Crude Oil Prices Under Pressure Ahead Of Algiers' Talks
Swissquote Bank Ltd | Sep 26, 2016 07:20AM ET
Forex News and Events
Algiers’ talks could establish the base for November OPEC meeting
Crude oil prices will be very sensitive to any shift in consensus regarding a potential co-ordinated output freeze agreement as OPEC members gather in Algiers this week on the sidelines of an energy conference. The market got carried away last week after rumours that Saudi Arabia and Iran were making progress in agreeing to freeze production, pushing the West Texas Intermediate as high as $46.55 a barrel. However, it did not take long before investors reversed bets as they realised most members were not ready to give up market shares, especially after collapsing prices sent government revenue south. Crude oil prices corrected sharply with the WTI and Brent crude falling roughly 5% on Friday. Oil producers are now locked into a game of chicken with each wanting higher prices to shore up revenue but nobody wanting to take a cut.
Most market participants do not expect an agreement at this week’s informal OPEC meeting. However, prices will remain highly sensitive to any positive news as it could lay the foundations for an agreement at the upcoming official OPEC meeting on November 30th. Given the current market pessimism, risk is definitely skewed to the upside.
Markets nervous ahead of US debates
Risk appetite has faded with many analysts pointing to the tightening of the US presidential elections and uncertainty around tonight's debates as the primary catalyst. Last week’s market friendly Fed and BoJ meetings sent US front-end yields in retreat, taking the USD alongside. With ultra-accommodating monetary policy unlikely to come to an end, near-term, commodity prices, including copper, and all things EM have surged. However, a bit of reflection and buyer remorse has set in today as debate grows on the kind of effect a Trump victory tonight might have on financial markets. Outside the US, we suspect that the biggest effect of a Trump presidential victory will be how it supports the development of political fringe groups.
In addition, Donald Trump's track record of supporting anti-establishment issues and candidates, such as Brexit and Russian President Putin, will legitimize Eurosceptic groups. With the EU questioning its post-Brexit future and elections in France, Spain and Germany, empowered fringe parties could potentially define the geopolitical landscape. Therefore, we would be long USD and short risky assets ahead of tonight’s debate. USD/JPY traders should keep their sights on key 100 levels as the BoJ has failed to provide a meaningful reason to sell JPY, while perplexing most investors. On the docket today, the US will print new home sales and Dallas Fed Manufacturing activity. Data will more strongly influence December’s Fed rate hike expectations than Fed speakers. That said, US data must firm considerably across the board for Fed funds to begin pricing an actually 25bp rate hike (currently a coin toss 50% chance). With regards to Fed speak, Fischer speaks on Tuesday and Yellen will testify on bank regulation on Wednesday and also speak at a banking convention on Thursday.
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Crude Oil - Grinding lower.
The Risk Today
EUR/USD has moved rebounded towards hourly resistance at 1.1234, but has failed to breach it. Hourly support is given at 1.1196 (23/09/2016 low) while another resistance is given at 1.1257 (22/09/2016 high). Key resistance is given at 1.1352 (23/08/2016 high) then 1.1428 (23/06/2016 high). Strong support can be found at 1.1046 (05/08/2016 low). Expected to decline towards 1.1100. In the longer term, the technical structure favours a very long-term bearish bias as long as resistance at 1.1714 (24/08/2015 high) holds. The pair is trading in range since the start of 2015. Strong support is given at 1.0458 (16/03/2015 low). However, the current technical structure since last December implies a gradual increase.
GBP/USD is back below 1.300 after a weak attempt at declining trendline. Hourly resistance is given at 1.3121 (22/09/2016 high). Key resistance lies at 1.3445 (06/09/2016 high). Hourly support can be found at 1.2947. Expected to show continued downside pressures. The long-term technical pattern is even more negative since the Brexit vote has paved the way for further decline. Long-term support given at 1.0520 (01/03/85) represents a decent target. Long-term resistance is given at 1.5018 (24/06/2015) and would indicate a long-term reversal in the negative trend. Yet, it is very unlikely at the moment.
USD/JPY has faded near the hourly resistance at 101.24. A break of this level is needed to suggest something more than a temporary rebound. Strong resistance can be found at 104.32 (02/09/2016 high) while hourly resistance is given at 102.79 (21/09/2016 high). Psychological support at 100 is not far away. A key support lies at 99.02 (24/06/2016 low). Expected to further weaken. We favour a long-term bearish bias. Support is now given at 96.57 (10/08/2013 low). A gradual rise towards the major resistance at 135.15 (01/02/2002 high) seems absolutely unlikely. Expected to decline further support at 93.79 (13/06/2013 low).
USD/CHF has bounced close to the strong support at 0.9632. However, as long as prices remain below the resistance at 0.9885 (01/09/2016 high), the short-term technical structure is negative. There are alternating periods of strong and low volatility and the pair seems without direction. Next resistance lies at 0.9956 (30/05/2016 high). In the long-term, the pair is still trading in range since 2011 despite some turmoil when the SNB unpegged the CHF. Key support can be found 0.8986 (30/01/2015 low). The technical structure favours nonetheless a long term bullish bias since the unpeg in January 2015.
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