Crude Oil Price Forecast – Crude Oil Markets Continue to Get Squashed

WTI Crude Oil

The West Texas Intermediate Crude Oil market has done very little during the trading session again on Monday as we continue to see the market chop back and forth. We are essentially stuck between the 50 day EMA on the bottom and the 200 day EMA on the top. If that is going to be the case, then it is likely that what we are going to see is a market that continues to look for some type of longer-term catalyst. Right now, we simply do not have one. We have a lot of things going on at the same time that they seem to be canceling each other out.

Crude Oil Video 04.08.20

Brent

Brent markets of course are doing the same thing, as we have no real drive to go in one direction or another. As long as the US dollar continues to struggle, it is likely that we will see a bit of upward pressure, but at the same time we have to worry about whether or not there is enough demand, and of course whether or not there is going to be compliance when it comes to OPEC countries. So far, the compliance has been relatively strong so that has been one of the boosts higher and of course with the US dollar certainly that helps to. However, and this is a huge thing, demand is most certainly down as the lack of air travel alone has taken a huge chunk out of it.

For a look at all of today’s economic events, check out our economic calendar.

Oil Price Fundamental Daily Forecast – Rangebound as Big Money Waits on Sidelines for Demand Clarity

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are edging higher on Monday, but posting a second-consecutive rangebound day as prices remain inside last Thursday’s unusually wide trading range. The price action suggests a couple of things, investor indecision or the transitioning from bullish to bearish as the market adjusts to COVID-19 related demand shifts that are likely to lead to a rise in global supply.

At 13:30 GMT, September WTI crude oil is trading $40.45, up $0.18 or +0.45%. December Brent crude oil is at $44.54, up $0.37 or +0.84%.

Other analysts agree that prices are being pressured by rising coronavirus cases around the globe and by oversupply worries as OPEC and its allies are set to wind back up output cuts in August, but supported by positive industry data in Europe and Asia.

Stronger PMI Data Out of China, Euro Zone

A private survey released Monday showed China’s manufacturing activity expanded in July. The Caixin/Markit manufacturing Purchasing Manger’s Index came in at 52.8 for July, above expectations for a reading of 51.3 by economists in a Reuters poll.

In the Euro Zone, manufacturing activity across the region expanded for the first time since early 2019 last month as demand rebounded after more easing of the restrictions imposed to quell the spread of the new coronavirus, a survey showed on Monday.

IHS Markit’s final Manufacturing Purchasing Managers’ Index bounced to 51.8 in July from June’s 47.4 – its first time above the 50 mark that separates growth from contraction since January 2019.

Russia is Raising Oil Output as OPEC+ Cuts Ease:  Reuters Source

Russian oil and gas condensate output increased to 9.8 million barrels per day (bpd) on August 1-2 from 9.37 million bpd in July as the country eases production curbs under an OPEC+ deal, a source familiar with data said on Monday. The Energy Ministry declined to comment on the data.

Russia has said it will increase its crude oil production by 400,000 bpd as part of that deal, which does not include output of gas condensate, a light oil.

Daily Forecast

WTI and Brent crude oil could remain rangebound until traders get more clarity about how the new surge in COVID-19 cases will affect demand. Traders are also likely to try to hold prices in a range until they see how the OPEC+ output cut tapering changes the supply dynamic.

With most money managers on the sidelines or investing in other momentum driven markets like the metals, crude oil speculators are getting a little nervous about attacking the long side of the market because of worries over the strength of the demand recovery. Bullish speculators are concerned that the surge in coronavirus cases in the U.S. and around the world could slow the recovery if more restrictions are put into place.

For a look at all of today’s economic events, check out our economic calendar.

Oil Fixed Between $43-44

A new stage of the OPEC+ agreement is coming into effect. Starting from August 1st, the daily reduction of oil production is 7.7 million barrels, which is lower than the previous value, 9.7 barrels. This restriction is supposed to be valid for countries members of OPEC+ until the end of the year.

Market players are worried by the possibility of oversupply. It may well be that a stable price for oil might sooner or later boost the USA to increase oil extraction. This is exactly what is putting pressure on the oil right now.

Another thing that pushes the oil price is the coronavirus: the number of new cases is going up, which means that all pandemic-related risks are not going away anywhere.

In the H4 chart, Brent is still correcting towards 42.80. After reaching this level, the asset may form one more ascending wave to break 44.04 and then continue trading upwards with the short-term target at 45.33. Later, the market may correct towards 44.50 and then start another growth to reach 46.46. From the technical point of view, this scenario is confirmed by MACD Oscillator: its signal line is moving below 0 in the histogram area. After the line leaves the area and breaks 0 to the upside, the correction may be over.

Изображение выглядит как карта, текст Автоматически созданное описание

As we can see in the H1 chart, Brent is consolidating around 43.30; it has already broken this level to the downside and may continue falling to reach the correctional target at 42.80. After that, the instrument may start a new growth to break 43.30 and then continue trading upwards to reach 44.04. And that’s just a half of another ascending wave.

From the technical point of view, this idea is confirmed by Stochastic Oscillator: its signal line is moving to rebound from 50 to the downside. Later, the line is expected to fall to reach 20 and rebound from it. After that, the correction may be over. If later the line breaks 50, the price chart may boost its growth.

Изображение выглядит как текст, карта Автоматически созданное описание

For a look at all of today’s economic events, check out our economic calendar.

Author: Dmitriy Gurkovskiy, Chief Analyst at RoboForex


Disclaimer

Any forecasts contained herein are based on the author’s particular opinion. This analysis may not be treated as trading advice. RoboForex bears no responsibility for trading results based on trading recommendations and reviews contained herein.

Can Oil Register a 4th Consecutive Monthly Gain?

Recall that more supply is entering the markets this month, after OPEC+ agreed to ease up on its production cuts from the 9.6 million barrels a day in July to 7.7 million in August. Investors may begin to grow concerned that global demand may not yet be solid enough to soak up the restored supply.

At the time of writing, Brent Oil is dipping further away from the psychologically-important $45/bbl level.

Meanwhile WTI crude is threatening to falter back into sub-$40 territory and test its 5-day simple moving average as a support level.

The PMI readings from around the world due on Monday would offer the latest signals about the state of the global economy. China’s July Caixin PMI posted a better-than-expected reading of 52.8, compared to the median estimate of 51.1. Having now registered a PMI reading above 50 for a third consecutive month, China’s manufacturing conditions are firmly in expansionary territory. However, other major economies must also report a similar trend today in order to offer Oil bulls some measure of solace.

Considering the incoming OPEC+ supply, along with the still-tentative recovery in global demand, markets are already expecting Saudi Aramco to indicate that the world isn’t yet ready to tolerate higher prices. The oil giant is slated to lower its selling prices of Arab Light crude to Asian customers for the first time since May in order to help offset the incoming supply. Such a move would suggest that further gains for Oil would be much harder to come by, potentially bringing an end to Oil’s run of three consecutive months of gains. The official September selling price is set to be unveiled within the first five days of this month.

