Weekly Report Monday 21 August 2017 – Friday 25 August 2017
WTI crude oil rolled to October contract last week and started week strongly in red, falling nearly 2% on Monday. Fresh weakness from week’s high at $48.72 per barrel came on profit-taking after last Friday’s strong rally when oil contract rose over 3.7%. Rally on renewed hopes that global oil markets are starting to rebalance from chronic oversupply proved to be short-lived, as fresh uncertainty about OPEC compliance with agreed production cuts put oil prices under renewed pressure. In addition, big investors started reducing bets on rising oil prices that further weighed on oil prices.
After Monday’s dip was contained by strong support provided by daily Ichimoku cloud at $47.00, the price remained above the support for the rest of the week, but upside action was limited.
Tuesday’s trading ended in long-legged Doji that signalled strong indecision but managed to stay well above cloud top. Oil price maintained positive momentum after release of API (American Petroleum Institute) data that showed draw in oil inventories by 3.6 million barrels which was slightly above forecasted draw of 3.4 million barrels but well below9.2 million barrels fall previous week.
Oil price fell lower despite positive data, as other releases showed build in stocks (gasoline stocks rose by 1.4 million barrels vs forecasted draw of 0.3 million barrels, while distillate stocks were up 2 million barrels, overshooting forecasted build of 38.000 barrels). Gasoline stocks are coming into focus as gasoline demand starts to ease, as US summer driving season is coming to its end.
Mixed data weighed on oil price on Wednesday, before release of US Energy Information Administration (EIA) which showed further fall in oil inventories by 3.3 million barrels in the week ending Aug 18, slightly below expectations for 3.45 million barrels draw. At the same time, gasoline inventories surprisingly fell by 1.2 million barrels, falling well above forecasted draw of 0.6 million barrels.
Oil price was inflated by better that expected inventories numbers and bounced to $48.48 per barrel in late Wednesday’s trading.
However, oil prices failed again to hold gains and accelerated lower on Thursday, reversing the most of Wednesday’s rally.
Persisting concerns about global oversupply continue to weigh on oil prices and limit recovery attempt.
Renewed pressure on oil prices came after release of US government data which showed further climb in domestic production to the highest level in over two years.
Restart of Libya's largest oil field Sharara after a shutdown earlier this month due to a pipeline blockade, increased fears of oversupply and put oil prices under renewed pressure, as output from the oilfield recently reached 280.000 barrels per day.
Baker Hughes report, released on Friday showed its weekly count of oil rigs operating in the United States fell by four to a total of 759 this week
WTI contract ended week in red, marking the fourth straight weekly loss.
Price of Gasoline contract for September delivery fell together with crude prices on Mon/Tue, weighed by built in gasoline stocks from API report but regained traction on Wednesday after EIA report showed surprise fall in gasoline inventories, signalling fresh demand and boosting the price which hit fresh weekly high at $1.656 per gallon. Gasoline ended the second consecutive week in green, after strong rally on Friday peaked at $1.7385 but subsequent sharp reversal after failing to sustain rally made the contract to end Friday’s trading in red.
Natural gas contract for September delivery ended week positively and hit week’s high at $3.000 per million BTU on Tuesday, supported by near-term forecasts for warmer weather conditions.
However, the price again showed strong hesitation at psychological barrier, following repeated rejections at this level on previous few weeks. The price was also unable to firmly penetrate into thick daily Ichimoku cloud, base of which marks strong resistance for a couple weeks and continues to weigh on the price. Also, mixed signals from technical studies on daily chart don’t provide clearer direction signal and keep the price within $3.010/2.985 congestion for the second week.
Spot Gold traded in a narrow range between $1280/$1293 this week, but maintained positive sentiment and ended week positively, on growing doubts over the possibility of tax-reform amid rising political turmoil in Washington. Addition support comes from uncertainty regarding the next steps of the US Federal Reserve after their chief Janet Yellen avoided to mention anything about the monetary policy and unwinding their massive portfolio that is seen supportive for the yellow metal, sensitive on US interest rate changes.
Gold has registered weekly gain of 0.6% and was up 0.3% for the day after turbulent trading during the US session on Friday.
Spot Gold price failed to regain psychological $1300 barrier which was touched on last Friday’s spike but holds high levels and shows scope for renewed attack at $1300 barrier. Bullish technical studies and overall positive sentiment are supportive for such action. Rising 20MA which tracks the recent bull-leg since mid-July, continues to underpin the action. Current congestion could be seen as consolidation ahead of fresh upside action, as fundamentals are also working in favor of Gold’s bulls.
Initial support provided by 20MA has so far contained downside attempts and guards more significant support at $1267 which marks Aug 15 trough of the upleg from July 10 low at $1204. These supports need to hold and keep bulls in play for renewed probe through $1300 which may extend towards Fibonacci projections at $1317 and $1331.
Copper future contract for September delivery hit their highest level since November 2014 on Friday, extending strong rally of the past week that marked the seventh consecutive week of uninterrupted gains.
Copper was up around 3.5% for the week and is on track for the third straight bullish month, being so far up over 5% for the month.
Metal’s rally was boosted by falling inventories which declined by 8.2% and a weaker dollar after the top US central banker Janet Yellen ignored monetary policy in a key speech at Jackson Hole meeting.
Inventories in warehouses registered by the London and Shanghai exchanges showed further erosion, with positive supply/demand fundamentals being supportive, but analysts do not see it enough to justify rise of over 17% in past three months.
From the technical point of view, copper is deeply in overbought territory that suggests correction, however, no firmer bearish signals haven’t been generated for now. Corrective action needs a trigger, which could come if the dollar starts to recover recent losses or from metal’s top consumer China, if data show softer growth this year.
