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• Geopolitical events and weather disruptions are currently the main drivers of oil price fluctuations.
• OPEC+ production cuts have contributed to tighter oil markets, supporting prices. Can it continue?
• Technical analysis suggests key support and resistance levels to watch for future price movements.

Oil prices have retreated sharply since printing a fresh high on Friday. Gaza ceasefire talks and Hurricane Beryl touching down in Texas, are the major talking points at the start of the week.

Talks for a ceasefire in the Gaza strip have started up once more as a potential escalation in Northern Israel threatens to spillover. Any positive developments in talks will likely have an impact on the geopolitical premium currently priced into oil markets.

Hurricane Beryl has touched down in Texas with market participants concerned about the potential impact on US refineries just as summer demand reaches its peak. The drop off in crude inventories last week reinforced recent hopes that declining inventories could help keep oil prices supported over the medium term.

OPEC + Crude Production Falls in June

OPEC+ crude output from members under production cuts declined for the third consecutive month in June, as reduced Russian production offset increases from some consistent overproducers.

Output fell by 90,000 b/d to 33.98mn b/d in June, according to Argus estimates, the lowest in three years. But it could have been lower, with the alliance overshooting its target for the month by 130,000 b/d.

Reduced OPEC+ production has significantly contributed to tightening oil markets in recent weeks. The $7-8 per barrel increase in oil prices over the past month is likely a relief to OPEC+, which initially witnessed price declines after key members indicated plans to begin unwinding some of their production cuts starting in October.

OPEC + Crude Production

Source: Argus

Oil Inventories Remain Key

Oil inventory data is very important as the US and Europe are currently in the middle of summer. This period is typically the peak driving season in the US, leading to high demand for petroleum and other oil-related products.

Due to the busy summer season in the US, there is a good chance that weekly oil inventories will decrease more than expected. This could help keep oil prices strong and prevent any significant long-term price drops.

Technical Analysis

Oil prices have been on a terrific run of late, posting four consecutive weeks of gains. Brent reached a high around 88.55 on Friday before a pullback began. This has extended into the new week with oil prices retesting resistance turned support at the 86.21 handle.

This level could prove to be key for bullish momentum to continue. A bounce here could put oil back on course for the $90 a barrel mark.There is a possibility that price might dip below here and look to the 100 or 200-day MA as better areas of support. These two levels are currently resting at 85.13 and 83.60 respectively.

Support

• 86.21
• 85.00
• 83.60 (200-day MA)

Resistance

• 87.90
• 89.00
• 90.00

Brent Crude Oil Daily Chart, July 8, 2024

Source: TradingView.com (click to enlarge)

The euro has started the week with gains and is trading at 1.0836 in the European session, up 0.33% on the day. EUR/USD is coming off its best week of the year, gaining 1.19%.

France veers to the left in Round 2

France has been on a political roller over the past two weeks and the wild ride isn’t over yet. President Macron called a snap election in June after European parliamentary elections saw the far-right make strong gains. Macron gambled that frightened French voters would support his centrist coalition, but things didn’t quite work out that way. France went to the polls twice in two weeks and each round of voting brought a stunning result.

In the first round, Mary Le Pen’s far-right National Rally party won the most votes and seemed well on its way to becoming the largest party in parliament and perhaps even winning a majority. The second round brought its own surprise, as the left-wing alliance won the most seats, followed by Macron’s centrist alliance, with National Rally placing third.

As the dust settles from Sunday’s vote, the political system is in gridlock, with no clear winner. The left-wing alliance fell short of a majority and Macron must now pick a prime minister who will be tasked with forming a government. This could mean a minority government or an unwieldy coalition, either which could usher in a period of instability.

