WTI/USD – US Crude Edges Lower, US Jobless Claims Climb

US Crude has posted slight losses on Thursday, reversing the upward direction seen in the Wednesday session. US crude futures are trading at $49.03 per barrel in the North American session. Brent crude is trading at $50.21, as the Brent premium has increased to $1.18. On the release front, Unemployment Claims climbed to 267 thousand, within expectations. As well, Chicago PMI jumped to 56.8 points, well above expectations. On Friday, the US manufacturing sector will be in focus, with the US release of the ISM Manufacturing PMI.

With all the excitement over Brexit, the Federal Reserve has been on the back-burner. That could change next week, as we’ll hear from Fed Chair Janet Yellen on Monday, who will speak in Philadelphia. Will she provide some clues about a rate move? Yellen and her colleagues have sounded cautious about the US economy, and unless we see stronger employment and inflation numbers in the second half of 2016, the Fed may stand pat until 2017. Gone are the heady days of last December, when the Fed hiked rates and hinted that there was more to come in 2016, perhaps as many as four hikes. Bottom line? Traders shouldn’t count on a rate hike to boost the US dollar; rather the direction of the currency will largely be data-dependent – stronger US numbers should translate into gains for the greenback against its rivals.

US crude moved higher on Wednesday, buoyed by a sharp decline in Crude Oil Inventories. The indicator plunged 4.1 million barrels, compared to an estimate of 2.3 million. US crude stockpiles have declined for six straight weeks, and last week’s drop was particularly large. This could be pointing to tightening domestic supplies, which could result in crude prices moving even higher. At the same time, if US crude climbs past $50, we could see more US shale producers enter the market, which would increase supply and dampen any upward price movement.

Brexit has ushered in a period of instability and uncertainty across the continent, with Brexit seemingly the only certainty one can point to. The vote to leave the EU is causing deep instability in Europe and the UK and wiped out a staggering $3 trillion from global stock markets. As the dust has begun to settle, the financial markets have stabilized. The pound plunged as much as 11 percent in the aftermath of the vote but has stabilized over the past few days. Still, political leaders on both sides of the Channel will have to pick up the pieces and deal with the radical new landscape, which was unthinkable just a few months ago – that of a European Union without Britain. The Chancellor of the Exchequer George Osborne and Bank of England Governor Mark Charney have sought to reassure the markets and the public that the situation is under control, but is it? The political picture is fluid, as the Conservatives are looking for a new leader, the Labor Party is in turmoil and general elections are likely later in the year. On the financial front, the pound and the markets have taken a beating and London’s position as a world financial center has been shaken. The uncertainty is not going to disappear anytime soon, so traders can expect further volatility in the currency and commodity markets.

British Prime Minister Cameron, a staunch supporter of the EU, finds himself in the unenviable position of explaining the Brexit decision to fuming Europeans. Cameron arrived in Brussels for an EU Summit on Tuesday and the meeting was fraught with tension, dismay and anger. Clearly, the “divorce of the “century” between Britain and the EU could be rancorous and messy. Cameron has asked for time to prepare Britain’s exit and wants to renew “productive” relations with Europe. However, the Europeans are in no mood for hugs and kisses on both cheeks. German Chancellor Merkel said that the UK could not “cherry pick” and that a relationship with Europe entailed obligations and not just rights – in other words, the Europeans are rejecting “half membership”. As well, Europe wants Britain to exit as soon as possible, in order to minimize the uncertainty and instability caused by the Brexit vote. French President Hollande went on the attack, saying that London should no longer remain a center for clearing euro trades. This market is worth trillions of euros in currency and derivative deals and such a move would be a severe blow to London’s financial sector. Already, the European Banking Authority has announced it is leaving London and moving to Paris or Frankfurt.  In a strictly legal sense, Britain is still a member of the EU club, but politically, it is out (British EU Commissioner Jonathan Hill resigned after the Brexit vote). The markets are allergic to uncertainty, so Britain’s unclear status within the EU could result in further volatility in crude prices.

WTI/USD Fundamentals

Thursday (June 30)

  • 8:30 US Unemployment Claims. Estimate 267K. Actual 268K
  • 9:45 US Chicago PMI. Estimate 50.6. Actual 56.8
  • 10:30 US Natural Gas Storage. Estimate 48B. Actual 37B
  • 13:30 US FOMC James Bullard Speaks

Upcoming Key Events

Friday (July 1)

  • 14:00 US ISM Manufacturing PMI. Estimate 51.3

*Key events are in bold

*All release times are EDT

WTI/USD for Thursday, June 30, 2016

WTI/USD June 30 at 11:30 EDT

Open: 49.54 Low: 48.56 High: 49.59 Close: 49.03

WTI/USD Technical

S3 S2 S1 R1 R2 R3
39.32 43.45 46.49 50.13 53.50 56.79
  • WTI/USD was flat in the Asian session. The pair posted slight losses in the European session and is steady in North American trade
  • 46.49 is providing support
  • 50.13 remains a weak resistance line

Further levels in both directions:

  • Below: 46.49, 43.45, 39.32 and 35.25
  • Above: 50.13, 53.50 and 56.79

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.

Kenny Fisher

Kenny Fisher

Market Analyst at OANDA
A highly experienced financial market analyst with a focus on fundamental and macroeconomic analysis, Kenny Fisher’s daily commentary covers a broad range of markets including forex, equities and commodities. His work has been published in major online financial publications including Investing.com, Seeking Alpha and FXStreet. Kenny has been a MarketPulse contributor since 2012.