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Oil closed the previous three weeks higher and is rising at the start of the new week, driven by various bullish factors. Most of them are temporary, but they are altering the long-term technical picture, changing speculators’ attitudes towards oil and attracting bulls.

Brent oil is moving steadily above $80, entering the peak area of October last year. Last week, Brent closed near its 50-week moving average. Further gains at the start of the week indicate the strength of buyers, who are not deterred by the general risk apprehension that is causing a sell-off in equities and bonds.

The main reason for this dynamic is the return of interest in oil. The US has tightened sanctions against Russia’s oil and gas sector, lifting demand for affordable alternatives. While these were sanctions of the outgoing Biden administration, Trump may continue this policy as he often promotes the interests of US producers in an attempt to turn around trade balance dynamics.

Extreme weather in parts of Europe and the US is pushing energy prices higher. Weather is a highly speculative factor; reports often have a greater impact on prices than actual changes in supply and demand. Nevertheless, market sensitivity to this factor should not be underestimated: it may continue to pull quotes upwards despite the headwinds in the form of risk sell-off.

The dynamics of commercial inventories in the USA also temporarily support stock bulls. In the last seven weeks, a decline in inventories has been recorded, bringing their total level closer to 400 million barrels. This is not a magic line, but the impact of inventory levels on the oil price is growing as it approaches this mark, which has been the lower boundary of inventories for almost 10 years.

Brent is moving above the 50-week moving average, but the most important test will be the 200-week moving average, now at $83.60, which could be reached as early as this week. A rise above this level may not be an easy task. However, if the price confidently overcomes this level, it may become a prologue to the return of prices to the territory above $100.

• Oil prices rose due to new US sanctions on Russian oil and tankers.
• The Kremlin warned these sanctions could destabilize global energy markets.
• Indian ‘sources’ stated it would avoid purchasing Russian oil from sanctioned entities and vessels.
• Markets are assessing the potential for a supply shock and whether OPEC+ will increase output.

Oil prices continued their rise this morning following a harsh batch of sanctions by the US on Russian Oil and tankers. The sanctions are the harshest yet and include producers Gazprom Neft SIBN.MM and Surgutneftegaz SNGS.MM, as well as 183 vessels that have shipped Russian oil, targeting revenue Moscow has used to fund its war with Ukraine.

The Kremlin responded this morning, warning that such decisions are bound to destabilize global energy and oil markets. The Kremlin also reiterated its stance to minimize the impact of US sanctions.

Source: LSEG (click to enlarge)

India and China to Buy Oil Elsewhere?

There have been rumors since Friday’s announcement of the sanctions that countries who were still purchasing Russia will cease to do so under the new sanctions. This morning an Indian Government source stated that India won’t take Russian oil from sanctioned entities and in sanctioned vessels.

However, this has not been confirmed by official channels. Several tankers listed in the new sanctions have been transporting oil to India and China. This shift happened after Western sanctions and a price cap set by the Group of Seven in 2022 redirected Russian oil trade from Europe to Asia. Some of these ships have also been carrying oil from Iran, which is also under sanctions.

The move comes just as proceeds from oil and gas sales for Russia’s federal budget in 2024 jumped by more than 26% to 11.13 trillion roubles ($108.22 billion). Many see the oil industry as the main source of funding for the war in Ukraine with oil and gas proceeds accounting for about a third to half of the total Federal Budget.

Markets are now weighing up a potential supply side shock following sanctions. However, given that OPEC+ have been waiting to increase output, will they now do so if Russian output is taken off the market?

For now, it appears markets are adopting a more cautious approach and hence the increase in Oil prices. Markets do not appear to be sold yet on the idea that OPEC + will bridge any supply deficits.

Intriguing to see how this develops in the coming weeks as President Trump assumes office.

The Week Ahead – Inventories Data and US inflation

Higher Oil prices may not be ideal for Financial Markets after last weeks US jobs data smashed estimates. The result has seen market participants expecting inflationary pressure in 2025 especially in the US which could halt interest rate cuts.

An increase in Oil prices could have a similar impact and see market participants price in more inflationary pressure globally in 2025. Such a move would no doubt stoke demand concerns as well.

US inflation data is due this week and any significant uptick in the inflation print will also add to the market’s growing concern. On the inventory front markets will be paying attention to stockpile levels from both the EIA and API, due on Tuesday and Wednesday respectively.