As things stand, major economies across Asia and the Americas are struggling to break out of the pandemic’s grip, which in turn is choking economic activity and the demand for Oil. The longer that daily lives are disrupted by the pandemic, such as commuters being barred from driving to work or to send students to school, the longer Oil prices risk unravelling recent gains.

At least in the interim, Oil prices can enjoy support from the weaker US Dollar and any bouts of risk-on sentiment, as the world continues to wait for more clarity on the global economic outlook.

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Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.

The Week Ahead – COVID-19, Economic Data and US Politics in Focus

On the Macro

It’s a busier week ahead on the economic calendar, with 59 stats in focus in the week ending 7th August. In the week prior, just 57 stats had been in focus.

For the Dollar:

It’s another busy week ahead on the economic data front.

In the 1st half, the ISM’s July private sector PMIs, ADP nonfarm employment change figures, and June factory orders are in focus.

We would expect Wednesday’s ISM Non-Manufacturing PMI and ADP Nonfarm Employment Change to have the greatest impact.

The focus will then to Thursday’s initial jobless claims and Friday’s nonfarm payroll numbers and unemployment rate.

Following some disappointing weekly jobless claims figures and the rise in COVID-19 cases, the labor market figures will be key.

For the service sector, any contraction in July, following a jump in productivity in June, would also weigh on riskier assets.

The Dollar Spot Index ended the week down by 1.15% to 93.349.

For the EUR:

It’s also another busy week ahead on the economic data front.

On Monday and Wednesday, July’s manufacturing and services PMIs are due out of Italy and Spain.

Finalized PMIs are also due out of France, Germany, and the Eurozone.

With Spain seeing a spike in new COVID-19 cases, expect some attention to the PMIs. Ultimately, however, the Eurozone’s services and composite will likely have the greatest impact.

The focus will then shift German factory orders for June, due out on Thursday.

At the end of the week, Germany remains in focus, with June’s industrial production and trade figures due out.

Barring disappointing numbers, June retail sales figures for the Eurozone should have a muted impact on Thursday.

The EUR/USD ended the week up by 1.05% to $1.1778.

For the Pound:

It’s a relatively busy week ahead on the economic calendar. July’s finalized private sector PMIs are due out and will garner plenty of interest.

Expect any downward revision to the Services PMI on Wednesday to have the greatest impact.

On Thursday, the focus will then shift to the BoE. More action is expected and the Bank may consider an extension to the suspension of banks paying dividends and buybacks.

While the BoE is in action, we can also expect any further updates on Brexit to also influence in the week.

The GBP/USD ended the week up by 2.27% to $1.3085.

For the Loonie:

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

On Wednesday, June’s trade figures are due out ahead of July employment numbers on Friday.

Expect the employment figures to have the greatest impact, however.

Barring dire numbers, the Ivey PMI for July should have a muted impact on the Loonie on Friday.

Away from the stats, COVID-19 and geopolitics will continue to influence crude oil prices and risk sentiment.

The Loonie ended the week up by 0.02% to C$1.3412 against the U.S Dollar.

Out of Asia

For the Aussie Dollar:

It’s a relatively busy week ahead for the Aussie Dollar.

At the start of the week, the Manufacturing Index figures are due out ahead of a busy Tuesday.

We would expect manufacturing PMIs from China, the EU, and the U.S to have a greater impact, however, on Monday.

The focus will then shift June trade and retail sales figures due out on Tuesday. Expect the retail sales figures to have the greatest impact. The RBA continues to rely on consumer spending to support the economy. Weak numbers will be a test for the Aussie Dollar.

For the week, however, the main event is the RBA monetary policy decision on Tuesday.

Following the spike in new COVID-19 cases, will the RBA remain optimistic about the economic recovery?\

Any dovish chatter and the Aussie Dollar could eye sub-$0.70 levels. At the end of the week, the RBA’s statement on monetary policy will also draw interest.

The Aussie Dollar ended the week up by 0.53% to $0.7143.

For the Kiwi Dollar:

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

2nd quarter employment figures are due out on Wednesday. The markets will likely be forgiving to an extent, with COVID-19 expected to have an impact on employment.

With economic data on the lighter side, private sector PMIs from China, the EU, and the U.S will influence.

Expect geopolitics and COVID-19 news to also have an impact in the week. Any signs of a slowdown in new cases globally and expect support to kick in.

The Kiwi Dollar ended the week down by 0.18% to $0.6629.

For the Japanese Yen:

It is a busy week ahead on the economic calendar.

Finalized 2nd quarter GDP and July’s manufacturing PMI numbers are due out on Monday.

The focus will then shift to July’s service PMI on Wednesday and June household spending figures on Friday.

While the stats will influence sentiment towards BoJ monetary policy, the Yen will remain at the mercy of COVID-19 and geopolitics.

The Japanese Yen ended the week up by 0.29% to ¥105.83 against the U.S Dollar.

Out of China

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

July’s private sector PMIs are due out on Monday and Wednesday. Expect the figures to influence risk appetite in the week.

On Friday, July trade figures will also garner plenty of attention. While exports remain the main area of focus, any sizeable fall in imports would test risk appetite on the day.

Away from the economic calendar, any chatter from Beijing will also need monitoring.

The Chinese Yuan ended the week up 0.62% to CNY6.9752 against the U.S Dollar.

Geo-Politics

UK Politics:

Brexit will remain in focus. Talks are set to continue through August and September ahead of an EU Summit in October.

60 days may sound like a lot but when considering the lack of progress over 4-years…

A light economic calendar and Brexit chatter have provided the Pound with support. We may even see the markets brush off the chances of a hard Brexit.

Getting on with it seems to be the key desire now rather than dragging it out any longer. Either way, we’re not expecting Johnson and the team to give too much away…

U.S Politics:

Last week, the Republicans showed signs of fragmentation. As Presidential Election stress builds, we could see more fractures as Trump attempts to distract voters.

The immediate issue at hand, however, is the COVID-19 stimulus package. Any failure to deliver will weigh on the Dollar. Labor market conditions have not improved and the 2nd wave has shown little sign of slowing. A lack of benefits for the unemployed will raise more issues than a fall in household spending. We have already seen social unrest…

The Coronavirus:

It was yet another bad week, with the number of new COVID-19 cases continuing to rise at a marked pace.

From the market’s perspective, the 3 key considerations have been:

  1. Progress is made with COVID-19 treatment drugs and vaccines.
  2. No spikes in new cases as a result of the easing of lockdown measures.
  3. Governments continue to progress towards fully opening economies and borders.

Last week, we saw a number of countries including Hong Kong and the UK reintroduce containment measures. Hopes of progress towards a vaccine had limited the damage last week. In the week ahead, however, the numbers will need to ease off to avoid spooking the markets.

At the time of writing, the total number of coronavirus cases stood at 17,981,937. Monday to Saturday, the total number of new cases increased by 1,782,490. Over the same period in the previous week, the total number had risen by 1,531,149.

