggesting investor uncertainty and indecision.

Furthermore, the price action appears to be representative of short-covering as opposed to aggressive counter-trend buying. This is understandable considering the fundamentals remain overwhelmingly bearish despite a slight shift in the narrative due to optimism over the partial trade deal between the United States and China, and heightened tensions in the Middle East.

Last week, December WTI crude oil settled at $54.78, up $2.04 or +3.87% and December Brent crude oil finished at $60.51, up $2.14 or +3.54%.

Muted Reaction to Limited US-China Trade Deal

Crude was unpinned at the end of the week after President Trump said China and the U.S. reached the first phase of a substantial trade deal that delays tariff hikes that were to kick in this week.

Late in the session on Friday, Trump told reporters at the Oval Office that phase one of the trade deal will be written over the next three weeks.

As part of this phase, China will purchase between $40 billion and $50 billion in U.S. agricultural products. Trump also said the deal includes agreements on foreign-exchange issues with China. In exchange, the U.S. agreed to hold off on tariff hikes that were set to take effect Tuesday.

Additionally, Treasury Secretary Steven Mnuchin said both sides struck an “almost complete agreement” on currency and financial services issues. Phase two of the deal will “start almost immediately” after the first one is signed, Trump said.

Iranian Tanker Hit by Two Missiles

While the U.S.-China partial agreement grabbed most of the attention on Friday, crude oil prices were mostly affected by the news that two rockets had struck an Iranian tanker traveling through the Red Sea, according to Iranian state media.

The event didn’t lead to a notable loss of oil, but it did increase tensions in the region along with heightened concerns over supply disruptions.

OPEC Cuts Oil Demand Growth Forecast

Earlier in the week, crude oil prices were pressured after OPEC trimmed its forecast for oil demand growth for the third month in a row, citing weaker-than-expected data in the Asia Pacific region as well as advanced economies in the Americas.

In its closely-watched monthly report, OPEC cut its forecast for global oil demand growth for the remainder of this year to 0.98 million barrels per day (b/d). That’s down from its September estimate.

OPEC, Allies Consider Deeper Cuts to Output

At the same time it was announcing its forecast for lower demand, OPEC said it was considering deeper oil output cuts ahead of their December meeting.

OPEC Secretary-General Mohammed Barkindo told reports that OPEC and its allies will make “appropriate, strong, positive decisions” to sustain oil prices when they meet December 5.

“All options are open,” he said.

This news triggered the biggest and best response by crude oil traders, driving prices up 1.3%. Traders probably realized they don’t have much control over demand since a U.S.-China trade deal is out of OPEC’s hands. However, if OPEC is willing to cut once to meet demand, then they’ll be more willing to cut again in the future if the trade war continues well into 2020.

U.S. Energy Information Administration Weekly Inventories Report

The EIA reported that U.S. crude supplies climbed for a fourth week in a row, by 2.9 million barrels for the week-ended October 4. Traders were looking for a 2.4 million barrel build.

The EIA data also showed supply declines of 1.2 million barrels for gasoline and 3.9 million barrels for distillates. Traders were looking for gasoline inventory to fall by 1.2 million barrels and distillates inventory to drop by 2.5 million barrels.

This week’s report fueled a mild sell-off that was easily offset by the news that OPEC was consider further production cuts.

Weekly Forecast

The announcement of the partial trade deal between the United States and China had very little influence on the market late in the session, which suggests traders aren’t too happy with the news.

The main concern is that the deal did not include erasing the current tariffs. In other words, it’s business as usual with low demand still in the picture. Furthermore, after the announcement, U.S. Trade Representative Robert Lighthizer said a decision had not been made over additional U.S. tariffs scheduled for December.

The most bullish event last week, in my opinion, was the announcement that OPEC would be considering further production cuts ahead of its December meeting. This is good news because the current production cuts are working to stabilize prices and reduce global inventory.

It’s the strongest weapon the cartel and its allies has to battle lower demand because they have no control over U.S.-China trade relations.

The Week Ahead – Brexit, Earnings, Stats and the IMF and EU Summit in Focus

On the Macro

For the Dollar:

It’s a busier week ahead on the economic calendar.