Technical Analysis

As discussed last week, Oil prices have rallied tremendously at the start of 2025 much to the surprise of many analysts.

However, given the length of time Oil prices remained in consolidation, i for one was not surprised by the aggressiveness of the breakout.

As things stand, Oil has run into a spot of bother on the weekly chart below. The Oil price is currently rejecting of the 100-day MA which could leave Oil prices with some downside in the coming days.

Brent Crude Oil Weekly Chart, January 13, 2025

Source: TradingView (click to enlarge)

Dropping down to a daily timeframe and immediate support rests at $80 a barrel mark with the 200-day MA resting below at 79.28.

A break of this level could open up a retest of the 76.35 before the 75.00 psychological level.

If bulls were to seize control of the narrative then Oil could eye resistance at 81.58 and 83.00 respectively.

Brent Crude Oil Daily Chart, January 13, 2025

Source: TradingView (click to enlarge)

Support

• 80.00
• 79.28
• 76.35

Resistance

• 81.58
• 83.00
• 84.72

The Australian dollar has started the week quietly. In the North American session, AUD/USD is trading at 0.6151, up 0.07% at the time of writing. Earlier, the Australian dollar fell as low as 0.6130, its lowest level since April 2020.

It was another rough week for the Australian dollar, which declined 1.7% last week. The Aussie can’t find its footing and has plunged 10.4% in the past three months.

Strong US nonfarm payrolls sends Aussie tumbling

The week ended with a surprisingly strong US jobs report. In December, the economy added 256 thousand jobs, the most since March 2024. This followed a downwardly revised 212 thousand in November and easily beat the market estimate of 160 thousand. The unemployment rate eased to 4.1%, down from 4.2% in November. Wage growth also ticked lower, from 4% y/y to 3.9% and from 0.4% to 0.3% monthly.

The upshot of the jobs report is that the US labor market remains solid and is cooling slowly. For the Federal Reserve, this means there isn’t much pressure to lower interest rates in the next few months. That will suit Fed policy makers just fine as it awaits Donald Trump, who has pledged tariffs against US trading partners and mass deportations of illegal immigrants. Either of those policies could increase inflation and the Fed will try to get a read of the Trump administration before cutting rates again. The latest Fed forecast calls for only two rate cuts in 2025 but that could change, depending on inflation and the strength of the labor market.

The strong employment numbers boosted the US dollar against most of the majors on Friday and the Australian dollar took it on the chin, falling 0.8%, its worst one-day showing in three weeks. With interest rates likely on hold in the near-term and high tensions in the Middle East, the safe-haven US dollar should remain attractive to investors in the coming months.

AUD/USD Technical

• AUD/USD tested resistance at 0.6163 earlier. Above, there is resistance at 0.6188
• 0.6121 and 0.6096 are providing support

Markets

Strong US payrolls published on Friday continued to dominate sentiment for global trading. The report confirmed Fed’s ‘guidance’ since the December meeting that it has plenty of room to assess the timing for additional easing. In this respect, the December US CPI inflation data to be published on Wednesday will be key in setting up the next big market move. A new upward surprise might cause markets to fully price out all remaining 2025 rate cuts and even cause market talk on the need for some tightening to resume. We’re not there yet, but underlying sentiment remains bearish. Core yields this morning again added a few basis points, but with hardly any important eco data scheduled for release today, investors are ‘happy’ just to digest the recent sharp repricing for now. US yields rise 1-2 bps across the curve. The German yields curve steepens slightly with yields little changed at the short end of the curve and as the 30-y adds 1.5 bps. Brent oil extending gains beyond $ 80 p/b after the US announced additional sanctions against Russian oil exports didn’t help to mitigate lingering inflation worries. Tightening of financial conditions this time also outweighs recent market optimism on ongoing strong US growth. After declining, 1.5% already on Friday, US equities again open in red (S&P 500 -0.9%, Nasdaq -1.6%).