Monday through Saturday, the U.S reported 447,236 new cases to take the total to 4,762,945. This was up marginally from the previous week’s 417,070

For Germany, Italy, and Spain, there were 22,814 new cases Monday through Saturday. This took the total to 793,804. In the previous week, there had been 17,083 cases over the same period. Spain accounted for 16,101 of the total new cases in the week.

The Weekly Wrap – Economic Data, the FED, and Trump Sank the Dollar

The Stats

It was a busy week on the economic calendar, in the week ending 31st July.

A total of 56 stats were monitored, following the 41 stats from the week prior.

Of the 56 stats, 31 came in ahead forecasts, with 24 economic indicators coming up short of forecasts. Just 1 stat was 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 37, 35 stats reflected a deterioration from previous.

For the Greenback, it was a 6th consecutive week in the red. In the week ending 31st July, the Dollar Spot Index fell by 1.15% to 93.349. In the week prior, the Dollar had fallen by 1.57%.

The continued slide through the month of July left the Dollar Spot Index down by 4.15% for the month.

Dire economic data, the continued spread of COVID-19, and a dovish FED delivered the loss. Adding to the Dollar angst in the week was Trump’s Presidential Election delay tweet on Thursday…

According to a Reuters report, U.S Dollar net shorts surged to the highest in 9-years, delivering the largest monthly loss Since Sept-2010.

Looking at the latest coronavirus numbers

At the time of writing, the total number of coronavirus cases stood at 17,731,750 for Friday, rising from last Friday’s 15,930,779 total cases. Week-on-week (Saturday thru Friday), the total number of cases was up by 1,801,071 on a global basis. This was higher than the previous week’s increase of 1,741,556 in new cases.

In the U.S, the total rose by 454,463 to 4,702,774. In the week prior, the total number of new cases had risen by 478,299.

Across Germany, Italy, and Spain combined, the total number of new cases increased by 22,753 to bring total infections to 793,804. In the previous week, the total number of new cases had risen by 17,404. Spain alone reported 16,101 new cases in the week.

Out of the U.S

It was a busy week on the economic data front.

Key stats included July consumer confidence, the weekly jobless claims, and 2nd quarter GDP figures.

The stats were skewed to the negative. Consumer confidence deteriorated in July, as a result of the 2nd wave of the pandemic. Initial jobless claims increased for a 2nd consecutive week, with the U.S economy contracting by 32.9% in the 2nd quarter.

At the end of the week, July consumer sentiment figures were also revised down.

There were some positives, however. Durable and core durable goods continued to rise in June.

Chicago’s PMI returned to expansion in July, with personal spending rising for a 2nd consecutive month in June. These were good enough to give the Dollar much-needed support at the end of the week.

In the equity markets, the NASDAQ and S&P500 rose by 3.69% and by 1.73% respectively. The Dow bucked the trend, however, falling by 0.16%.

Out of the UK

It was a particularly quiet week on the economic calendar, with no material stats to provide the Pound with direction.

A lack of economic data contributed to the upside in the Pound that benefitted from Dollar weakness. News of the government reintroducing lockdown measures in the North weighed at the end of the week, however.

In the week, the Pound rallied by 2.27% to $1.3085 in the week, following on from a 1.80% gain from the previous week. The FTSE100 ended the week down by 3.69%, following on from a 2.65% loss from the previous week.

Out of the Eurozone

It was a busy week on the economic data front.

In a quiet 1st half of the week, Germany’s IFO Business Climate Index figures for July provided support on Monday.

The focus then shifted to 2nd quarter GDP numbers. France, Germany, and the Eurozone reported particularly dire 2nd quarter numbers.

The German economy contracted by 10.1%, the French economy by 13.8%, and the Eurozone economy by 12.1%.

It wasn’t enough to send the EUR into the red, however, as the U.S delivered darker numbers.

For the week, the EUR rose by 1.05% to $1.1778, following a 2.00% rally from the previous week. A 0.58% pullback on Friday limited the upside for the week.

For the European major indexes, it was another bearish week. The DAX30 slid by 4.09%, with the CAC40 and EuroStoxx600 falling by 3.49% and by 2.98% respectively.

For the Loonie

It was a quiet week on the economic calendar.

Economic data included May GDP and June RMPI numbers at the end of the week.

The stats were positive, with the Canadian economy expanding by 4.5% in May, following April’s 11.7% contraction. In June, the RMPI rose by a further 7.5%, following a 16.4% jump in May.

While the other majors lost ground against the Greenback on Friday, the stats delivered support at the end of the week.

The Loonie rose by 0.02% to end the week at C$1.3412 against the Greenback. In the week prior, the Loonie had rallied by 1.22% to C$1.3415.

Elsewhere

It was a mixed week for the Aussie Dollar and the Kiwi Dollar.

In the week ending 31st July, the Aussie Dollar rose by 0.53% to $0.7143, while the Kiwi Dollar fell by 0.18% to $0.6629. A 1.04% slide on Friday, left the Kiwi in the red for the week.

For the Aussie Dollar

It was a relatively quiet week for the Aussie Dollar.

Inflation and private sector credit figures delivered mixed results in the week.

In the 2nd quarter, consumer prices slid by 1.9%, with prices down by 0.30% year-on-year.

Final delivery numbers were not much better, with the Producer Price Index falling by 1.20% in the 2nd quarter. Year-on-year, the index fell by 0.40%.

The numbers were better than forecasts, which propped up the Aussie Dollar.

Private sector credit disappointed, however, falling by 0.3% in June.

While the Aussie Dollar found support against the Greenback, the latest COVID-19 outbreak pinned back the Aussie.

For the Kiwi Dollar

It was another relatively quiet week on the economic data front.

While stats included building consent and business confidence figures, the focus was on the business confidence figures.

A marginal improvement in business confidence did little to support the Kiwi, however.

In July, the ANZ Business Confidence Index rose from -34.4 to -31.8.

According to the latest ANZ Report,

  • A net 9% of firms expect weaker economic activity in their own business, rising from -26% in June.
  • The retail sector drove the recovery, while the agriculture sector was the most negative.
  • 31% of firms say they intend to lay off staff, and 24% say they have less staff than a year ago.

For the Japanese Yen

It was a relatively quiet week on the economic calendar.

Retail sales continued to fall in June. Following a 12.5% slump in May, retail sales fell by 1.20%.

Industrial production delivered hope, however, rising by 2.7% in June, according to prelim figures. In May, production had tumbled by 8.9%.

A weakening U.S Dollar stemming from particularly dire economic data and a dovish FED supported the Yen.

The Japanese Yen rose by 0.29% to end the week at ¥105.83 against the Greenback. A 1.05% slide on Friday, cut the gains from earlier in the week. In the week prior, the Yen had risen by 0.82%.

Out of China

It was a quiet week on the economic data front.

July’s NBS private sector PMI figures delivered mixed results on Friday.

