Sample Category Title

US oil price dipped to session low at $50.17, falling nearly $2 after Saudi energy minister signaled that OPEC will extend production cut at the same level for another nine months.

Oil recovered quickly after spike lower and regained levels above $51.00 per barrel, however, further negative impact cannot be ruled out as markets seems to be expected more radical action from top oil producers.

In addition, recent strong rallies signal that most action on extended output cut has already been priced in.

Wednesday's close in red after five straight bullish days and probes below broken 100SMA which now acts as strong support (currently at $51.07), with close below the latter could be seen as initial signal of rally's stall.

Also, bearish signal is developing on strongly overbought slow stochastic on daily chart which is turning south and may trigger correction of $43.74/$51.98 rally.

Psychological $50.00 level marks strong support along with cluster of MA supports that lay below (consisting of 10/55 and 200SMA in $49.50/$49.90 zone) which are expected to contain dips and prevent deeper pullback on break lower.

Otherwise, immediate bullish tone is expected to remain intact and keep bullish bias in play for further upside on repeated close above 100SMA.

Res: 51.48, 51.98, 52.62, 53.18
Sup: 51.07, 50.56, 50.17, 49.90

EUR/JPY - 125.56

Recent wave: wave v of (C) ended at 94.12 and major correction in wave A has ended at 149.79

Trend: Near term up

New strategy :

Buy at 124.60, Target: 126.50, Stop: 124.00

Position: -
Target:  -
Stop:-

Although the single currency has eased after faltering below resistance at 125.82 and minor consolidation below this level would be seen, reckon downside would be limited to 125.00 and renewed buying interest should emerge around 124.50-60, bring another upmove later, above said resistance at 125.82 would confirm  recent upmove has resumed and extend further gain to 126.20-30 and possibly 126.60-70 but reckon 127.00-10 would hold from here due to near term overbought condition.

In view of this, would not chase this rise here and would be prudent to stand aside for now. Below 124.10-15 would bring retreat to 123.35-40 but reckon downside would be limited to 123.00 and said support at 122.56 should hold, bring another rebound. Only a break below this support would add credence to our view that top has been formed, bring retracement of recent upmove to 122.00-10 and then 121.50-60 but downside should be limited to 121.20-30.

Our latest preferred count is that wave (ii) is ABC-X-ABC which ended at 123.33 and wave (iii) is unfolding with wave iii ended at 100.77, followed by wave iv at 111.57 and wave v as well as the wave (iii) has ended at 97.04, followed by wave (iv) at 111.43 and wave (v) has ended at 94.12 which is also the end of the larger degree v, this also implied the major wave (C) has also ended there, hence major correction has commenced from there with (A) leg unfolding in its lower degree wave c which has possibly ended at 145.69. Under this count, A-B-C wave (B) has commenced with A leg ended at 136.23, wave B at 143.79 and wave C has possibly ended at 149.79.

Our larger degree count is that the decline from 139.26 is wave (C) and is sub-divided into a diagonal triangle i-ii-iii-iv-v with wave i - 105.44, wave ii- 123.33, wave iii - 97.03, wave iv - 111.43, followed by the final wave v as well as the end of wave (C) at 94.12, this also mark the bottom of larger degree wave B. Under this count, major rise in wave C has commenced as an impulsive wave with minor wave III ended at 145.69, wave V is still in progress for further gain to 150.00. Having said that, this so-called wave V could well be the first leg of larger degree 5-waver wave C and this wave C should bring at least a retest of wave A top at 169.97 (July 2008).