Higher US real yields and a risk-off sentiment are supporting the dollar, but gains are not unequivocal across all USD cross rates. The DXY index near 110 is trading at the strongest level since November 2022. EUR/USD intraday briefly dropped below the 1.0201 level (62% retr. 2022/2023 rebound). The pair tries to avoid a sustained break but momentum suggests a revisit of parity (or below) is ever more likely. The jury is still out, but US equities also being captured in the broader risk-off move apparently causes investors to reassess the yen’s safe haven virtues. USD/JPY is easing from the 158 area to trade near 157.2. At the other side of the FX spectrum, sterling (and Gilts) continue to fight an uphill battle. UK Prime Minster Starmer explicitly supporting Fin Min Reeves’ policy and committing to rules of financial orthodoxy doesn’t help to address investor concerns on fiscal sustainability and on inflation staying too high for too long. ST UK yields are rising up to 4.5 bps (2-y), but this higher risk premium understandably still doesn’t help sterling. Cable tested the 1.21 area. EUR/GBP regained the 0.84 barrier (0.841). UK CPI will also be published on Wednesday. An new upside surprise almost certainly will cause more damage too overall UK markets.

News & Views

Czech inflation fell 0.3% M/M in December whereas consensus expected a 0.1% monthly gain. Lower prices in “food and non-alcoholic beverages” and in “alcoholic beverages and tobacco” were the main culprit. Prices of goods in total decreased by 0.5% (to be up 1.7% Y/Y) while prices of services remained at the level of November (5% Y/Y). In Y/Y-terms, headline CPI rose from 2.8% to 3%, the fastest pace since end 2023 but less than the feared uptick to 3.3%. Average 2024 inflation as a whole was 2.4%. The Czech National Bank commented on the inflation figures which were below the central bank’s autumn forecast (+3.3% Y/Y). Food price inflation was weaker in particular (3.3% Y/Y vs 4.8% Y/Y), but core inflation was also somewhat lower than forecasted. (2.3% instead of 2.4%). Services inflation nevertheless remains a worry because of elevated wage growth. The Czech krone weakened in the wake of the inflation report (EUR/CZK 25.20 from 25.05) as it gently reopens the door to a February policy rate cut after the CNB paused its cutting cycle in December. That feeling was strengthened by comments from influential CNB vicegovernor Zamrazilova who welcomed the pleasant inflation surprise and added that there is a rising chance that the CNB may resume its policy easing early in 2025. Czech swap rates lose up to 6 bps at the front end of the curve. Key things to watch apart from CNB comments are Q4 GDP (Jan 31st) and the January inflation report (Feb 6).

Indian inflation declined 0.56% M/M in December with the Y/Y-figure slowing down from 5.48% to 5.22%. The decline was largely driven by lower price gains for vegetables, pulses and cereals. Core inflation eased slightly from 4% Y/Y to 3.9%. Today’s data strengthen the view that new RBI governor Sanjay Malhotra at its first meeting in charge will implement a policy rate cut to start supporting slowing growth. In public comments, he has revealed himself as being more dovish than outgoing chair Das. The Indian rupee trades at an all-time low against the dollar today (USD/INR 86.50) but today’s significant sell-off is more because of the global rising interest rate environment and because of the two-day surge in oil prices (Indian being energy-dependent) than due to the inflation data.

Daily Pivots: (S1) 156.98; (P) 157.94; (R1) 158.64; More...

No change in USD/JPY's outlook and intraday bias stays neutral at this point. Further rally is in favor as long as 156.0 support holds. ON the upside, decisive break of 61.8% projection of 139.57 to 156.74 from 148.64 at 159.25 will extend the rally from 139.57 to retest 161.94 high. However, considering bearish divergence condition in 4H MACD, firm break of 156.01 support will indicate short term topping. Intraday bias will then be back on the downside for 55 D EMA (now at 154.13) instead.

In the bigger picture, price actions from 161.94 are seen as a corrective pattern to rise from 102.58 (2021 low). The range of medium term consolidation should be set between 38.2% retracement of 102.58 to 161.94 at 139.26 and 161.94. Nevertheless, sustained break of 139.26 would open up deeper medium term decline to 61.8% retracement at 125.25.

Daily Pivots: (S1) 0.9120; (P) 0.9154; (R1) 0.9200; More…

USD/CHF's rally from 0.8374 is still in progress for 0.9223 key resistance. Decisive break there will carry larger bullish implications. For now, near term outlook will stay bullish as long as 0.9007 support holds, in case of retreat.

In the bigger picture, price actions from 0.8332 (2023 low) are currently seen as a medium term corrective pattern, with rise from 0.8374 as the third leg. Overall outlook will continue to stay bearish as long as 0.9223 resistance holds. Break of 0.8332 low is in favor at a later stage when the consolidation completes. However, decisive break of 0.9223 will be an important sign of bullish trend reversal.