While the Non-Manufacturing PMI slipped from 54.4 to 54.2, the Manufacturing PMI rose from 50.9 to 51.1.

With Beijing and Washington silent, following the previous week’s diplomatic spat, the Yuan recovered to sub-CNY7 levels.

In the week ending 24th July, the Chinese Yuan rose by 0.62% to CNY6.9752 against the Dollar. In the week prior, the Yuan had fallen by 0.37%.

The CSI300 rallied by 4.20%, while the Hang Seng falling 0.45%, as a 2nd wave of the pandemic hit HK.

Crude Oil Weekly Price Forecast – Crude Oil Markets Pullback for the Week

West Texas Intermediate

The WTI Crude Oil market fell a bit during the course of the week, as we continue to see a lot of noise in general. The negative candle for the week does not suggest much though, because quite frankly it is still well within the range of the last several weeks, so I think we will simply grind sideways more than anything else. Having said that, if we were to break down below the 20 week EMA underneath, then we probably could drop down to $35, possibly even $30. On the other hand, we break above the 50 week EMA, then we are probably going to the $49 level. Short-term trading is preferred at the moment though.

WTI Oil Video 03.08.20

Brent

Brent markets went back and forth during the course of the week to form a bit of a bullish candlestick, counteracting the shooting star from the previous week. With that being the case, it is likely that we are going to be stuck in a range between $45 and the 20 week EMA underneath. Short-term trading back-and-forth continues to work, and it probably will be the case for some time. Ultimately, the volatility is going to pick up and is going to continue to be very noisy. That being the case, we do not quite have the argument for a longer-term trade yet, but if we break significantly above the $45 level then it is time to start buying. If we break down below the 20 week EMA, then it is time to start selling.

For a look at all of today’s economic events, check out our economic calendar.

Crude Oil Price Forecast – Crude Oil Markets Continue to Dawdle

WTI Crude Oil

The West Texas Intermediate Crude Oil market has fallen just a little bit during the trading session on Friday, as we are now just below the 20 day EMA. The 50 day EMA is sitting underneath though, so it should continue to cause support. I think there is a reasonable “zone of support” city between these moving averages, and as a result I do believe that buyers will come back sooner or later. The US dollar has strengthened a little bit so that has put downward pressure, but at the end of the day the US dollar is in the cyclical downtrend, so that continues to lift at the same time. Expect choppy trading in general but I think it is only a matter of time before we the previous levels.

Crude Oil Video 03.08.20

Brent

Brent markets also look a bit lackadaisical to say the least, as we are hovering right around the 20 day EMA. The 50 day EMA sits underneath, offering a “zone of support” as well, and therefore I think it is only a matter of time before the buyers get involved here as well. The $45 level is an obvious resistance barrier, not only because it is a large, round, psychologically significant figure, but it is also the top of the gap that is so prevalent on this chart. Because of this, I think we continue to bounce around in this general vicinity and we will eventually have to make a bigger move. In the short term, simply trading back and forth seems to be the best way.

For a look at all of today’s economic events, check out our economic calendar.

Oil Price Fundamental Daily Forecast – Higher for Month, but Demand Destruction Worries Cap Gains

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are edging higher on Friday after a steep fall the previous session changed the main trend to down on the daily chart. Nonetheless, the markets were able to bounce back throughout the session, finishing just under four-month highs.

Despite the late volatility, the markets remain on track to post solid monthly gains, mostly benefiting from a weaker U.S. Dollar which continued to be hit by concerns over the recovery of the U.S. economy as the coronavirus ravages economic output. A falling dollar tends to increase foreign demand for dollar denominated crude oil.

At 12:59 GMT, September WTI crude oil is trading $40.37, up $0.45 or +1.13% and December Brent crude oil is at $44.12, up $0.18 or +0.41%.

The price action toward the end of the week clearly shows that investors are becoming more concerned about demand.

Oil Set for Fragile Recovery as Economies Limp Towards Normal:  Reuters Poll

A Reuters poll released on Friday showed that oil prices are set for a slow crawl upward this year as the gradual easing of coronavirus-led restrictions buoy demand, while a potential second COVID-19 wave could slow the pace of recovery.

The survey of 43 analysts and economists forecast benchmark Brent crude to average $41.50 a barrel in 2020, up slightly from the $40.41 consensus in last month’s survey and compared with around $42 average for the benchmark thus far this year. It is expected to average $49.85 in 2021.

The 2020 outlook for West Texas Intermediate rose to $37.51 per barrel from June’s $36.10.

The poll projected global demand to contract by between 7.2 and 8.5 million barrels per day (bpd) this year, versus last month’s 6.5-8.7 million bpd prediction. The International Energy Agency raised its 2020 demand forecast earlier this month to 92.1 bpd.

Short-Term Outlook

Prices could remain essentially rangebound over the near-term until major strides are made on the demand side of the crude oil equation. On the supply side, things seem to be moving in the right direction with the extension of the OPEC+ production cuts although they are expected to be tapered from August 1 until the end of the year.

The problem is with the demand side where uncertainty rages over whether the re-opening of the global economy will be impeded.

It seems the development of a successful vaccine against coronavirus may be necessary to fast-track an economic recovery and in turn boost oil prices. Without a vaccine, the recovery is likely to be rocky, leading to a series of stops and starts in the next crude oil rally.

Until traders are convinced the recovery in the global economy will be faster and stronger than expected, it’s going to be hard to build a case for a breakout to the upside and the start of a prolonged rally.

For a look at all of today’s economic events, check out our economic calendar.

Crude Oil Price Forecast – Crude Oil Markets Selloff

WTI Crude Oil

The West Texas Intermediate Crude Oil market has sold off a bit during the trading session to break down below the $39 level. Ultimately, this is a market that had desperately been looking for some type of momentum, and it looks as if it may finally have found it. It is to the downside but there is also the 50 day EMA underneath that should continue to offer support as well. With that in mind, I fully anticipate that we will probably see some type of support, but if we were to break down below the 50 day EMA we will more than likely approach the $35 level eventually.

Crude Oil Video 31.07.20

Brent

Brent markets were of course behaving the same way, breaking down significantly as well. Ultimately, this is a market that has been stuck in a range and even though we have seen a lot of momentum during the day shift to the downside, I think it is only a matter of time before recover again. Looking at the chart, the 50 day EMA seems to be offering a little bit of support, so I like the idea of perhaps buying this dip.

Longer-term, I think that oil still have to figure out what it wants to do and therefore you can expect more volatility but it is clear that we have quite a bit going on from the technical analysis standpoint to continue causing headaches for traders who are looking for bigger moves. For what it is worth, the Americans seem to be buying crude oil based upon value more than anything else.

For a look at all of today’s economic events, check out our economic calendar.

Oil Price Fundamental Daily Forecast – Pressured by COVID Driven Fuel Demand Worries

U.S. West Texas Intermediate and international-benchmark crude oil futures are trading sharply lower on Thursday as a jump in coronavirus infections around the world raised fears a rebound in fuel demand would stagnate just as major oil producers are set to raise output in August.

