Technical analysis: Oil

Technical Analysis: Oil – Euro

Oil clings to last support at 200-day MA

(Alexander Kuptsikevich – FxPro Financial Services Limited)

Crude Oil has added 3% on Monday after finding support late last week as expectations of a meeting between the US and Saudi leaders did not materialise.

The much-anticipated and much-discussed meeting between Biden and Mohammed bin Salman took place without a joint press conference or formally announced agreements. The Saudis made it clear that the OPEC+ act is good and refused officially to commit to ramping up production despite US interest.

Over the weekend, there were also comments that Saudi Arabia has the potential to increase production to 13m BPD against the current 10m and a peak of 11m in March 2020, but reaching these levels is unsustainable due to underinvestment in the industry.

Weekly rotary rig counts from Baker Hughes point to a further gradual increase in activity in the US to 756 (+4 for the week) total, of which 599 (+2) are oil producers.

Saudi Arabia has ramped up investments in renewable energy, a strategy also followed by major US and UK producers. Because of international sanctions, Russia, Iran, and Venezuela are severely constrained in increasing their production.

OPEC+ seems to do well its homework after past episodes of the “oil wars” of late 2014 and the start of 2020, not wanting to make any sudden moves. Locally, this is positive news for the oil price, which received support on the downside.

On the technical analysis side, buying support has strengthened on the downside to the 200-day moving average in WTI. Since last Tuesday, intraday downside punctures have intensified buying, and Oil has been closing the day above this significant line that defines the long-term trend.

Brent is now trading above $100, also attempting to move upward from the 200-day moving average. We may see a serious attempt by the oil bulls to stay within the long-term bullish trend. We would only be able to say that they succeeded in the case of a strong growth above $105 for Brent and $101 for WTI. In that case, a bounce from the latter trend will exceed 61.8% Fibonacci and send Oil into the area above the previous local highs.

However, waning economic activity, with a trend of rising production and interest rates, make the scenario of further declines in Oil the main one to consider.

Euro rallies to 1-week high

(Kenny Fisher – MarketPulse)

The euro is showing some strength, after posting a winning week for the first time in a month. EUR/USD is trading at 1.0143, up 0.55% on the day.

After a dramatic drop below the parity line last week, for the first time in 20 years, the euro has rebounded and is trading above the 1.01 level. The euro rode on the coattails of a rally in the US equity markets, which gave a thumbs up to solid US data on Friday. Headline retail sales and core retail sales both posted a gain of 1.0% MoM in June, above the forecast and an improvement from the May numbers. As well, UoM Consumer Sentiment improved slightly to 51.0, above the consensus for a contraction at 49.0.

The fickle stock markets rallied on the US numbers, despite the fact that strong data could increase the likelihood of a whopping 100bp hike by the Fed this week. The Fed is determined to stamp out spiralling inflation, which rose to 9.1% in June, and positive data points to a resilient economy which can withstand sharp rate hikes. There is a pre-meeting blackout out of the FOMC ahead of Thursday’s meeting, but the likelihood of a 75bp vs. a 100bp hike stands at 70/30, according to the CME Group. It will be interesting to see if the markets change their pricing ahead of the meeting, even with a blackout in place.

As for the euro, there are two key events on Thursday which could have a dramatic impact on the movement of the currency. First, the ECB is widely expected to lift-off rate hikes at a policy meeting, after years of an accommodative policy. This will mark the first rate hike in 11 years, but a modest 0.25bp rise, the most likely scenario, will have little impact on soaring inflation. If, however, the ECB delivers a hawkish surprise are raises rates by 50bp, the euro could respond with gains.

On the same day, the Nord Stream 1 gas pipeline, the conduit for Russian gas exports to Germany, is scheduled to restart after a short break for maintenance. If Moscow doesn’t turn on the gas tap before the weekend, we could see the markets take fright over a potential energy crunch in Europe and send the euro back towards the parity line.