Daily Pivots: (S1) 1.0201; (P) 1.0257; (R1) 1.0301; More...

Intraday bias in EUR/USD remains on the downside for the moment. Current fall from 1.1213 should target 61.8% projection of 1.1213 to 1.0330 from 1.0629 at 1.0083. For now, outlook will stay bearish as long as 1.0435 resistance holds, in case of recovery.

In the bigger picture, fall from 1.1274 (2023 high) should either be the second leg of the corrective pattern from 0.9534 (2022 low), or another down leg of the long term down trend. In both cases, sustained break of 61.8 retracement of 0.9534 to 1.1274 at 1.0199 will pave the way back to 0.9534. For now, outlook will stay bearish as long as 1.0629 resistance holds, even in case of strong rebound.

Daily Pivots: (S1) 1.2160; (P) 1.2241; (R1) 1.2291; More...

Intraday bias in GBP/USD remains on the downside for the moment. Current decline from 1.3433 is in progress for 100% projection of 1.3433 to 1.2486 from 1.2810 at 1.1863. On the upside, break of 1.2321 minor resistance will turn intraday bias neutral first. But risk will stay on the downside as long as 1.2486 support turned resistance holds, in case of recovery.

In the bigger picture, rise from 1.0351 (2022 low) should have already completed at 1.3433, and the trend has reversed. Further fall is now expected as long as 1.2810 resistance holds. Deeper decline should be seen to 61.8% retracement of 1.0351 to 1.3433 at 1.1528, even as a corrective move.

Sterling's selloff continues today as UK government bond yields surged to new highs, underlining deep market concerns over the nation’s fiscal outlook. 10-year Gilt yield breached 4.8%, a level not seen in 17 years, while 30-year yield climbed past 5.4%, marking its highest point in 27 years.

At the core of this crisis are doubts about the government’s ability to meet its fiscal targets without resorting to higher taxes or additional spending cuts. Prime Minister Keir Starmer reaffirmed his commitment to the government’s fiscal rules, but his sidestepping of questions about austerity measures did little to calm investor nerves.

Meanwhile, Chancellor Rachel Reeves is facing scrutiny for her economic strategies—although Starmer offered unwavering support, calling her performance “fantastic.” Traders appear unconvinced, with concerns that rising debt-servicing costs could strain public finances and weigh on the Pound for some time.

Sterling will undergo crucial tests this week with the release of CPI data on Wednesday, followed by GDP figures on Thursday. While traders keep an eye on inflationary trends, a disappointing GDP print could intensify the bearish pressure on the currency. Many analysts worry that further signs of subdued economic growth, especially after the Autumn budget, could deepen the negative spiral surrounding the Pound’s outlook.

Euro, too, faced pressure today as ECB officials reaffirmed their commitment to a gradual path of monetary easing. With Fed now expected to deliver only one—or potentially zero—rate cuts in 2025, the widening rate differential is undercutting Euro. However, the single currency found some support against Sterling and Swiss Franc, helped by ECB Chief Economist Philip Lane’s call for a “middle path” on rate decisions, that's " neither too aggressive nor too cautious."

Overall in the markets, Yen emerged as the strongest performer of the day, buoyed by risk aversion, despite rising yields in the US and Europe. Canadian Dollar and Aussie also posted gains. Meanwhile, Dollar and Kiwi maintained middle-ground positions, leaving the Swiss Franc, Euro, and Sterling as the weakest currencies, with the latter suffering the steepest declines due to heightened fiscal and economic concerns.

Technically, EUR/CHF recovered ahead of 0.9329 support today, as sideway trading from 0.9440 continues. Further rise remains in favor through 0.9440 in the near term. Though strong resistance is expected from 38.2% retracement of 0.9928 to 0.9204 at 0.9481 to limit upside. Firm break of 0.9329, however, will indicate that the corrective rebound from 0.9204 has already completed.

In Europe, at the time of writing, FTSE is down -0.66%. DAX is down -0.64%. CAC is down -0.60%. UK 10-year yield is up 0.0039 at 4.847. Germany 10-year yield is up 0.0089 at 2.582. Earlier in Asia, Japan was on holiday. Hong Kong HSI fell -1.00%. China Shanghai SSE fell -0.25%. Singapore Strait Times fell -0.26%.