NY Empire State Manufacturing figures for October get the week going on Tuesday. The focus will then shift to September retail sales figures due out on Wednesday.

With a heavy reliance on consumer spending, the numbers will need to be in line with forecasts to provide Dollar support.

On a busy Thursday, September building permit and housing start figures are due out along with October’s Philly FED Manufacturing numbers.

September industrial production and the weekly jobless claims figures are also due out.

With no material stats due out on Friday, Wednesday’s retail sales and Thursday’s Philly FED numbers will have the greatest impact.

Outside of the stats, trade war chatter will continue to be a factor, as will any further talk of impeachment.

The Dollar Spot Index ended the week down by 0.55% to $98.301.

For the EUR:

It’s also a relatively quiet week ahead on the economic data front.

Industrial production figures on Monday and German and Eurozone economic sentiment figures on Tuesday will influence early in the week.

The Eurozone’s September inflation and industrial production figures due out on Wednesday will also provide direction.

We would expect finalized inflation figures out of France and Italy to have a muted impact on the EUR, however.

With no material stats due out in the latter part of the week, geopolitical risk will remain in focus.

Any talk of U.S tariffs on EU goods and chatter on Brexit ahead of the 19th October EU Summit will also need considering.

The EUR/USD ended the week up by 0.58% to $1.1042.

For the Pound:

It’s another busy week ahead on the economic calendar.

Key stats include employment figures due out on Tuesday, inflation figures on Wednesday and retail sales numbers on Thursday.

On the data front, claimant counts, inflation and retail sales figures will be the key drivers in the week.

On the Brexit front, there would be more upside for the Pound should Johnson finalize a deal ahead of next weekend’s EU Summit.

The GBP/USD ended the week up by 2.73% to $1.2668.

For the Loonie:

It’s a relatively busy week ahead on the data front.

Key stats include September inflation figures due out on Wednesday and August manufacturing sales numbers due out on Thursday.

On the data front, we would expect the inflation figures to be the key driver in the week.

From elsewhere, trade data, industrial production and 3rd quarter GDP numbers out of China will also influence.

The Loonie ended the week up by 0.83% to C$1.3203 against the U.S Dollar.

Out of Asia

For the Aussie Dollar:

It’s another relatively quiet week ahead.

Key stats are limited to September’s employment numbers due out on Thursday.

On the monetary policy front, the RBA minutes are due out on Tuesday and could pressure the Aussie Dollar should there be suggestions of more rate cuts to come.

From elsewhere, economic data out of China on Monday and Friday will also influence.

The Aussie Dollar ended the week up by 0.34% to $0.6794.

For the Japanese Yen:

It’s a relatively quiet week ahead on the economic calendar.

Key stats are finalized industrial production figures due out on Tuesday and inflation and trade data on Friday.

We would expect the stats to have a relatively muted impact on the Yen, however.

Geopolitics and economic data out of the U.S and China will likely have the greatest impact in the week.

The Japanese Yen ended the week down by 1.26% to ¥108.29 against the U.S Dollar.

For the Kiwi Dollar:

Stats are on the quieter side in the week ahead.

Economic data is limited to 3rd quarter inflation figures that are due out on Wednesday. We can expect the Kiwi to be particularly sensitive to the numbers.

From elsewhere, stats from China will also influence in the week.

The Kiwi Dollar ended the week up by 0.27% to $0.6337.

Out of China:

It’s a busy week on the economic data front. Economic data includes trade data due out on Monday and inflation figures on Tuesday.

The focus will then shift to a busy Friday. Stats on Friday include fixed asset investment, industrial production and 3rd quarter GDP numbers.

We expect trade data, industrial production, and the GDP numbers to have the greatest impact on market risk sentiment.

The impact of any weak numbers could be buffered, however, by any further positive chatter on trade.

The Yuan ended the week up by 0.83% to CNY7.0892 against the Greenback.

Geo-Politics

Impeachment: With the U.S and China making progress on trade, impeachment chatter could return in the week ahead.