Despite the political uncertainty, the financial markets are steady, likely in a sign of relief that fears of a Le Pen majority did not materialize. The French stock market is steady on Monday and the euro has posted gains. It has been a good start to the week, but investors will be keeping close tabs on the fallout from France’s remarkable election.
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EUR/USD Technical

• There is support at 1.0797 and 1.0752
• 1.0884 and 1.0929 are the next resistance lines

The AUD/USD pair reached a six-month high of 0.6752, marking its fifth consecutive day of gains. The currency's strength is largely driven by market expectations that the Reserve Bank of Australia (RBA) might diverge from the global trend of lowering interest rates, raising them in response to escalating inflation pressures. May's CPI figures have intensified discussions around monetary tightening.

Market sentiment is split between expectations for a rate hike and maintaining the current rates at the RBA's next meeting in August. High domestic yields draw international capital, boost the Australian dollar, and provide a haven from the political uncertainties in the US and Europe.

Moreover, a weaker US dollar, underscored by unimpressive economic data released on Friday, has also bolstered the AUD. This data reinforced the Federal Reserve's dovish stance on monetary policy.

Technical analysis of AUD/USD

The market has established a broad consolidation pattern centred around 0.6723. Moving forward, there is a potential for an upward movement to 0.6822. Once this level is reached, a retraction to 0.6750 for a retest might occur, followed by a continuation of the upward trajectory towards 0.6858. This bullish outlook is supported by the MACD indicator, with its signal line positioned above zero and trending upwards.

The AUD/USD pair is currently challenging the 0.6757 level, with the potential to extend the rally towards 0.6806. Following this target, a pullback to 0.6757 could occur, setting the stage for another rise to 0.6822. The stochastic oscillator, situated above the 50 mark, suggests an imminent climb to 80, reinforcing the bullish momentum forecasted.

Traders and investors are closely monitoring developments, especially the upcoming RBA meeting, which could significantly influence the direction of the AUD/USD pair.

BoE MPC member Jonathan Haskel highlighted in a speech that assuming no further shocks, inflation will depend on the "interaction of a tight labour market and second-round effects as previous inflation works its way through the wage-price system."

Haskel emphasized that the MPC is closely monitoring labor market conditions and underlying inflationary indicators, particularly services inflation.

He expressed concerns about the current state of the labor market, stating, "The labour market continues to be tight, and I worry it is still impaired. I would rather hold rates until there is more certainty that underlying inflationary pressures have subsided sustainably."

Full speech of BoE's Haskel here.

ECB Governing Council member Klaas Knot has indicated there is no case for another rate cut in July. In an interview with Handelsblatt, Knot stated, "I don't see a case for another rate cut in July." He emphasized that the next ECB meeting that will consider rate adjustments will be in September.

Knot expressed satisfaction with ECB's progress in reducing inflation, projecting that 2% target will be achieved by late 2025. However, he warned against tolerating further delays, noting that inflation will have exceeded ECB's target for four and a half years by that time.

Market expectations suggest between one and two rate cuts this year and just over four cuts over the next 18 months. This implies that the deposit rate would remain above 3% into the second half of next year. K
not commented on this outlook, saying, "As long as we are above 3%, we are still restrictive. And that will be the case for the foreseeable future, beyond which I cannot make meaningful statements."

The NZDUSD pair, often called the "Kiwi," refers to the exchange rate between the New Zealand dollar and the US dollar and is an important indicator for understanding the economic relationship between New Zealand and the United States. The New Zealand dollar is strongly influenced by fluctuations in commodity exports, especially dairy products, which are sensitive to world market demand and price changes. Other local factors, such as tourism and export volumes, also play a significant role. At the same time, the US dollar reacts to a wide range of domestic economic indicators, including inflation rates, employment reports and GDP growth, Federal Reserve decisions, and international trade policy.

US Fed Chair Powell Testifies, July 9, 16:00 (GMT+2)

The testimony of US Federal Reserve Chair Jerome Powell is highly anticipated as an indication of future US monetary policy. Should Powell present an optimistic view of the US economy, suggesting robust growth or a hawkish stance towards interest rate hikes, the US Dollar would likely strengthen against the New Zealand Dollar, causing a downward movement in the NZDUSD pair. Conversely, if Powell expresses concerns about the US economy or signals a more dovish stance on interest rate adjustments, indicating potential delays or reductions in rate hikes, the US Dollar could weaken, potentially elevating the NZDUSD rate. It's also worth remembering that the US CPI comes out on July 12, which will also be very important for this pair!