AUD/USD – 0.7467

Recent wave: Wave 5 ended at 1.1081 and major correction has commenced for fall to 0.7000 and then towards 0.6500-10

Trend: Near term down

Original strategy :

Buy at 0.7405, Target: 0.7570, Stop: 0.7345

Position: -
Target:  -
Stop: -

New strategy :

Buy at 0.7405, Target: 0.7570, Stop: 0.7345

Position: -
Target:  -
Stop:-

As aussie has retreated after faltering below indicated resistance at 0.7518, retaining our view that minor consolidation below this level would be seen and pullback to 0.7420-25 cannot be ruled out, however, if our view that low has been formed at 0.7329 is correct, downside should be limited to 0.7400-05 and bring another rebound later, above said resistance at 0.7518 would extend the rise from 0.7329 low to resistance at 0.7556, having said that, a break above there is needed to provide confirmation, bring subsequent rise towards 0.7595-00.

In view of this, we are looking to buy aussie on dips as 0.7400-10 should limit downside and bring another rise. A break of support at 0.7388 would abort and signal top is formed, bring further fall to 0.7360 but said recent low at 0.7329 should remain intact. Only a drop below this support at 0.7329 would abort and signal recent decline has resumed and extend weakness to 0.7295-00 (76.4% retracement of 0.7158-0.7750). 

On the 4-hour chart, the move from 0.8066 is the wave 5 with i: 0.8860, ii: 0.8315, wave iii is an extended move ended at 1.0183, iv: 0.9706 and wave v has ended at 1.1081 (also the top of entire wave 5). The subsequent selloff is the major correction which is unfolding as ABC-X-ABC and 2nd A leg has ended at 0.8848, followed by a-b-c wave B which ended at 0.9758, hence, 2nd C wave is now in progress and indicated downside target at 0.7000 and 0.6950 had been met, so further fall to 0.6710-20 cannot be ruled out.

Today's OPEC meeting will determine the direction of oil for the coming months with an extension of the production cut widely expected.

Anticipation is building in the oil market as the meeting of OPEC, and Non-Opec members get underway to discuss the joint production cut expiring at the end of the month. In the spirit of “future guidance,” various members of the grouping have signalled that an extension of six months is a done deal and could be as long as nine months.

Markets are certainly liking what they are hearing with both Brent and WTI up over one percent in Asia trading extending the fearsome bull run of the last week or so. OPEC is also being helped by the Americans for a change, with last nights Crude Inventory number coming in at -4.425 million barrels. Twice as high as the anticipated drop and the seventh drop in a row. Even more pleasing was that the gasoline and distillate inventories did not increase to offset it. America, it seems is consuming petroleum products faster then they are pumping them.

So what surprises could OPEC/Non-OPEC spring on us today? The markets seem rather complacent to my eyes and OPEC has proven it can surprise. Possible outcomes could be…

The meeting dissolves in acrimony with no extension. Unlikely to happen of course but this is OPEC. A worst case scenario which would not likely be positive for oil at all!

A six-month extension to the present deal. The baseline case and with oil having rallied so far so soon on it, this could bring profit taking to the market ahead of the weekend. Going forward as U.S. shale increases, it may not be enough to drain the glut, and both contracts have some serious resistance not too far above present levels.

A nine-month extension seems to be getting increasingly priced into crude. It may be bullish initially but could generate the same scenario as number 2 above.

An extension through to the end of 2018. Would most likely be construed as positive for oil and signals OPEC/Non-OPEC's determination and dedication to removing supply imbalances.

An extension and an increase in the production cut. Very tough to achieve given the disparate group but would certainly give the most bang for its buck. Could likely be very bullish for oil prices as long as everyone complies, but that is another story.
Crude, of course, has continued its march higher from overnight, ahead of today's OPEC meeting.

Brent

Brent spot opened at 53.80 and is trading near its overnight highs of 54.50 with a break through this level targeting 56.50 from a technical perspective. Lying in wait though is the 57.00 level which has capped all rallies in 2017. A daily close above could signal that OPEC has finally got it right. Support is found initially at the 100-day moving average at 53.40 and then 53.00.

WTI

WTI spot opened at and traded 51.00 in early Asia and has traded up to its New York highs at 51.50 before easing 30 cents. A break above 51.50 targets 52.00. A daily close opening a potential of the 54.50 regions, which has capped WTI for all of 2017. Like Brent, a daily close above this level would be a Nirvana moment for OPEC.