Trade Wars: 15th October U.S tariffs on Chinese goods have been postponed as progress was made last week. For real progress to be made, however, the U.S would need to remove existing tariffs that continue to hurt the Chinese economy. Expect more chatter in the week, which will influence risk sentiment.

UK Politics: Brexit talks continue, with a deal now needed to support further the Pound ahead of the EU Summit. Any suggestions that the latest proposal is inadequate and expect the Pound to slide.

The Rest

Earnings:  It’s a big week ahead, with U.S banks Citi, Goldman, JPMorgan, and Wells Fargo announcing.

EU Summit: It is make or break for Boris Johnson and the Brexiteers. Will there finally be an agreement for the British PM to take back to parliament?

IMF Annual Meeting: Chatter on the global economy and what can be done to drive growth will influence. Will there be any agreements to ramp up fiscal spending to offset the effects of the ongoing U.S – China trade war?

The Weekly Wrap – Progress on Brexit and Trade Delivered in the Week

The Stats

It was a quieter week on the economic calendar in the week ending 11th October.

A total of 44 stats were monitored throughout the week, following 74 stats from the week prior.

Of the 44 stats, 17 came in ahead forecasts, with 22 economic indicators coming up short of forecast. 5 stats were in line with forecasts in the week.

Looking at the numbers, 19 of the stats reflected an upward trend from previous figures. Of the remaining 25, 20 stats reflected a deterioration from previous.

While the economic data was skewed to the negative, the Dollar struggled in the week, as demand for the dollar eased off the back of positive updates from trade talks and Brexit.

The U.S Dollar Index (“DXY”) fell by 0.55% to end the week at $98.301.

Out of the U.S

It was a relatively quiet week on the economic data front. Wholesale inflation figures on Tuesday and September inflation figures on Thursday provided direction early in the week.

wholesale and consumer prices were on the softer side in September, pinning back the greenback.

On Friday, positive Michigan’s consumer expectations and sentiment figures failed to support the Greenback.

Off less influence in the week, were JOLTs job openings, initial jobless claims and import and export price index figures.

Outside of the stats, the FOMC meeting minutes revealed some debate on when to end the current rate path. Rising concerns over the economic outlook suggested that more cuts could be on the way.

The reality was, however, that just 7 of 17 FOMC members foresaw a further rate cut before the year-end.

Downside for the Dollar ultimately came from an easing in geopolitical risk, with most of the damage coming at the end of the week.

In the equity markets, a Friday rebound pulled the majors into the green for the week. The Dow and S&P500 ended the week up by 0.91% and 0.62% respectively, with the NASDAQ up 0.93%.

Out of the UK

It was a busy week on the economic calendar.

Key stats included GDP, industrial and manufacturing production and trade data on Thursday.

While production was on the slide, quarter-on-quarter GDP numbers continued to show the UK economy dodging a recession. The numbers were ultimately Pound positive.

Of less influence in the week were housing sector figures, labor productivity, and retail sales numbers.

While the stats were supportive of the Pound, the upside ultimately came from Brexit news.

Progress towards a possible trade deal, ahead of next week’s EU Summit, drove demand for the Pound.

The Pound ended the week up by 2.73% to $1.2668.

For the FTSE100, a stronger Pound failed to pressure the 100, with the index rising by 1.28%.

Out of the Eurozone

It was particularly quiet week on the economic data front.

Germany’s factory orders and trade data provided little support in the week, with factory orders falling again and the trade deficit narrowing.

On the positive, however, was an unexpected rise in industrial production.

At the end of the week, finalized September inflation figures out of Germany and Spain had a muted impact on the EUR.

On the monetary policy front, the ECB monetary policy meeting minutes also left the EUR unscathed.

The upside in the week ultimately came from positive updates on Brexit and progress on the U.S – China trade talks.

For the week, the EUR rose by 0.58% to $1.1042.

For the European major indexes, the DAX30 rallied by 4.15%, with the EuroStoxx600 and CAC40 up by 3.23% and 3.00% respectively.

Elsewhere

It was another positive week for the Aussie and Kiwi Dollars.

The Aussie Dollar rose by 0.34% to $0.6794, while the Kiwi Dollar gained 0.27% to $0.6337.