ECB’s Lane stresses the need for "middle path" on interest rates

ECB Chief Economist Philip Lane, in an interview with Der Standard, highlighted that a "middle path" is essential to achieving the inflation target without stifling economic growth or allowing inflationary pressures to persist.

Lane warned that if interest rates fall too quickly, it could undermine efforts to bring services inflation under control. On the other hand, keeping rates too high for too long risks that inflation could "materially fall below target".

“We think inflation pressure will continue to ease this year,” Lane stated, while adding that wage increases in 2025 are expected to moderate significantly, which could contribute to a softer inflationary environment.

While acknowledging that the overall direction of monetary policy is clear, Lane underlined the complexities of striking the right balance of "being neither too aggressive nor too cautious."

ECB's Vujcic: Gradual rate cuts justified amid elevated uncertainty

Croatian ECB Governing Council member Boris Vujcic emphasized a cautious and deliberate approach to monetary policy adjustments during comments to Econostream Media.

Vujcic stated that any acceleration in the pace of rate cuts would require a "significant departure" from the current economic projections, which he noted were being met by ongoing developments.

"In circumstances where uncertainties are still elevated," Vujcic explained, "it’s better to move gradually, and this is what we’re doing."

Vujcic also highlighted the ECB's independence from other central banks, including the Fed. "We are not dependent on the Fed or any other central bank," he remarked.

His comments lent support to current market expectations for ECB’s policy path, which he described as "justified" in the near term.

ECB’s Rehn: Restrictive monetary policy to end latest by mid-summer

Finnish ECB Governing Council member Olli Rehn reaffirmed the central bank's commitment to easing monetary policy as disinflation remains on track and the region faces a weakening growth outlook. Speaking with Bloomberg TV, Rehn stated that it "makes sense to continue rate cuts."

Rehn projected that ECB is likely to exit restrictive monetary territory "sometime in the spring-winter," a timeline he clarified could range from January to June in Finland's seasonal context.

He added, "I would say at the latest by midsummer, we should have left restrictive territory."

Rehn also emphasized ECB's independence in policy decisions, distancing it from the Fed's approach.

"The ECB is not the 13th federal district of the Federal Reserve System," he noted, reinforcing that the bank's decisions are guided solely by its mandate to maintain price stability within the Eurozone.

China's monthly trade surplus soars to USD 104.8B as exports jumps 10.7% yoy

China's trade data for December delivered a solid performance, reflecting resilience in exports and a surprising recovery in imports.

Exports surged 10.7% yoy, significantly outpacing the 7.3% yoy expected growth and accelerating from November's 6.7%.

Shipments to major markets rose sharply, with exports to the US jumping 18.9% yoy, ASEAN by 15.6% yoy, and the EU by 8.7% yoy. Some analysts highlighted that front-loading ahead of the Lunar New Year and trade policy shifts under Donald Trump’s incoming administration likely bolstered the month's figures.

Imports grew 1.0% yoy, defying expectations of a -1.5% yoy decline and marking a rebound after consecutive contractions of -3.9% yoy in November and -2.3% yoy in October. This recovery was driven in part by increased purchases of commodities like copper and iron ore, with importers potentially capitalizing on lower prices.

Regionally, imports from the US rose by 2.6% yoy, while ASEAN imports grew 5.4% yoy. However, imports from the EU fell by -4.9% yoy.

Trade surplus widened from USD 97.4B in November to USD 104.8B in December, surpassing expectations of USD 100B.

Looking ahead, markets will closely monitor China’s upcoming GDP figures, due for release on Friday. Expectations are for fourth-quarter growth to clock in at 5.0% yoy.

GBP/USD Mid-Day Outlook

Daily Pivots: (S1) 1.2160; (P) 1.2241; (R1) 1.2291; More...

Intraday bias in GBP/USD remains on the downside for the moment. Current decline from 1.3433 is in progress for 100% projection of 1.3433 to 1.2486 from 1.2810 at 1.1863. On the upside, break of 1.2321 minor resistance will turn intraday bias neutral first. But risk will stay on the downside as long as 1.2486 support turned resistance holds, in case of recovery.

In the bigger picture, rise from 1.0351 (2022 low) should have already completed at 1.3433, and the trend has reversed. Further fall is now expected as long as 1.2810 resistance holds. Deeper decline should be seen to 61.8% retracement of 1.0351 to 1.3433 at 1.1528, even as a corrective move.