During Fed Chair Powell's testimony on March 7, 2024, he emphasized a cautious approach to the US economic outlook, which weakened the US Dollar. As a result, the NZDUSD pair experienced an uptick, benefiting from the decreased strength of the USD as investors adjusted their expectations for US interest rate hikes.

New Zealand Interest Rate Decision, July 10, 4:30 (GMT+2)

The decision on interest rates by the Reserve Bank of New Zealand is crucial for the NZDUSD pair. If the RBNZ unexpectedly raises the interest rate above the forecasted 5.50%, it would signal a proactive stance against inflation or an unexpectedly strong economic outlook, likely boosting the NZD and causing the NZDUSD rate to rise. Alternatively, if the RBNZ decides to maintain the rate at 5.50% or cuts it, it could indicate satisfaction with the current economic path or a defensive response to perceived external or internal economic risks, respectively. Holding the rate steady might stabilize the NZD, while a rate cut would likely weaken it, resulting in a decline in the NZDUSD rate. However, given the current level of inflation in New Zealand, it is very likely that the rate will be kept at the current level.

In the Daily timeframe, NZDUSD corrected to the 61.8 support area after a short-term rise. The price tests the critical levels of MA100 and MA200, while DeMarker indicates exceptionally oversold.

• If the price overcomes the support at 0.6070, falling below the moving averages, we can expect a decline to 0.6000;
• However, if the price bounces off the support, NZDUSD will recover to 0.6150;

Hello fellow traders. In this technical blog we’re going to take a quick look at the Elliott Wave charts of Ethereum (ETHUSD). As our members know, ETHUSD is showing incomplete sequences in the cycle from the 3977 peak. We have been predicting a price decline. Recently, we got a bounce against the 3650 peak , after which the price dropped toward new lows as we expected. In the following text, we will explain the Elliott Wave Pattern and the forecast.

ETHUSD H1 Elliott Wave Analysis 07.01.2024

ETHUSD current view suggests cycle from the 3650 is still in progress as 5 waves structure. We believe wave (iv) blue ended at 3515 high, as labeled on the chart. As far as the price stays below that peak and more importantly below 3650 peak, we expect further weakness in the cryptocurrency to occur. Although overall view is bullish, we don’t recommend buying the cryptocurrency at this stage and expect to see a decline toward new lows ideally.

ETHUSD H1 Elliott Wave Analysis 07.01.2024

The cryptocurrency hold previous peak at 3515 and found sellers as expected. As a result we got a decline toward new lows. Current view suggests cycle from the 3622.7 peak is still in progress as impulsive structure. ETHUSD is now doing (iv) blue recovery. Once wave (iv) blue recovery completes, we should ideally get another low to complete the structure.

• EURCHF was rebounding strongly from 4-month low
• But its advance came to a halt at the 50-day SMA
• Oscillators are cautiouslytilted to the bullish side

EURCHF has been in a steep recovery since mid-June, attempting to erase the aggresive slide from its 2024 peak. However, the rebound seems to have been on hold in the past couple of sessions after the 50-day simple moving average (SMA) prevented further advances.

Should that rejection trigger a pullback, initial support could be found at 0.9670, which is the 38.2% Fibonacci retracement of the 0.9252-0.9928 upleg. Lower, the pair’s retreat could pause at the 50.0% Fibo of 0.9590, which overlaps with the 200-day SMA. Should that barricade also fail, additional support could be found at the 61.8% Fibo of 0.9510.

On the flipside, if the price manages to claim the 50-day SMA, the recent rejection region of 0.9764 could prove to be a tough barricade for the bulls. Further upside attempts could meet resistance at the 23.6% Fibo of 0.9796. In case of an upside violation, attention could shift to the 0.9836-0.9847 range defined by the May resistance zone and the April peak.