For the Aussie Dollar

It was a quiet week for the Aussie Dollar.

Economic data was limited to September’s business confidence and October consumer sentiment figures.

Both business and consumer confidence figures disappointed in the week, pinning back the Aussie Dollar.

Of less influence were home loan figures that continued to reflect improved housing sector conditions.

In spite of the negative bias on the stats, a Friday rally in the Aussie Dollar delivered the gains for the week. Positive updates on trade talks delivered the upside on the day.

For the Kiwi Dollar

The stats were, once more, skewed to the negative in the week.

September’s Business PMI held steady at 48.4, coming up short of a forecast of 49.0. Electronic card retail sales also came up short of forecasts, whilst up by 0.4% in September.

While the stats were skewed to the negative on Friday, a 0.27% gain on the day gave the Kiwi Dollar the upside for the week.

For the Loonie

Through the 1st half of the week, housing sector figures impressed, proving some support.

Employment figures on Friday were the key driver, however, with the unemployment rate falling from 5.7% to 5.5%. A 53k rise in employment, following an 81.1k increase in August, delivered on the day.

Positive updates from trade talks also delivered provided support late in the week, with WTI and Brent gaining 3.58% and 3.54% respectively.

The Loonie ended the week up by 0.83% to C$1.3203 against the Greenback.

For the Japanese Yen

It was a relatively quiet week on the data front. Stats were limited to August household spending figures that came in worse than forecasts.

While the stats were Yen negative, the downside from the Yen came from an easing in geopolitical risk.

Safe-haven demand waned as progress on Brexit negotiations and trade talks spurred demand for riskier assets.

For the week, the Japanese Yen fell by 1.26% to ¥108.29.

Out of China

It was a quiet week on the economic data front.

September’s service sector PMI, which reported slower sector growth, tested risk sentiment on Monday.

A lack of stats through the remainder of the week left updates from the U.S – China trade talks to influence risk sentiment.

The Yuan rose by 0.83% to CNY7.0892 against the Greenback.

Crude Oil Weekly Price Forecast – Crude Oil Markets Find Support

WTI Crude Oil

The WTI Crude Oil market initially fell during the week, reaching towards the uptrend line just above the $51 level. The $51 level is the beginning of support down to the $50 level, so it’s not a huge surprise to see that we have recovered a bit. That being said, when you look at the daily chart there are a lot of conflicting candlesticks, both hammers and shooting stars, so this chart might be a little bit misleading. At this point though, if we were to break above the top of the weekly candle stick is very likely that we could go looking towards the $60 level. At this point, the market is likely to be very noisy, but at this point it’s very likely that the upside will eventually prove itself.

WTI Video 14.10.19

Brent

Brent markets also have found support underneath at the $56 level during the previous week, and this week actually spent most the time rallying. Brent would have been more closely influenced by the Iranian oil tanker attack, so it makes sense that the market has reached towards the $60 level. A break above the top of the weekly candle stick should be a buying opportunity that allows the market to go looking towards the $64 level next. All things being equal, short-term pullbacks should continue to offer support, and after this week I do believe that the oil markets are trying to bottom out in general. That doesn’t mean that we have entered a new bullish phase, just simply that we may bounce a bit to see a continuation of the overall consolidation.

Crude Oil Price Forecast – Crude Oil Markets Continue to Grind Higher

WTI Crude Oil

The WTI Crude Oil market rallied significantly during the trading session on Friday, reaching towards the $55 level. That’s an area that is of course a large, round, psychologically significant figure and of course has the 50 day EMA trading just above it. If we can break above that level on a daily close, then it’s likely that we go looking to fill that gap near the $57.25 level. The 200 day EMA sits in that area as well. In the short term, pullbacks at this point will continue to be supported by the uptrend line underneath and of course the $51 level underneath that has been so reliable as of late.

Crude Oil Inventories Video 14.10.19

Brent

Brent markets gapped higher after the oil tanker was hit, reaching towards the 50 day EMA before selling off again to form a shooting star. This is a negative sign, but now that we have broken through a significant resistance barrier, it’s likely that this pullback will offer enough interest for buyers to jump in and continue to go higher. If we break above the top of the shooting star from the session, that would obviously be very bullish sign and could send this market looking towards the $62.50 level, and then possibly even the $64 level after that. Pullbacks in this area should have plenty of support, especially near the $57.50 level. Below there, the market extend support all the way down to at least the $56 level. This is a market that continues to see value hunters.