Major currency pairs spent most of the week in tight-ranged directionless trading, awaiting the week’s key event, speeches from Fed chief Janet Yellen and ECB president Mario Draghi at Jackson Hole central bankers symposium.
Traders had expectations from both heads of central banks for signals about their near-future monetary policies as well as starting to unwind central bank’s bond-buying program.
Meanwhile, several releases of economic indicators had no stronger impact on performance of the major currency pairs. The US dollar stayed at the back foot against its major counterpart for the most of week and accelerated lower on Friday, hurt by comments from Yellen and Draghi.
After relatively light calendar and quiet trading on Monday, more action was seen on Tuesday.
Swiss trade surplus widened in July to 3.51 billion francs against forecasted 2.88 billion and 2.76 billion surplus in June. Public sector net borrowing in UK decreased to 0.76 billion pounds vs forecasted -0.20 billion and upwards revised to 5.67 billion in June.
Key releases of the day, German and Eurozone Zew Economic sentiment disappointed in August, falling to 10.0 vs 15.0 forecast and 17.5 in July (Germany) and 29.3 in august vs 34.2 consensus and 35.6 in July (Eurozone).
Release of Eurozone’s PMI data was the highlight of Wednesday. German Manufacturing PMI showed upbeat results in August, coming at 59.4 vs 57.7 forecast, while services PMI ticked higher to 53.4 vs 53.1 forecast. Eurozone PMI numbers also showed better than expected results in August, with Manufacturing at 57.4 vs 56.3 forecast and Services at 53.4 vs 53.3.
US PMI data showed mixed results in August with Manufacturing undershooting forecast at 53.3 on 52.5 release while Services jumped to 56.9 vs forecasted 54.9.
On the other side, US housing sector was down in July. New Home Sales has registered significant fall of 9.4% in July, down from 1.9% increase in June and forecasted rise of 0.3%.
Trade deficit narrowed in New Zealand in July, with annualized figure showing contraction to 3.2 billion NZ dollars vs forecasted deficit of 3.5 billion and better that previous month’s deficit of 3.65 billion dollars.
Release of UK GDP data on Thursday showed unchanged figures in the second quarter at 0.3% on quarterly basis and 1.7% annualized GDP. However, weaker than expected business investments in Q2 (0.0% vs 0.4% forecast and 0.6% in Q1) soured pound’s sentiment.
US weekly Jobless Claims came at 234K, unchanged from the previous week but beat the forecast at 238K, signalling that US labor sector is in good condition, as jobless claims hold near multi-year lows.
Another disappointing release from US housing sector came on Thursday. Existing Home Sales fell by 1.3% in July, below expectations for 0.9% increase but below 2.0% fall in June.
Jackson Hole symposium started on Thursday, with key event being speeches of Fed Yellen and ECB’s Draghi on Friday.
Janet Yellen disappointed market participants by not mentioning monetary policy or unwinding massive portfolio, as many expected hints from central bank’s chief ahead of September’s FOMC monetary policy meeting.
The dollar was down across the board after Yellen’s speech.
Yellen said that reforms put in place after the crisis started have strengthened financial system without affecting economic growth, with future changes expected to be modest.
As most of observers expected, Yellen said nothing about monetary policy, keeping markets guessing about Fed’s next steps, as most expect one more hike towards the end of the year.
Recent hawkish comments from Fed’s Dudley and dovish tone from the minutes of the last FOMC meeting remain the only firm signals from Fed for now.
US central bank is likely to keep its policy unchanged in September’s meeting, while current expectations for December’s meeting are around 60% for no change and around 37% for a quarter-percent hike, with bets expected to decrease after Yellen stayed quiet about policy today.
Mario Draghi was next to speak in Jackson Hole. Most forecasts and sources close to ECB signalled that Draghi will avoid talking about monetary policy and tapering QE program. Instead, in his speech, Draghi said the global recovery is firming up, highlighting that growth has been visible for some years, particularly in the US, Europe, and Japan. Draghi’s Friday’s speech in Jackson Hole echoed his speech few days ago when he also avoided mentioning any of the ECB's plans to taper its ultra-loose monetary policy measures.
It is interesting that Draghi spoke first time about starting the QE program in his appearance in Jackson Hole gathering in 2014 and traders expected him to signal the beginning of ending the program at the same place.
It looks very likely that the ECB is going to extend its bond-buying program, worth 2 trillion Euros, which gave good results in past three years, as stubbornly low inflation marks the strong obstacle for the central bank to start tightening the policy.
However, Draghi’s speech have additionally boosted the Euro, which received initial boost after Yellen’s speech earlier on Friday sent the greenback lower against its major counterparts.
In fresh acceleration after Yellen’s speech, the single currency broke above important technical barrier and accelerated through previous high and key resistance at 1.1910.
The EURUSD pair maintains strong bullish sentiment and now focus its next target at psychological 1.2000 barrier, after completing corrective phase from 1.1910 to 1.1660. The Euro has registered daily gain of 1% on Friday and weekly gain of 1.3%, ending week in strong bullish mode and making fresh bullish signal for further advance.
On the other side the dollar ended trading of last week in red. US dollar index which tracks performance of the dollar against the basket of major currencies was down 0.8% on Friday and nearly 1% for the week.
The British pound also benefited from weaker dollar on Friday and rallied strongly that sidelined persisting downside risk for extension of broader downtrend and generated positive signal on formation of reversal pattern on daily chart. Additional positive signal comes from weekly action ending in Doji candle which could be seen as initial signal that strong three-week downtrend might be running out of steam.