Crude Touches $50, US Key Releases Impress

US crude is almost unchanged on Thursday, continuing the lack of movement which we saw in the Wednesday session. Crude is trading at $49.27 in the North American session. Brent crude is almost identical, trading at $49.32. Earlier on Thursday, US crude touched the psychologically-important level of $50, for the first time since early October. On the release front, US indicators enjoyed a strong day. Core Durable Goods Orders posted a gain of 0.4%, above the forecast. Unemployment claims fell to 268 thousand, beating expectations. Pending Home Sales surged 5.1%, well above the forecast. On Friday, the US releases Preliminary GDP and UoM Consumer Sentiment.

US numbers looked sharp on Thursday. Core Durable Goods Orders rebounded with a gain of 0.4%, edging above the forecast of 0.3%. Durable Goods Orders was excellent, jumping 3.4%, crushing the estimate of 0.3%. Unemployment claims dropped to 268 thousand, compared to the estimate of 275 thousand. There was more good news on the housing front, as Pending Home Sales posted an excellent gain of 5.1%, crushing the estimate of 0.6%. This marked the indicator’s strongest gain since June 2014.

The release of the Fed minutes has once again put a June rate hike on the table. The report was more hawkish than expected, and this resulted in strong volatility in the currency markets. It has also renewed market speculation about a June rate hike. Odds of a rate hike in June increased to 40% on Wednesday, compared to just 4% one week ago. Still, the Fed will be hard-pressed to raise rates if key indicators don’t show improvement, particularly inflation numbers. On Monday, FOMC member John Williams reiterated that he expected the Fed to raise rates two or three times in 2016. However, there appears to be a gap between the hawkish message some FOMC members are sending out and market sentiment, as many analysts are projecting only one rate hike this year. The guessing game as to what the Fed has in mind is likely to continue into June, but it’s safe to say that another rate move will be data-dependent, so stronger US numbers will increase the likelihood of a quarter-point hike at the June policy meeting. The Fed will be closely monitoring key events this week, notably GDP and UoM Consumer Sentiment.

WTI/USD Fundamentals

Thursday (May 26)

• Day 1 – G7 Meetings
• 6:10 US FOMC Member James Bullard Speaks
• 8:30 US Core Durable Goods Orders. Estimate 0.3%. Actual 0.4%
• 8:30 US Unemployment Claims. Estimate 275K. Actual 268K
• 8:30 US Durable Goods Orders. Estimate 0.3%. Actual 3.4%
• 10:00 US Pending Home Sales. Estimate 0.6% Actual 5.1%
• 10:30 US Natural Gas Storage. Estimate 67B. Actual 71B
• 12:00 US FOMC Jerome Powell Speaks

Upcoming Key Events

Friday (May 27)

• 8:30 US Preliminary GDP. Estimate 0.8%
• 10:00 US Revised UoM Consumer Sentiment. Estimate 95.7

*Key events are in bold

*All release times are EDT

WTI/USD for Thursday, May 26, 2016

WTI/USD May 26 at 11:10 EDT

Open: 49.59 Low: 49.19 High: 50.20 Close: 49.32

WTI/USD Technical

• WTI/USD posted slight gains in the Asian and European sessions but has retracted in North American trade
• 50.13 was tested in resistance earlier and could break and remains under pressure
• 46.69 is providing support

Further levels in both directions:

• Below: 46.69, 43.45, 40.00 and 37.75
• Above: 50.13, 53.50 and 56.79

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