Crude Climbs to 10-Day High on Trade Deal Optimism

Crude has continued its late-week rally. In Friday’s European session, WTI is trading at $54.61, up $0.68, or 1.27%. WTI is currently at its highest level since October 1. Brent crude is trading at $60.04, up $0.50, or 0.84%.

Soft U.S. Inflation Points to Slowing Economy

The U.S. dollar was broadly lower on Thursday, as consumer inflation dipped in September and missed the forecasts. Headline CPI dropped to a flat 0.0%, only the second time this year that CPI has failed to post gains. There was no relief from Core CPI, which slowed to 0.1%, down from 0.3% a month earlier. The soft inflation numbers are the latest sign of weaker economic activity in the economy. Second-quarter GDP fell to 2.0%, and the manufacturing sector has been hampered by weak global conditions and the ongoing U.S-China trade dispute. This could also put strong downward pressure on oil prices, as a weaker domestic economy means will likely translate into reduced demand and lower prices for crude.

Investors Hoping for Mini-Trade Deal

U.S. and Chinese negotiators resumed trade talks in Washington on Thursday. Previous rounds have ended in failure, but there could be better news this time around. The reason? The current talks are expected to focus on reaching a limited trade deal, rather than a broadly comprehensive agreement which has proven elusive. The talks will likely focus on avoiding further tariffs which would exacerbate the bitter trade dispute between the world’s two largest economies. The U.S. has threatened to raise tariffs on $250 billion in Chinese goods from 25% to 30% next week, and further tariffs are scheduled for December. However, the sides are likely to steer away from the thorny issue of intellectual property. If the sides make progress in the current round of talks, this would boost the economies of both countries, and demand for oil could increase and boost crude prices.

WTI/USD 4-hour Chart

Crude Oil Price Forecast – Crude Oil Markets Find Support

WTI Crude Oil

The WTI Crude Oil market initially fell during the day on Thursday but has found enough support to turn things around and show signs of life again. We have been consolidating between the $51 level on the bottom and the $54 level on the top so it shouldn’t be much of a surprise that we hear we are stuck in the middle again. Ultimately, this is a market that is waiting on all things US/China, just as everything else is. Commodities in general should be avoided for the next couple of days although I would be the first to admit that it is much more likely to see support hold than to watch it break away. However, give the politicians time, they could make it happen.

Crude Oil Forecast Video 11.10.19

Brent

Brent markets also initially fell during the trading session but then found enough support to turn things around and form a hammer like candle. By doing so, the market looks likely to find enough support in this area to make another attempt at the $60 level which has been resistive. Ultimately, I do think that we are getting close to the bottom of the range that the market wants to be in, so more than likely what we will continue to see is a scenario where traders buy the dips, and then perhaps try to break out to the upside. However, if we were to break down below the $55 level, I would consider this a broken market, and look to the $50 level as a potential target.

Oil Jumps After Confirming Crucial Support

There is a chance that their prays were finally listened. As you can see on the daily chart, Crude is now drawing a hammer candlestick pattern. Hammer is a strong bullish reversal formation, in this case, promoting a start of a new up wave.

Current hammer on Oil has a very important meaning. The long tail, shows us another test of the 51.3 USD/bbl. support (pink). That was the second test in October. Price was trying to get lower since June without a success. This indicates, that this area is a real stronghold for the demand and that they will protect it at all costs. Long tail in today’s hammer is indicating a rejection of lower prices and willingness to go up. What is significant here is that this hammer is being build after two shooting stars.

Apparently, sellers are very weak at the moment and their inability to use shooting stars in their favor shows that.

Do not get too optimistic though. The day has not ended yet. Signal from a daily candle is active only, when the day is over. Still a lot can happen till midnight but in case the hammer will hold, we will get a very promising bullish signal.