Summary

We may be seeing a bit of position reduction and profit taking ahead of the result from Vienna today. The direction of oil is very much in OPEC and Non-OPEC's hands now, but breaking 2017's highs in Brent and WTI may require the grouping to deliver a crude missile of a surprise.

The FOMC released its May meeting minutes last evening stating that the overall economic assessment was little changed. The Fed sees to raise rates once again is 'soon be appropriate'. Markets assume that it signals a rate hike in June. The minutes also signals further tightening is expected if the incoming economic data shows improved economy. The Fed sees the weak economic performance in Q1 as transitory, caused by soft consumer spending and inventory investment.

Fed members considered it prudent to wait for further evidence that recent economic weakness was transitory before hiking rates again. The tone of the comments was less hawkish than expected with an increased potential for the Fed to hike rates again in June and then pause to consider developments. After the release of the minutes, per CME FedWatch tool, the probability for a June rate hike remains unchanged at 83.1%.

The minutes also signals shrinking the Fed's $4.5 trillion balance sheet in holdings of Treasury and mortgage securities later this year, by allowing a gradual maturity, setting a cap and reducing reinvestments.

After the release of the minutes, the dollar index fell from a 3-day high of 97.36, breaking the support line at 97.00, as US Yields moved lower. During the early European session on Thursday the dollar index hit a 2-day low of 96.79 looking to test the support line at 96.70. USD/JPY retreated from the resistance level at 112.00 and rebounded after testing the support line at 111.50.

Yesterday ECB President Draghi focussed on the risks around Euro-zone financial stability and remained optimistic that the central bank's unorthodox policies did not pose a risk. With the fall in USD, EUR/USD rebounded from a 2-day low of 1.1167, touching a 2-day high of 1.1244. Spot gold rebounded from the significant support line at 1250, touching a 2-day high of 1259.49.

US Equities reacted somewhat favourably to the Federal Reserve minutes with hopes that interest rates would not rise sharply with lower yields providing support. The S&P 500 index gained 0.25%. During the early European session on Thursday, the Dow Jones index reached a high of 21101.25 which was last seen on March 2. The S & P 500 index hit a record high of 2412.68.

The initial USD move seems to deviate from the overall message in the minutes, as markets have priced in the expectations on a June rate hike, and the Fed's hawkish stance appears to be less strong.

With WTI trading higher the market witnessed a degree of profit taking. Latest EIA data recorded a 4.43mn barrel decline in inventories for the latest week. OPEC is scheduled to hold a meeting today in Vienna to discuss whether to extend the existing output cut agreement. The consensus is that OPEC will extend the agreement. It is likely that we will not see a surge after OPEC announces an extension as markets have largely priced in the expectations since May 5.

On Wednesday, Brent crude spot hit the highest level of 54.80, last seen on April 19. During early European session on Thursday, WTI spot hit the highest level of 51.96, last seen on April 19.

'We're slowly but surely moving toward the day when the bank might actually consider raising interest rates. I think that's still a long way down the road, but you've got to walk before you run.' - Doug Porter, BMO Capital Markets

As markets expected, the Bank of Canada left its monetary policy unchanged as its meeting on Wednesday, suggesting that economic growth will likely slow in the June quarter. In a dovish statement, the Bank expressed concerns over capacity utilisation and subdued growth, but noted strong consumer spending, the prosperous housing market and solid job growth. Nevertheless, policymakers voted to keep the benchmark Overnight Rate at a record low of 0.50%. Rates are expected to remain unchanged until 2018. Nevertheless, the Canadian Dollar rose shortly after the release, boosted by expectations of an interest rate hike. According to the Central bank, despite the change of mortgage lending rules, the nation's housing market remained on an expansion path. The BoC Governor Stephen Poloz highlighted that the ratio of household debt to income remained at record highs. The Governor also said that the biggest threat to the economy was arising from the United States and Donald Trump's protectionist policies, as about 75% of Canadian exports go to the US.

