Oil Pares Early Gains As Magnified Speculation Dissipates
The crude oil market was in a state of overblown volatility in thin liquidity on Monday, amidst rising speculation that the world’s two largest oil producers would agree on an output cap deal at the G-20 summit in China, after Reuters had reported that Saudi Arabia’s Energy Minister Khalid al-Falih was set to make a “significant announcement” at a news conference at the summit being held in Hangzhou.
Nonetheless, the outcome of Al-Falih’s speech disappointed markets as what was delivered failed to meet market expectations. According to reports, Al-Falih and his Russian counterpart Alexander Novak will set up a working group to monitor the oil market and come up with recommendations to promote market stability. Besides the meeting in Algeria in late September, the two leaders will also meet in Vienna in November to discuss how to cooperate under the new agreement.
Oil prices immediately trimmed sharp gains made earlier, falling off from the nearly one week high at 46.51 per barrel to as low as 44.74 per barrel after the statement.
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Crude prices held onto most of their gains from yesterday in the Asian trading session on Tuesday, as top producers Russia and Saudi Arabia, despite failing to announce concrete steps to limit output, agreed to cooperate on stabilizing the oil market. Russian Energy Minister Alexander Novak and his Saudi counterpart have moved toward a strategic energy partnership after a meeting at the G-20 summit in China.
Saudi energy minister Khalid al-Falih stated that he was optimistic about cooperation with other producers ahead of a meeting this month in Algiers, adding that freezing production was not the only solution to a supply glut. The oil price advance led energy stocks higher, which in turn supported Asian shares edge up on Tuesday.
A report by the British Retail Consortium (BRC) and KPMG published overnight showed that UK retail sales decreased 0.9pc in August compared to the same month last year on a like-for-like basis. The weakest performance since September 2014 was attributed to the warm weather that retrained clothing sales, and the Olympics that distracted shoppers by keeping them indoors.
Having already pulled the trigger on policy easing in May and August, the Reserve Bank of Australia (RBA) held its interest rate unchanged as expected at Tuesday's meeting. The central bank stated that it will let the stimulus measures already introduced, to percolate through the economy before deciding if yet more stimulus is needed.
Fig: EURAUD H4 Technical Chart
EURAUD has fallen off the 23.6% retracement level at 1.46967 and continues to head downwards with the pressure from the two MAs placed above the price action. The MA20 has crossed over the MA50 from above, not to mention that the ADX index has soared higher. The pair is anticipated to dip lower to test the support at 1.45450.
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Fig: USDCAD H4 Technical Chart
USDCAD has been on a decline since it reversed from a nearly one-month high at 1.31471 reached on Friday. The short-term MA has penetrated the long-term MA from above, signaling further slump in the market. Additionally, since the ADX has surged higher to 53.19, with a big divergence between the +DI and –DI line, the bears are expected to gain momentum and push the pair lower. However, the USDCAD is up against a strong support zone, which is an ascending trendline formed during the period from August 18 to date. To extend the down move, USDCAD needs to make a breakout through this support first.
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Fig: USDCHF H4 Technical Chart
USDCHF has been moving sideways around the key 0.98000 level for the last three trading days. The pair initially breached the upper boundary of the ascending trading channel and broke out of it. But has now fallen back into the trading channel. The market has been locked under the MA20 for a while but has not been able to cross below the MA50. As the %K line is pointing down and the RSI has dipped below 50, the pair is forecast to fall further to the support at 0.97500.
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Fig: GOLD H4 Technical Chart
Gold has been on a rise since the beginning of September but the rally is being held back within the descending channel. While the bull is overwhelming in the market and the upcoming convergence of the two MAs placed below the price action looks likely, a breakout though the channel resistance is anticipated. However, in case the precious metal can breach this handle, the major resistance at 1330.00 will be another solid stance for gold to get through.