The market opened slightly lower on worries over demand, put started its plunge after Reuters reported that Iraq increased oil exports in July, while pumping above the OPEC+ target.

At 11:08 GMT, September WTI crude oil is trading $40.51, down $0.76 or -1.84% and December Brent crude oil is at $44.20, down $0.63 or -1.41%.

Oil Inventories Plunge, but Fuel Inventories Rise Against Expectations

Wednesday’s U.S. Energy Information Administration (EIA) weekly inventories report revealed exactly what traders are worried about. The market is trading lower despite an unexpected plunge in crude oil inventories. This is because a rise in fuel stocks indicated that demand is struggling due to the spread of coronavirus. Consumers are driving less, weighing on gasoline prices and flying less, putting pressure on distillates like jet fuel.

According to the U.S. Energy Information Administration (EIA), crude inventories fell by 10.6 million barrels in the week to July 24 to 526 million barrels. Analysts were looking for a 1 million barrel build.

Net U.S. crude imports fell 1 million barrels per day, the EIA said, dropping to 1.9 million bpd. More importantly, U.S. gasoline stocks rose by 654,000 barrels, the EIA said, compared with forecasts for a 733,000-barrel drop. Distillate stockpiles also jumped by 503,000 barrels, versus expectations for a 267,000-barrel drop, the EIA data showed.

Iraq Increases Oil Exports in July, Pumps Above OPEC+ Target

Iraq’s crude oil exports have increased so far in July, shipping data showed and industry sources said, suggesting OPEC’s second-largest producer is still undershooting its production cut target under an OPEC-led deal.

Daily Forecast

The short-term outlook is bleak with demand for fuel falling and OPEC+ preparing to taper its production cuts. Both combine to produce a bearish outlook for crude oil prices.

The selling pressure could accelerate over the near-term due to demand concerns with COVID-19 infections increasing and raising the prospects for lockdowns to be reimposed.

For a look at all of today’s economic events, check out our economic calendar.

Crude Oil Price Forecast – Crude Oil Markets Continue Sideways March

WTI Crude Oil

The West Texas Intermediate Crude Oil market has been doing nothing for days, and of course Tuesday was no different. Ultimately, this is a market that I think will find plenty of reasons to go higher, if for no other reason than the Federal Reserve working against the value of the US dollar. There is an old adage that says, “never short a quiet market”, and I think that might be coming into play here relatively soon. That being said, I buy short-term dips, but I am not looking for major moves yet. If we can get an explosive candlestick to the upside, then it is likely that we will see a follow-through towards the $49 level.

Crude Oil Video 30.07.20

Brent

Brent markets of course have also been very quiet as the world tries to figure out whether or not demand is ever going to come back. Having said that, they did have a little bit more bullish pressure during the day than WTI did, and we still have not filled the gap quite yet nor have we touched the 200 day EMA in this grade. It is because of this that I believe that the Brent market may outperform the WTI, at least in the short term. Longer-term, they tend to move in the same direction anyway, but I think what we are seeing here is the market trying to figure out whether or not the falling US dollar is reason enough to go higher. To the downside, the red 50 day EMA on the chart continues to offer plenty of support.

For a look at all of today’s economic events, check out our economic calendar.

Oil Price Fundamental Daily Forecast – EIA on Tap as Traders Continue to Fret Over Demand Woes

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are trading mixed on Wednesday shortly before the regular session opening. Prices are being underpinned by a surprise drop in U.S. crude oil inventories, according to the American Petroleum Institute (API), but capped by worries that surging coronavirus cases will lead to a decline in demand.

At 11:29 GMT, September WTI crude oil futures are trading $41.45, up $0.41 or +1.00% and September Brent crude oil futures are at $43.71, up $0.49 or +1.13%.

Later today, traders will get the opportunity to react to the latest weekly inventories data from the U.S. Energy Information Administration (EIA).

American Petroleum Institute Weekly Inventories Report

The API reported on Tuesday a draw in crude oil inventories of 6.829 million barrels for the week-ending July 24. Analysts were looking for an inventory build of 357,000 barrels.

The API also reported a build of 1.083 million barrels of gasoline for the week-ending July 24- compared to last week’s 2.019-million-barrel draw. This week’s build compares to analyst expectations for a 733,000-barrel draw for the week.

Distillate inventories were up by 187,000 barrels for the week, compared to last week’s 1.357-million barrel draw, while Cushing inventories saw an increase of 1.144 million barrels.

South Korean Refiners Post Record First-Half Losses on Plunge in Oil Price, Demand

Two refiners in South Korea, the world’s fifth largest crude oil importer, posted their biggest losses ever in the first half when oil prices slumped as the COVID-19 ravaged fuel demand.

“We saw the worst oil price in the first half of this year hit by the pandemic and we had to purposely lower our capacity because the pandemic sapped oil demand,” and SK Innovation official told Reuters, asking not to be named.

Daily Forecast

With the raging COVID-19 pandemic keeping alive worries over falling fuel demand, the new concern for traders is oversupply.

“It is becoming more apparent that the demand recovery many were expecting in oil over the second half of the year just too optimistic,” ING Research said.

“A resurgence in COVID-19 cases, along with continued travel restrictions has meant that this demand recovery has stalled, or at least slowed,” ING said.

We still looking for a rangebound trade until traders get some guidance from the Fed later today and Congress moves forward with its new fiscal stimulus plan.

The markets could weaken if the Fed emphasizes the risk to the economy if the coronavirus pandemic worsens. Additionally, a delay in passing the fiscal stimulus package will also be bearish.

Finally, traders expect the EIA report to show a 1-million barrel build, but this could change because of the API numbers.

For a look at all of today’s economic events, check out our economic calendar.

Oil Market Optimism to be Hit by Q2 Financials IOCs?

The American Petroleum Institute (API) report yesterday evening a 6.83 million-barrels draw in crude oil inventories for the week ending July 24, in stark contrast to market expectations of a 450, 000-barrel rise. The verdict however is still out, as today more definitive US stocks data is due for release by the Energy Information Administration (EIA), the oil advisory of the US Department of Energy. Financials are again supporting the mantra that they see crude oil prices paring gains with continued growth concerns capping further upsides at current levels.

Still, as IG market strategist Pan Jingyi stated, “the surprise draw in crude oil inventories according to the API report had played a part in supporting prices overnight, though WTI can be seen staying relatively more cautious with a buildup in official EIA crude inventory expected on Wednesday”. Axicorp’s chief global analyst Stephen Innes is even more optimistic, expecting that “the enormity of the inventory draw should be sufficient to hold the bears at bay and temporarily alleviate some concerns about ongoing demand distress”.

Still, even that bulls are making headlines, the bears are just quietly waiting for their chance to surprise. The latter is based on the growing concerns about COVID-19 2nd waves in major consumer markets, not only in USA, but increasingly in the EU and UK markets. An unexpected growth is being reported of Corona infections, leading to a long list of regions in the OECD being put on Orange (only necessary travel) or even in lockdown again. Asian countries, especially India and Japan are also looking at the abyss.

