Slip Sliding Away : Oil

Slip Sliding Away: Oil

The highly anticipated OPEC meeting disappointed expectations as the cartel extended plans to limit production but did not announce deeper cuts. Oil prices were smoked in a classic case of buy the rumour sell the fact as markets prepositioning suggested some speculators were pinning hopes for a more bullish outcome. While a cruel move on WTI ensued, US  equities shrugged off the oil spill propped by strong retailer earnings results.The uptick in earnings is turning more than a few heads this morning as investors efficaciousness of brick and mortar retailers to compete with online retailer was growing. The pleasant  surprise saw  the  S&P close  up .5 %

 

ON the US data front, dealers mostly ignored them, as the tier 2 releases were mixed with stronger initial claims results offset by downside disappointments in advance goods trade balance for April which showed a larger than expected deficit of -67.6bn and wholesale inventories were negative, declining -0.3% MoM vs. +0.2%. I suspect dealers will do little more than shrug off most data points leading up to next week’s granddaddy of them all, Non-Farm Payroll.

 

Dollar bulls took solace in FED member Brainard “ brighter “ outlook comments. Although more fluff than candour, some are latching on to a  shift in the ” Uber Dove Brainard” language as significant. Mind you US Treasuries sold off and provided a reprieve for the dollar.

 

The market is still having trouble making sense of the post-Fed minute’s price action.While the minutes did contain the usual level of verbal gymnastics, by all accounts it did provide confirmation that the FOMC is moving full speed ahead, so why isn’t USDJPY trading higher?

While the shifting focus to all things “ balance sheet”  reads marginally hawkish, the markets acuteness to inflation and wages plays out dovish for the rest of the curve unless of course the data points otherwise. Hence the reason why next week’s NFP and in particular the wage growth component is a huge inflexion point.

 

Euro

 

EURUSD dips continue to be covered mind you at a much slower pace as we enter the weekend. The EURUSD  into a wall of resistance at 1.1250 overnight from profit takers who were content to start the long weekend process of position unwind after a bountiful run on the Euro this week. .Look for further position squaring to dominate flow today; it could get choppy.

 

The song remains the same.With ECB in two weeks, we should expect a heightened level of market discourse between now and then as this policy battle unfolds.

 

Japanese Yen

 

Better risk appetite should eventually carry the day on this trade, and with dips remaining very shallow we could see some appeal for long USDJPY emerge next week, In the meantime, the market continues to rotate into EURJPY for now because of quicker price action,  while maintaining a dip bias on the USDJPY.

 

Australian dollar

 

We don’t even need a crystal ball for this view as the market had all but convinced itself that selling above .7500 is the trade. 

 

Action continues to pick up on the AUDNZD (  Dairy vs. Iron ore    ) as we approach the critical 1.0600 level.Given the resilience in milk prices and the recent wobbles in iron ore,  high NZD trade balance notwithstanding, a break of 1.06 should see significant buy-in which could pressure AUDUSD toward .7400 level.

 

Chinese Yuan

 

USDCNH is the hot topic and very well offered in the interbank after the CNY fix continues come out below model consensus. In defiance to the Moody’s downgrade, the state-owned banks are big sellers of the dollar as the Pboc want the currency strong and stable. While dealers were testing the waters buying dips early in the week post fixing, once again dancing with Tiger has again proven to be a dangerous pastime in the currency markets.

 

Malaysian Ringgit

 

The market continues digesting the oil spill.While the USDMYR  has pulled back from overnight yet remains surprising   constructive despite the massive drop in oil prices

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Stephen Innes

Stephen Innes

Head of Trading APAC at OANDA
Stephen has over 25 years of experience in the financial markets and currently based in Singapore as the Head of Trading Asia Pacific with OANDA. Stephen's market views focus on the movement of G-10 and ASEAN Currencies. Stephen has an extensive trading experience in Spot and Forward FX, Currency and Interest Rate Futures, Money Market Derivatives and Precious Metals. Before joining OANDA, he worked with organisations like Nat West, Chemical Bank, Garvin Guy Butler, and Sumitomo Mitsui Banking Corporation. Stephen was born in Glasgow, Scotland, and holds a Degree in Economics from the University of Western Ontario.
Stephen Innes
Stephen Innes

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