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Fig: Brent H1 Technical Chart
Brent witnessed a spike yesterday which took the commodity beyond the 23.6% retracement level to retest a nearly one-week high at 49.37. Brent pared most of its gains afterwards but failed to break below the MA20 and is currently trading above this support. The ongoing up-wave has created a bullish impulse in the market, with other indicators currently supporting the up move.
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Fig: DAX H4 Technical Chart
Germany's DAX30 index has been moving in an ascending triangle pattern. Higher lows have been continuously created but the index has been restrained from forming new highs due to the resistance at 10740.00. DAX seems to be trading with a sideways to downwards bias currently. However, any down move is expected to subside and the market may bounce back once it hits the MA20 and may go on to retest the 10740.00 resistance level.
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Aussie Fuelled By Unchanged Rates – Technical Setup Strong Bullish
The Australian Dollar flew higher against the USD, extending its run of gains to five trading days in a row after the Reserve Bank of Australia stood pat on interest rates. Given two previous rate cuts in May and August, the decision by the RBA came as no surprise as the central bank indicated a desire to wait for upcoming data to assess the effectiveness of stimulus measures deployed recently, and the next move by the U.S Federal Reserve later this month.
RBA Governor Glenn Stevens decided to leave the cash rate unchanged at 1.5 percent in his last meeting as RBA governor, stating that “recent data suggest that overall growth is continuing”. The country has witnessed improvements in resource exports, housing construction, tourism and education that have been powered by a local currency that is no longer perched at the peaks of the mining-boom period. Growth in these areas has helped offset a large decline in business investment, but failed to lift subdued labor costs and exceptionally low inflation.
Meanwhile, aggressive policy easing in other parts of the world such as Europe and Japan which are experiencing the impact of zero or negative rates has contributed to about 11 percent appreciation in the Aussie since a mid-January trough. This would “complicate” factors mentioned above which are assisting the economy. Thus, the RBA will pay close attention to the actions of the Federal Reserve, and may be expecting the Fed to lend it a helping hand by raising U.S rates this year, which could help push the AUD lower to levels considered more desirable by the RBA.
The Australian Bureau of Statistics is due to report on gross domestic product (GDP) for the second quarter on Wednesday. The data is expected to indicate a cooling off in growth during the April-June period. Economist forecasts range from 0.5% to 0.6% growth on a quarter-on-quarter basis, compared to the first quarter’s 1.1% increase – which was also the highest level of growth in three years.
The U.S markets will resume trading today after the Labor Day holiday. A solid but not impressive non-farm payrolls report published on Friday may restrain the central bank from unleashing a rate hike at its September policy meeting. Nonetheless, an interest rate increase in December is still on the table as a steady labor market nearing full-employment, is encouraging domestic demand and household spending – the sector that accounts for two-thirds of the U.S economy.
The US ISM Non-Manufacturing PMI for August will be out later today and is forecast to point to a solid expansion in the services sector with little change compared to one month earlier.
Fig: AUDUSD H4 Technical Chart
AUDUSD successfully broke higher through both the descending trading channel and the 23.6% retracement level at 0.76147. The path for further advances is quite clear. Although the RSI index is about to enter the overbought territory, the pair is expected to surge higher as bulls are overshadowing the market. As can be seen from the ADX chart, the +DI is diverging from the –DI, which has taken the index to the level of 35.7980. The MA20 has converged with the MA50 from below. AUDUSD can be expected to retest the resistance at 0.76900
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Call Options On EURUSD As Fed May Need To Stand Pat On Rates This September
EURUSD retested over one-week high at 1.12553 after a couple of data released on Tuesday that were not only far beyond earlier expectations but also completely dislodged any thought of a U.S economy that is “healthy enough” to withstand a rate hike as soon as later this month.
Report from the Institute for Supply Management showed that America’s service industries expanded in August at the weakest pace in six years. The ISM non-manufacturing index nose-dived to the lowest since February 2010 to 51.4, from 55.5 in July, while economists forecast the figure to come out at 55.4.