For the demand of oil, the current re-emergence of lockdowns and renewed travel restrictions will have a direct impact on pure speculative optimism of demand growth. The summer season, known to be the US driving season with high transport fuel demand, is also in Europe a major market. Lower tourism, especially by plane or cars, will put demand levels back to way below average. At the same time, tourism spending in Mediterranean countries or France and Germany will be hit, putting current fragile economic growth (from Corona-levels) at risk of already on ice.

By looking at the surprise positive figures reported by China and some minor other countries can not or shouldn’t deflect attention for a possible 2nd wave of Corona and a still looming unemployment wave of unknown proportions. Demand is currently artificially pushed up by stimulus packages, while financial facts on the ground are extremely black. The long list of lay-offs in Europe and bankruptcies is staggering. In the coming months, most national stimulus packages in Europe will end, some literally after the summer season. A possible Indian summer scenario for economic figures is clearly visible but people seem to be only charmed by the red and orange coloring.

The optimism about the widely published EU Corona Fund packages, set at EUR750 billion, is also based on shaky grounds. Not only is the implementation still an issue, as the European Parliament is now having the ball in its corner, but possible recipients (Italy, Spain, Greece) have not even yet a strategy proposal how to use the available funding. The current situation looks to be a hot air balloon, that without structural economic changes in the Southern European Area no funds are going to be disbursed at all.

Still, oil producers, such as OPEC or US shale producers, are seeing light at the end of the tunnel. Reports are tumbling over each other showing demand increases to continue, and a supply-demand crisis appearing. Increased production by OPEC and others however more likely will result in a renewed oil glut in the market for H2 2020. Officially, global crude output is set to increase next month as OPEC+ sticks with its schedule of tapering coordinated production cuts from 9.7 million b/d to 7.7 million b/d from August 1.

The next couple of the oil market could be in a shock again. Norway’s Equinor will report second-quarter earnings on Friday, with Austria’s OMV, Italy’s Eni, France’s Total and Anglo-Dutch company Shell set to report next week. The U.K.’s BP will unveil their quarterly results on August 4. US oils also will report. ConocoPhillips will report earnings on July 30, with Exxon Mobil and Chevron expected to follow on July 31.

The current oil market’s positive vibes will most probably be crushed and mangled by historically red financial figures. The reaction could be violent if realism gets back to the market. The world’s largest oil, Saudi Aramco, is expected to also report its financials on August 9. No relief however is even to be expected from the King of Oil, as Aramco’s revenues and profit margins are also hit very hard.

If no miracle happens, the oil market is in for a negative run for the next 5-6 months. If US shale and OPEC+ compliance is also lowered, aka production increases, more oil will be hitting the market than financial analysts and hedge-funds are taking into account. Supply-demand is not yet in an equilibrium, while external indicators are negative. IOC financial reporting the next days will give an indication of the last couple of months, but should also be assessed as a pre-cursor for more pain. If big oil fails to be showing positive figures, leading to investment cuts, smaller ones, even oil producing countries, could be hitting a rock very soon. Lower oil prices due to increased production is not what the future needs.

Crude Oil Price Forecast – Crude Oil Markets Continue Choppy Behavior

WTI Crude Oil

The West Texas Intermediate Crude Oil market has fallen a bit during the trading session on Tuesday but quite frankly all we are doing is dancing sideways along the 200 day EMA. At this point, I think the market is trying to break out, but we just do not have the momentum to make it happen. Eventually we could see some type of impulsive candlestick but right now it favors the upside. There is the old adage “never short a quiet market.” It is possible that adage applies that this market as well.

Crude Oil Video 29.07.20

Brent

Brent markets have dropped a bit during the trading session on Tuesday but are currently trading between the 50 day EMA and the 200 day EMA, so it is not a huge surprise to see that the market has nowhere to be. I think at this point if you are going to trade crude oil you need to see some type of impulsive daily candlestick in order to get involved. The market has almost no directionality at the moment, so you should be very cautious about putting a bunch of money to work.

That being said, unless you are a high-frequency trader or a scalper, then there is not much for you to do here but wait. Longer-term, it is likely that we will see some type of big move, but clearly, we do not have the necessary pieces together in order to make that happen. Being patient will probably be your best friend here.

For a look at all of today’s economic events, check out our economic calendar.

Oil Price Fundamental Daily Forecast – Rangebound Until Traders Get Stimulus, Fed Guidance

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are trading steady to lower on Tuesday shortly before the regular session opening in New York. The market is being underpinned by the hopes of fresh fiscal stimulus measures by the U.S. government, and capped by demand concerns over rising coronavirus cases around the world.

At 11:56 GMT, September WTI crude oil futures are trading $41.44, down $0.16 or -0.38% and September Brent crude oil futures are at $43.50, up $0.09 or +0.21%.

To put it another way, friendly supply fundamentals are helping to put in a floor, while the economic and demand outlook is limiting gains. Supply is being supported by the OPEC+ supply cuts although the group is expected to taper some of its production cuts, starting on August 1.

We’ll learn a little more about the U.S. supply situation on Tuesday with the release of the American Petroleum Weekly Inventories report at 20:30 GMT and Wednesday’s weekly inventories report from the U.S. Energy Information Administration. Both are expected to show a 1 million barrel increase.

Traders are monitoring two events outside of the normal fundamental data. The first is the promise of a big fiscal stimulus package. The second is the U.S. Federal Reserve’s monetary policy decisions. Both events are likely to have a major effect on the demand side of the equation.

The fiscal stimulus package could boost prices, but it’s currently being debated by U.S. policymakers. The Republicans are looking for a $1 trillion package and the Democrats are proposing a $3 trillion plan. There is likely to be a compromise by Friday when the previous provisions expire.

Traders are also monitoring the U.S. Federal Reserve as it starts a two-day meeting on Tuesday. The market expects the Fed to leave policy unchanged and to reiterate it will keep interest rates near zero for years to come. Don’t be surprised if the Fed’s message is on the dovish side. Like others, policymakers are concerned over the spread of coronavirus and have said in the near past that the economy is not likely to improve until a vaccine is developed.

We’re expecting prices to continue to drift until traders get some guidance from the supply reports, the stimulus package and the Fed’s outlook.

For a look at all of today’s economic events, check out our economic calendar.

Crude Oil Price Forecast – Crude Oil Markets Continue Sideways Drift

WTI Crude Oil

The WTI Crude Oil market has gone back and forth during the trading session again on Monday to kick off the week, as we are trading between the 50 day EMA on the bottom and the 200 day EMA on the top. The $40 level is just below so that should offer a bit of support, so with this being the case I believe that the market is likely to struggle to break to the upside. However, if we do make another high, I think at that point the market will grind its way towards the $49 level. Remember, sometimes it is a matter of currency, as the US dollar is getting crushed it helps elevate the crude oil market, regardless of demand as people tried to bite “things.”