This article is written by Tomasz Wisniewski, Director of Research and Education at Axiory

Crude Prices Slightly Higher, U.S. Inflation Misses Estimate

After showing limited movement for most of the week, crude prices are slightly higher in Thursday trade. In the European session, WTI is trading at $53.25, up $0.53, or 1.04%. Brent crude is trading at $59.52, up $0.66, or 1.05%.

Fed Sounding Dovish

When the Federal Reserve speaks, the markets listen. On Wednesday, the Federal Reserve released the minutes of the September meeting, when policymakers trimmed rates by 25 basis points. The message from the minutes was on the dovish side, as FOMC members said that the risks to U.S. growth “were tilted to the downside.” The minutes flagged issues that are nagging the U.S. economy – weak global growth, the toll of the U.S-China trade war and low inflation. The markets are expecting another rate cut from the Fed at the October meeting, with the CME Group forecasting the likelihood of a 1/4 point rate cut at 85%. The U.S. economy has lost some steam, and the Federal Reserve appears poised to implement a third rate cut since July in order to stimulate the slowing economy.

Crude Inventories Point to Another Surplus

Investors are becoming accustomed to crude inventory surpluses. The Energy Information Administration (EIA) posted a fourth successive surplus on Wednesday, with a strong gain of 2.9 million barrels. This was much higher than the estimate of 1.8 million. The string of surpluses points to an oversupply of crude, which has resulted in downward pressure on oil prices.

U.S. Inflation Dips

The markets had low expectations for September’s consumer inflation reports, but the readings were lower than predicted. The headline reading slowed to 0.0%, its lowest level since January. Core CPI fell to 0.1%, down from 0.3% in August. Soft U.S. inflation is another sign of weaker economic activity in the economy, which could mean weaker demand and lower prices for crude.

WTI/USD 4-hour Chart

Oil Price Fundamental Daily Forecast – Buckle Up for Volatile US-China Related Price Swings

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are trading lower shortly before the regular session opening on Thursday after clawing back most of its earlier losses. Prices fell early in the session as conflicting headlines on U.S.-China trade relations triggered whip-saw price action in the futures markets.

At 10:49 GMT, November WTI crude oil futures are trading $52.53, down $0.06 or -0.11% and December Brent crude oil is trading $58.10, down $0.22 or -0.38%.

In other news, the front-month spread between November and December U.S. crude futures slipped into contango – where futures prices are higher than nearby prices – on Wednesday for the first time in three weeks.

Negative and Positive Headlines Driving Price Action

The wicked two-sided moves the past few sessions in reaction to headlines over U.S.-China trade relations demonstrates how much emphasis the market places on the outcome of the high-level trade talks that are set to begin later today in terms of the global economic outlook.

Crude oil prices plunged from the start on Thursday after the South China Morning Post reported the U.S. and China made no progress on key trade issues in two-days of deputy-level talks, according to sources.

Prices were further pressured by a report that said high-level talks are expected to last for only one day, with Liu He and his team now planning to leave Washington on Thursday.

Prices then rebounded after Bloomberg News and the New York Times reported a possible reprieve on U.S. restrictions on Chinese technology giant Huawei.

U.S. Energy Information Administration Weekly Inventories Report

The EIA reported that U.S. crude supplies climbed for a fourth week in a row, by 2.9 million barrels for the week-ended October 4. Traders were looking for a 2.4 million barrel build.

The EIA data also showed supply declines of 1.2 million barrels for gasoline and 3.9 million barrels for distillates. Traders were looking for gasoline inventory to fall by 1.2 million barrels and distillates inventory to drop by 2.5 million barrels.

Daily Forecast

Crude oil prices could swing back and forth on Thursday if traders decide to react to headlines throughout the session about the progress of the trade talks. If you’re nimble enough then trade the intraday swings, but if you’re worried about getting chopped up in the volatile trade then step aside until the official statements from the United States and China are released.

We may not know how the trade talks went until midnight next Tuesday when the U.S. is set to impose new tariffs on China. If the Trump administration announces a further delay in the tariffs then this would suggest the talks went well and crude oil prices could rally. If the tariffs proceed as planned then look for sharply lower prices.