In a separate report, the Federal Reserve’s labor-market conditions index also swung back into negative territory last month after a positive reading in July, marking the seventh negative reading in the past eight months. The Fed’s gauge, which combines 19 labor market indicators, fell to minus 0.7 in August from 1.3 in one month earlier.
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Asian shares rose to one-year highs on Wednesday, carrying forward the bullish momentum from the US equity markets after Wall Street had finished yesterday’s session in the green. A spate of weaker-than-anticipated data released on Tuesday has nudged investors to bet against any U.S rate hike this month and created some doubts over an interest rate increase by the end of 2016.
The Federal Reserve was handed some reasons to delay increasing rates after the Institute for Supply Management published its non-manufacturing PMI for August. The August PMI fell to 51.4. The result was far short of expectations, marking the largest one-month drop since November 2008 and the lowest PMI reading since February 2010. The Fed’s labor-market conditions index also swung back into negative territory last month after a positive reading in July, slipping to -0.7 from 1.3 one month earlier.
In response, the U.S dollar fell sharply against most of its peers. The Japanese Yen strengthened on the back of a softening greenback and was also bolstered further by a reported split between Bank of Japan officials ahead of the BOJ meeting on September 20-21. According to a report in the Sankei newspaper, BOJ policymakers are currently divided into three groups. One supports negative interest rates, another advocates more government bond purchases, while the third group opposes further stimulus.
The Australian dollar edged down 0.1 percent to $0.7681 after rising more than 1 percent on Tuesday after the Reserve Bank of Australia held interest rates steady at 1.5 percent. The Australian Bureau of Statistics reported the country’s gross domestic product (GDP) for the second quarter decelerated to 0.5%, indicating a cooling off in growth compared to the January-March period.
Fig: GBPUSD H4 Technical Chart
GBPUSD broke above the ascending trading channel that has formed since early August, after a steep up move from the key support level at 1.33000. The market has pulled back for some consolidation after bulls pushed the prices into overbought territory. However the upper boundary of the trading recent trading channel is now acting as support after the breakout from the channel, and has kept the market from falling back into the price range. This support zone is expected to push the price higher from the current levels
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Fig: EURCHF H4 Technical Chart
EURCHF has breached below the 50.0% retracement at 1.09090 after decisively dropping from the 61.8% level at 1.09774. A brief correction was seen yesterday but weak bulls failed to retain the bullish momentum and had to reverse lower after coming up against the short-term MA. The MA20 has just converged with the MA50 from above, signaling more declines for the pair.
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Fig: USDJPY H4 Technical Chart
USDJPY has been on a precipitous down move which helped the pair easily move past both the long-term and short-term MAs. In general, the U.S dollar has been trading in a shrinking range against the JPY and is currently moving towards the lower boundary of the trading range. As the market has entered the oversold zone, we may witness a period of consolidation moves. More declines in USDJPY are expected since two MAs placed above the price action are casting downward pressure on the price.
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Fig: SILVER H4 Technical Chart
Having surged more than 9.5 percent from two-month lows at 18.371 created on August 29, the grey metal retreated after the market entered a state of overblown volatility. Nonetheless, silver is forecast to extend the up wave as the two moving averages placed below the price action are exerting upward pressure which could send the price higher.
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Fig: WTI H4 Technical Chart
WTI crude prices are continuously forming lower highs and higher lows causing the commodity to move in a narrowing range. The market has failed to define a clear direction for itself and reversed regularly every time it hits the upper or lower trend lines that have marked the recent trading range, and no clear breakout or resolution of the trend has been observed. At the moment, crude prices are moving towards the 23.6% retracement at 45.55 and anticipated to reverse lower below this resistance.
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Fig: SP500 H4 Technical Chart
The SP500 has recorded a crossover by the MA20 through the MA50 from below, suggesting further up moves on the index after the price action broke above the 2184.00 resistance. RSI (14) that has soared to 59.74 is also supportive for the prices to retest the recent high at 2193.00 reached on August 15.