Crude Oil Video 28.07.20

Brent

Brent markets also pulled back just a bit during the trading session but we are still right in the middle of the overall range, so I think that we are likely to see a lot of noisy back-and-forth trading, eventually looking towards the 200 day EMA which is currently at the $45.86 level. If we can break above there, then the Brent market is very likely to go looking towards the $50 level which is a major psychological magnet for price over time anyway. If we break down below the $40 level, that could spell some trouble but right now I do not think that happens with the 50 day EMA sitting above it.

For a look at all of today’s economic events, check out our economic calendar.

Oil Price Fundamental Weekly Forecast – Traders Weighing Covid Concerns Against Weak Dollar Demand Increase

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures reached four-month highs last week before struggling to hold on their gains.

The market took on a bullish tone early in the week when the European Union announced the approval of a massive recovery fund to help Euro Zone economies devastated by the coronavirus. The ensuing rally was responsible for nearly all of the market’s gains this week.

The EU news was so bullish that it encouraged traders to ignore a surprise build in U.S. crude oil inventories and worries that a surge in U.S. coronavirus cases could cap fuel demand. However, ahead of the weekend, it looked as if these factors were weighing on prices, creating a weaker tone that could extend into this week.

Helping to weigh on prices late in the week was the announcement that China ordered the United States to close its consulate in the city of Chengdu on Friday, responding to a U.S. demand this week that China close its Houston consulate, as relations between the world’s worsened.

Bullish crude oil traders are hoping this “tit for tat” relationship between the United States and China is over for now with both accomplishing nothing by closing their counterpart consulates.

If the U.S. and China spat is neutralized for now, crude oil traders can go back to what they do best, react to the supply and demand data.

Supply should have been a major issue last week when the U.S. released a weekly inventories report that showed another surge in crude inventory and continuing weakness in gasoline and distillate demand.

Starting on August 1, OPEC+ will begin tapering production cuts. This could develop into something bearish as the week progresses because it will come at a time when demand is expected to take a hit. Although not particularly bearish right now (well maybe on paper), this event could help trim prices a little, but nothing like we saw in March, April and May.

Traders will be monitoring the supply situation this week, but they will be keeping an even closer eye on the demand outlook as the U.S. struggles to gain control of a second-wave of coronavirus cases.

As the number of cases rise, the biggest worry will be unemployment. Last week’s initial claims data showed an increase in the number of first time filers. If this trend continues, it is going to be difficult to see where the gasoline demand will be coming from if fewer people are driving to work. Furthermore, more consumers are likely to do stay at home shopping as they ride out the spread of the virus; this is likely to keep a lid on demand.

Last week’s airline industry earnings reports were extremely bearish and the outlook even worse. This news should continue to weigh on distillate fuels which should lead to lower crude demand.

Finally, there is a ray of hope for bullish traders, but it comes at the expense of a weaker U.S. Dollar. Last week, the dollar plunged against a basket of currencies to a 2-year low. Since crude oil is dollar-denominated, we could see an uptick in exports due to increased foreign demand. This could be just enough to support the market against a drop in demand due to COVID-19.

For a look at all of today’s economic events, check out our economic calendar.

COVID-19, Economic Data, Geopolitics, and Fiscal Stimulus in Focus

Earlier in the Day:

It’s was a quiet start to the week on the economic calendar. There were no material stats through the Asian session to provide the majors with direction.

A lack of stats left the markets in the hands of geopolitics and COVID-19.

Negative sentiment towards the U.S – China spat and a continued rise in new COVID-19 cases weighed on risk appetite.

News of the Republicans agreeing on the next Stimulus package in the U.S supported riskier assets in the early part of the day, however.

Economic data from the U.S was skewed to the negative late last week, making fresh stimulus vital to economic recovery.

Looking at the latest coronavirus numbers

According to figures at the time of writing, the number of new coronavirus cases rose by 213,347 to 16,412,794 on Sunday. On Saturday, the number of new cases had risen by 268,668. The daily increase was lower than Saturday’s rise and 246,207 new cases from the previous Sunday.

Germany, Italy, and Spain reported 663 new cases on Sunday, which was up from 646 new cases on Saturday. On the previous Sunday, 491 new cases had been reported.

From the U.S, the total number of cases rose by 56,130 to 4,371,839 on Sunday. On Saturday, the total number of cases had increased by 67,398. On Sunday, 26th July, a total of 65,368 new cases had been reported.

The Majors

At the time of writing, the Japanese Yen was up by 0.40% to ¥105.72 against the U.S Dollar. The Aussie Dollar was up by 0.28% to $0.7125, with the Kiwi Dollar up by 0.41% to $0.6668.

The Day Ahead:

For the EUR

It’s a relatively busy day ahead on the economic calendar. Key stats include July’s IFO Business Climate Index figures for Germany.

Expect the EUR to respond to the figures, with forecasts pointing to a slight pullback amidst the spike in new COVID-19 cases.

Away from the economic calendar, chatter from Beijing and Washington and COVID-19 figures will also influence.

From Brussels, the progress of the EU Recovery Fund will also be in focus.

At the time of writing, the EUR was up by 0.33% to $1.1695.

For the Pound

It’s a particularly quiet day ahead on the economic calendar. There are no material stats due out of the UK to provide the Pound with direction.

A lack of stats will leave the Pound in the hands of Brexit and market risk sentiment.

At the time of writing, the Pound was up by 0.29% to $1.2831.

Across the Pond

It’s a relatively busy day ahead for the U.S Dollar. June’s durable goods and core durable goods orders are due out later in the day.

While we can expect market reaction to the numbers, the U.S stimulus package, COVID-19, China, and Trump will remain the key drivers.

At the time of writing, the Dollar Spot Index was down by 0.38% to 94.079.

For the Loonie

It’s a particularly quiet day ahead on the economic calendar. There are no material stats due out of Canada to provide the Loonie with direction.

A lack of stats will continue to leave the Loonie in the hands of market risk appetite.

At the time of writing, the Loonie was up by 0.19% to C$1.3390 against the U.S Dollar.

For a look at all of today’s economic events, check out our economic calendar.

Dollar Momentum

The five-week slump in the Dollar Index is the longest since late 2017/early 2018. Although we were early dollar bears, the downside momentum appears stronger than the momentum indicators suggested last week. Even shallow dollar bounces have been sold.

By and large, as we will see below, the momentum indicators continue to suggest a consolidative or corrective phase may be near. Yet, there does appear to have been a material shift in sentiment toward the dollar. Speculators in the futures market have been net long euros, for example, since mid-March. The change seems to be among asset managers, judging from flow reports and surveys, and interpolating from the options market, some levered participants as well. It also appears that the North American market is leading the current move.