Overall, EURCHF’s recovery seems to be jeopardized after its rejection at the 50-day SMA. However, the momentum indicators remain tilted to the upside, suggesting that the bulls have not yet surrendered.

• GBP/USD is facing a key multi-month resistance level at 1.2850 after a positive run.
• The outcome of US inflation data and Fed Chair Powell’s testimony could significantly impact the GBP/USD exchange rate.
• A break above 1.2850 might require a catalyst, like a substantial drop in US inflation, while support levels are identified at 1.2750 and below.

GBP/USD opened slightly lower last night due to the unexpected results from the French elections. This resulted in the US Dollar receiving a safe haven bid, with Friday’s USD shorts potentially covering their positions also playing a role. As a result, the US Dollar experienced temporary strength at the start of the week.

However, GBP/USD has since risen back to where it ended last week, just above the 1.2800 level, with a key multi-month resistance level ahead.

The positive momentum for GBP/USD following the UK elections appears likely to continue, bolstered by renewed optimism over potential rate cuts from the US Federal Reserve, which is weighing on the US dollar.

Interestingly, market participants are now pricing in a rate cut from the Bank of England at the August 1 meeting, after inflation returned to the Central Bank’s 2% target. The probability of a rate cut being priced is at 62.8% for the August 1 meeting and has increased substantially over the past week.

UK Interest Rate Probability

Source: LSEG 

US Inflation Data Dominates 

Looking ahead to the rest of the week, economic data is sparse from the UK with all eyes focused on incoming Prime Minister Keir Starmer and his new Finance Minister Rachel Reeves.

The US and market participants across the globe will have their gaze fixated on US inflation data released later in the week. Following the recent batch of data from the US which showed signs of weakness, the CPI print is significant. A drop off in inflation could lead to more aggressive pricing by market participants on the rate cut front which in theory could send the US Dollar tumbling.

There are also two days of testimony before congress from Fed Chair Jerome Powell. It is likely that the Fed Chair will face tough questions on the economy and his remarks could stoke some swings and volatility which are likely to be short-term in nature.

Technical Analysis on GBP/USD

Cable is on a 7 day winning streak rising from lows around the 1.2600 handle to trade above the 1.2800 handle. The advance may come under pressure as the multi month resistance level at 1.2850 may prove too big of a hurdle.

The 1.2850 handle has held since July 2023, with two unsuccessful attempts to break this level recorded in March and mid-June 2024. The selling pressure at this handle is evident and given the fundamental backdrop, this could remain a concern.

A break of the 1.2850 may need a catalyst, one like a significant drop off in the inflation print due later this week. This could be the type of change needed at a fundamental level to support a breakout and push toward the 130.00 handle.

Conversely, a pullback from here faces support at the 1.2750 handle before 1.2680, 1.2600 and the 1.2500 psychological level come into focus.

GBP/USD Daily Chart, July 5, 2024

Source: TradingView.com (click to enlarge)

Eurozone Sentix Investor Confidence dropped sharply in July, falling from 0.3 to -7.3, significantly worse than the expected 0.0. This decline ends a series of eight consecutive rises and marks a severe setback. Current Situation Index also declined from -9.0 to -15.8, while Expectations Index fell from 10.0 to 1.5.

Sentix highlighted that investors are increasingly concerned not just about the French elections but also about upcoming state elections in Germany. Moreover, growing worries about the health of the incumbent US president and the uncertainty surrounding who will run against Donald Trump in the next presidential election are adding to the overall anxiety. This uncertainty is creating a vacuum, compounded by the slowdown in the US economy, which is beginning to affect the rest of the world.

Given this "first mover" trend in the Eurozone, ECB is likely to consider further interest rate cuts. Investors anticipate that ECB will shift its focus more towards addressing economic weaknesses, particularly as the Sentix thematic barometer on "Inflation" signals an easing of inflationary pressures.

Full Eurozone Sentix release here.