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Gold Traders Accumulating Call Options To Celebrate Upcoming Demand Season
Gold was almost flat in the European session on Wednesday after surging nearly 1.8% on Tuesday and 3.6% month-to-date, largely due to a softening U.S dollar. In addition to a string of disappointing U.S data that diminished the likelihood of a U.S. interest-rate hike this month, rising demand for physical gold for the upcoming festival and wedding season in Asian countries, especially India and China, is another factor that pushed prices of the yellow metal higher.
Coming on the heels of last week’s anemic ISM Manufacturing PMI that fell into contraction for the first time since February 2016 and a weaker than expected non-farm payrolls, yesterday’s ISM Non-Manufacturing PMI, despite remaining above 50 which indicates an expansion, posted the lowest PMI reading since February 2010 at 51.4.
The speculation over a rate hike as soon as September has been fueled recently by Fed officials who stated that any move towards higher rates would be based on economic data. That is the reason why each data release draws so much attention from the markets currently. According to CME Group data, the likelihood of the Fed raising rates this month were priced in at only 15%, after yesterday’s data releases. The probability for a December rate hike also dipped to around 47%.
In the first half of this year, gold demand has been shifting from jewelry demand to investment demand, due to aggressive monetary policy being deployed in most parts of the world that have reinforced the attractiveness of a no-yield asset like gold. Private investors of BullionVault, the largest gold and silver market online, increased their net gold purchases to almost half-a-ton of bullion last month, the heaviest net addition in nearly four years.
However, the booming demand scenario could change in the last four months of 2016 as Eastern festivals and a busy wedding season is around the corner. Sales in India – the world’s second-biggest gold consumer – began picking up in early September for the Ganesh Chaturthi festival, which fell on September 5th this year. Discounts in India have narrowed to the smallest in three months at around $16 an ounce over official domestic prices, down from $25 last week and $52 in the week before.
Demand for gold jewelry is expected to strengthen further in the final quarter as India gears up for festivals such as Dussehra (starting on October 11) and Diwali (starting on October 30) as well as for the winter wedding season, when people celebrate with gifts of gold.
In China and some other Asean countries such as Singapore and Vietnam, consumers are making purchases ahead of the mid-Autumn festival. Premiums in top consumer China were almost unchanged at $3 and $4 an ounce versus $3 last week, while premiums in Singapore also remained flat from last week at about 60-70 cents an ounce to the spot benchmark.
Fig: GOLD D1 Technical Chart
Gold has been paring almost of its losses from the last two weeks of August and is moving upwards towards a possible test of the resistance at 1355.00. The metal has crossed over both the 20-day and 50-day moving averages, signaling a reversal into an uptrend. However, the pace of gains is expected to slow down today after gaining in price and bullish momentum for 4 days in a row. The level at 1355.00 is forecast to be a solid handle in the near term for gold before it is able to attempt any higher targets.
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USDCAD reversed into an uptrend after the Bank of Canada decided to maintain the Overnight Rate on hold at 0.50% but stated that second-quarter gross domestic product was affected by a drop in exports that was “larger and more broad-based than expected.”
Although in general, the central bank delivered an optimistic attitude towards its economy, analysts claimed that weak exports would demand the BOC unleash more monetary easing to drive stronger growth.
The Loonie today was also hit by the Canadian Ivey PMI. The indicator released by the Richard Ivey School of Business, decreased from 57.0 points to 52.3 points, missing consensus estimate of 55.5 and signaling an aggressively decelerated expansion.
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Crude prices extended their winning streak in early trading on Thursday after data from the American Petroleum Institute on Wednesday indicated that U.S crude stocks unexpectedly dropped by 12.1 million barrels last week. Oil hit one-week highs as the report was starkly contrasting with expectations of an increase of 200,000 barrels. Official data from the U.S government will be out later today. Should the data from the EIA confirm the drawdown, it will be the largest weekly decline since April 1985.