'If OPEC doesn't hold together on this, I think the market will start to test the low $40s again.' - Rory Johnston, Scotiabank

US crude oil inventories dropped for the seventh consecutive time last week, official figures revealed on Wednesday. The Energy Information Administration reported that US crude stockpiles fell 4.4M barrels in the week ended May 19, following the preceding week's decrease of 1.8M barrels and surpassing expectations for a 2.4M barrel decline. Thus, inventories hit 516.3M barrels, the lowest level since mid-February, suggesting that the OPEC production cut deal began working. The data came out a day before the OPEC meeting in Vienna, Austria. Analysts expect that OPEC and non-OPEC countries will likely extend the deal for six more months. Refinery production climbed 159K barrels per day to 17.281M bpd during the reported week, whereas the refinery utilisation rate advanced 0.1% to 93.5%. The four-week average of crude exports rose 30% to 4.7M bpd last week, compared to the same period a year ago. The EIA also reported that inventories at the Cushing, Oklahoma, dropped 741K barrels last week. Oil prices rose shortly after the releases, with WTI futures hitting $51.88 per barrel, the highest since April 19.

'They've worked really hard over the past five years to turn deficits into surpluses and when you've got money in the bank it gives you options.' - Cameron Bagrie, ANZ

The government of New Zealand stated it would run a bigger-than-initially-expected budget surplus this year amid additional investments in infrastructure. The government estimated a NZ1.62M surplus in the year to June, compared to its prior projection of a NZ$473M surplus. The Finance Minister Steven Joyce reported that the government would spend extra NZ$11B on infrastructure, including housing, roads, railways and prisons over the next four years. Apart from that, the government said it would spend NZ6.5B to support families through increasing grants and reforming some taxes. The following move is expected to provide support to the current government ahead of the 2018 National Election. New Zealand is also expected to run a trade surplus of NZ$2.85B in the year to June 2018. Meanwhile, the Treasury revised up its economic growth forecast from 3.4% to 3.7% amid the recent rebound in dairy product prices and improving tourism. The Finance Minister also said that the government would invest additional money in the nation's disaster fund, following massive earthquakes Christchurch and Kaikoura.

'It was supposed to be a year of risk that could lead to a break up of the euro. It's turning out to be the best year in a decade for the shared currency.' – Stefania Spezzati, Bloomberg

Pair's Outlook

On Thursday morning the common European currency was continuing the surge against the US Dollar. The surge began during Wednesday's trading session, when the currency pair remained at a resistance cluster in the expectations of fundamental news from the US Central Bankers. If the pair continues the surge, it is highly likely that after some struggling with weak resistance levels the currency exchange rate will surge to the 1.13 mark. There it will be most likely paused by the weekly R1, which is located at the 1.1306 level.

Traders' Sentiment

SWFX traders have 60% of open positions short, and that same percentage of all trader set up pending orders is set to sell the pair.

'There is still scope for further upside in the near term. The long-term downtrend currently stands at approximately 1.35 and it is still possible that we could see that tested before the dollar begins to reassert itself.' – Charles Stanley (based on PoundSterlingLive)

Pair's Outlook

Even though the Cable failed to behave in accordance with expectations yesterday, the consolidation trend still remained intact. Overall, the situation did not change since Wednesday, as the Pound is still required to experience another leg down in order for the trend to continue its existence. The same supports and resistance are in play and technical indicators keep suggesting the GBP/USD pair is to appreciate, meaning that a bullish development is also more than possible, which would, this time, fully break the consolidation trend. However, solid gains beyond 1.3030 are also doubtful due to the absence of a strong market mover.

Traders' Sentiment

There are 52% of traders being short the Sterling against the US Dollar today, while the portion of buy orders inched down from 56 to 52% in the last 24 hours.