The dollar’s decline should not be exaggerated. The year-to-date move has been modest. The strongest major currency has been the Swedish krona, which often acts as a high-beta euro. It has risen nearly 6% against the US dollar. Despite intervention by the Swiss National Bank, in the face of US threats to cite it as a currency manipulator, the franc’s 4.5% gain in second-place behind Sweden. Meanwhile, Sweden’s neighbor, Norway, sports the weakest of the major currency, with almost a 4.7% decline. Sterling’s roughly 3.8% decline puts it just ahead of the Norwegian krone. The dollar’s modest decline is not a material factor for policy or trade, even if the momentum gets noticed.

Dollar Index

The downward pressure on the Dollar Index is evident in the fact that it has risen in four sessions this month, and once in the last 11 sessions, and none last week. It is at its lowest level since October 2018 and finished the week on its lows. For the better part of three weeks, it has been sliding down with the lower Bollinger Band (~94.55). The next area of chart support is seen in the 93.75-94.00 area. The momentum indicators are still falling but stretched.

Euro

The euro will take a six-day advancing streak into next week. It not only pushed above $1.15, but it crossed and settled above $1.16 as well at new highs for the move (~$1.1645). The euro finished last month, near $1.1230. Although some narratives link the euro’s strength to the EU Recovery Plan, July will be the third consecutive monthly gain for the euro, the longest such move in three years. The MACD is still trending higher, while the Slow Stochastic is arching, set to turn down in the coming days. Rarely has there been a session in the last few weeks that the euro did not bump against or through the upper Bollinger Band. Initial support may be in the $1.1550-$1.1580 band.

Japanese Yen

With the Tokyo market closed before the weekend for the Health and Sports Day holiday, foreign exchange dealers took the dollar below the JPY106 level that has marked the floor since March. The JPY105.20 area marks the (61.8%) retracement objective of the rally from the March low (~JPY101.20), and a move below JPY105 would begin escalating the pain of yen strength on many Japanese companies. The yen’s strength, as exaggerated as it may be without Tokyo, coupled with the weakness in Asian and US shares ahead of the weekend, warning of the risk of catch-up on Monday. Resistance now will likely be seen ahead of previous support around JPY106.65.

British Pound

Sterling made new highs for the month, a little shy of the $1.28 level. The June high, which is highest since the panic struck in March, was a tad above $1.28 and near the upper Bollinger Band (~$1.2810). The next important chart point is not until closer to $1.30. The momentum indicators are stretched but still moving higher. Support is likely to be found near $1.2700. The euro is firm against sterling. It bounced smartly off the GBP0.9000 level tested following a reversal at the start of the week after reaching almost GBP0.9140. The euro needs to take out the GBP0.9180-GBP0.9200 area to be meaningful.

Canadian Dollar

The US dollar convincingly broke below the CAD1.3500 shelf that had been forged ahead of the 200-day moving average (~CAD1.3515). It fell to around CAD1.3350 before consolidating ahead of the weekend by straddling CAD1.3400. The June low was near CAD1.3315. The greenback fell every day last week for a 1.3% decline. It finished last month by CAD1.3580. The momentum indicators just about to enter over-extended territory. A possible head and shoulder pattern may have been carved since mid-June, and if valid, 1) it would project toward CAD1.3200, and 2) suggests the CAD1.3500 area offers resistance.

Australian Dollar

The Aussie shot up through $.0.7180, its highest level since April last year. A little profit-taking was seen in the previous two sessions, and the Aussie found bids ahead of the $0.7050 area, now expected to be support. It managed to hold to a solid 1.4% gain for the week to extend its streak to the fifth consecutive week and put it into positive territory for the year. A couple hundredths of a cent decline in the face of the nearly 4% drop in the Shanghai Composite illustrates a more significant point we have made about the decoupling of the two. Still, the technical indicators are flashing a yellow sign as they have failed to confirm the new highs.

Mexican Peso

The dollar’s roughly 0.8% decline against the peso last week gave back the previous two weeks of gains and maintaining the broadly sideways trading range since mid-June. The greenback has given up nearly 3/4 of the prior month’s 3.6% gain. The Slow Stochastic appears curling higher, while the MACD has almost flatlined. The lower volatility makes Mexico attractive for carry trades, but the strength of the Swiss franc and yen discourage their use, leaving the dollar as arguably the cleanest expression. A near-term downtrend line from earlier this month held before the weekend and begins the new week near MXN22.60. The month’s low so far is about MXN22.15.

Chinese Yuan

The dollar posted a key upside reversal against the yuan in the middle of last week, making a new low for the move (~CNY6.9650) before shooting up and closing above the previous day’s high. Follow-through buying was seen in the last couple of sessions, and the dollar finished the week near CNY7.02, a two-week high. Linking the yuan’s weakness to the political tit-for-tat consulate shutdowns does not necessarily mean manipulation by Chinese officials.

The operative channel could be the equity market where the Shanghai Composite has fell by a little more than 4% over the past two sessions, and the Shenzhen Composite shed 5%. The momentum indicators favor dollar gains, but with the greenback’s losses before the weekend in North America warns of the likelihood of a lower fix.

Gold

The rally continued with the yellow metal rising every day last week, reaching nearly
$1906.50 at the end of last week. It will take a six-day rally into the last week of July. Its resilience in the face of the heavier tone in the equity markets will support the arguments seeing it has a hedge to equities. There are two obvious targets. The first is the record high from 2011 a little above $1921, and the other is the round, psychological level of $2000. It is difficult to talk about resistance in never-before-seen prices, but if our view of interest rates and the turn in the dollar cycle is fair, then $2500 might not seem unreasonable.

Oil

After rallying to start the week and selling off in the second half, the September WTI contract finished the week little changed a little below $41 a barrel. The week’s high was about $42.50, which closed the breakaway gap created in the March disruption. Around $41.70, the contract reached the middle of this year’s range. Before the next retracement (61.8%) near $46.35 comes the 200-day moving average (~$44.35). The MACD did not confirm the high. The Slow Stochastic did but has still turned lower. This month, September WTI has not closed below its 20-day moving average ($40.60) and offered support ahead of the weekend.

US Rates

Disappointing preliminary PMI on the heels of the first increase in weekly jobless claims, and the end of the S&P 500 three-week rally saw the 10-year yield slip to 55 basis points at the end of last week, the lower end of the range since March. Still, it managed to close around 58 bp to end a four-day decline. The focus is on the Federal Reserve meeting and the negotiations over the next fiscal package, while the virus sets the general parameters.

The 10-year yield has drifted lower for the past three weeks after finishing June near 65 bp. The two-note yield has been in a three basis point range this month (~13.5-16.5). The effective (weighted) average fed funds rate, which the futures contract settle against, has quietly crept higher. Both last week and the previous week, the effect rate rose to 10 bp. Recall that as recently as June 1, it was at five basis points. The secured overnight financing rate is also trading firmly around 12-13 bp at the high over the past two weeks. Many are linking it to the Fed’s decision to lift the minimum bid rate for its repo facility earlier this month.

For a look at all of today’s economic events, check out our economic calendar.