Also on Wednesday, the U.S Labor Department published its monthly Job Openings and Labor Turnover Survey, or JOLTS, which pointed to tightening conditions in the labour market. U.S. job openings were reported to have surged to a record high in July. However, employers were having difficulty in filling vacancies with appropriately qualified workers.
The number for worker demand increased by 228,000 to a seasonally adjusted 5.9 million – the highest level since the survey was started. In theory, this situation could spur faster wage growth. But according to the Fed’s latest Beige Book report, “expectations of wage growth for the coming months were modest” as a strong labor market failed to create much upward pressure on wages and prices.
Data from Japan reported on Thursday that the Japanese economy grew by 0.7% in the second quarter compared with the same quarter last year. The reading for the annualized growth rate was revised upwards, from a preliminary reading of a 0.2% expansion. On a quarter-on-quarter basis, the world’s third biggest economy expanded by 0.2%, largely due to upbeat capital expenditure and inventories, which outpaced the decline in domestic and overseas demand caused by a strong yen.
Official data from the Customs General Administration of China reported that the country’s trade surplus in August was slightly below July’s $52.31 billion at $52.05 billion and missed estimates for a reading of $58 billion. Weakening exports continued to weigh on the world’s second-largest economy. Exports slid by 2.8 percent on a year-on-year basis, following July's 4.4 percent drop.
Investors are shifting their attention to the meeting of the European Central Bank where all main rates are expected to be left unchanged. President Mario Draghi will update growth and inflation projections in the Press Conference due after the rate decision.
Fig: NZDUSD H4 Technical Chart
NZDUSD has broken above the ascending channel but has currently been trading sideways below the 50.0% retracement at 0.74709. The pair is currently locked between the upwards sloping trendline, marking the boundary of the ascending channel, which is acting as a support and the resistance at the 50.0% Fibonacci level. A breakout is expected as the trading range is becoming narrower. The ADX is still pointing upwards, suggesting a continual uptrend.
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Fig: CADJPY H4 Technical Chart
CADJPY has been moving sideways within the price range from 78.750 to 79.175. The pair is currently in a phase of consolidation, after a sharp decline from a more than one month high at 80.298. The pair is under the downward pressure heaped by the two MAs placed above the price action. The short term MA20 has been an especially strong level of resistance so far, and has forced the price to reverse lower every time CADJPY has hit this resistance. Further declines are expected.
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Fig: USDCAD H4 Technical Chart
USDCAD retreated after failing to break back above the support trendline underlying the price action created since August 18. After having violated the uptrend on Monday, the pair bounced back from the support at 1.28300 but could not cross back over the support trendline at around 1.29126, and was further pressured by the MA20 hovering above the price action. The market has remained in bearish territory but the near-term support at 1.28570 should be monitored carefully.
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Fig: SILVER H4 Technical Chart
Silver resumed the uptrend after retreating from the high at 20.100. While the %K line reversed higher to penetrate the %D line from below, RSI remains in the bullish zone, indicating an overwhelming bull. With two MAs placed below the price action, silver is on course to soar higher.
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Fig: Copper H4 Technical Chart
Copper has breached the solid resistance at 2.0900 which restrained the metal for two weeks until yesterday. The RSI index has surged above the 50 line, and the MA20 has crossed over the long-term MA50 from below, preparing the stage for further advances in copper. Nonetheless, the up-move could be limited as prices are moving in an upward sloping channel and the upper boundary of the channel is foreseen to be a firm handle, where prices could be contained.
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Fig: NASDAQ100 H4 Technical Chart
The Nasdaq failed to surpass major resistance at 4837.00, yet again, yesterday. Bulls are overshadowing the market but also taking cautious steps when facing this key level. The two MAs placed below the price action, are continuously fueling bullish momentum in the index but a chance for a break out is still even. Any considerable force that could help the index one way or the other, would need to come from the fundamental side. Therefore traders should be patient ahead of the crude oil inventory data due later today.
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