Weekly Report Monday 24 July 2017 – Friday 28 July 2017
Oil started the week in bullish mode and accelerated higher on Tuesday, rallying by more than 2% after Saudi Arabia announced it will reduce exports to 6.6 million barrels per day in August, almost 1 million bpd lower than the same month a year earlier. OPEC called on members to boost compliance with agreed output cuts to help curb oversupply and support flagging crude prices.
At a meeting in the Russian city of St. Petersburg on Monday, OPEC and non-OPEC producers discussed extending their deal to cut output by 1.8 million barrels per day beyond March 2018, if necessary..
US data released on Wednesday showed inventories fell by 7.2 million barrels at the end of last week, much more than the expected drop of around 2.6 million barrels. The report also showed that gasoline inventories decreased by 1.0 million barrels, compared to expectations for a much more modest decline of 0.6 million barrels.
Oil made weekly gain of more than 9% and registered the biggest weekly gains since the last week of November 2016, as fresh pledges from Saudi Arabia and Nigeria to respectively pull back on exports and output boosted sentiment. Signs of a possible slowdown in U.S. shale production in the wake of reduced spending plans for some oilfield services companies further added to the bullish momentum.
Oil prices extended rally on Thursday and hit fresh eight-week high, as data showing a fourth consecutive week of declines in US crude inventories added to optimism that the market was rebalancing and maintained bullish sentiment, which drove the price higher on Friday, when oil took out the last obstacle en-route to psychological $50.00 barrier. The resistance was provided by 200SMA at $49.43.
Weekly close above $49.43 would provide fresh bullish signal, with sustained break above $50.00 barrier to open former high of May at $51.98.
Oil prices have gained strong bullish momentum which could drive them higher, as technical studies are firmly bullish and strong bullish sentiment supports for further rise.
US natural gas futures traded in a choppy mode during the week, but advanced higher on series of higher highs and higher lows during the week. Natural gas rallied strongly and hit one-week high at $2.980 on Thursday, after data showed that domestic supplies in storage rose less than anticipated last week.
The U.S. Energy Information Administration said in its weekly report that natural gas storage in the U.S. rose by 17 billion cubic feet in the week ended July 21, below forecasts for a build of 24 billion.
That compared with a gain of 28 billion cubic feet in the preceding week, an increase of 17 billion a year earlier and a five-year average rise of 47 billion cubic feet.
Natural gas ended week in green, marking weekly gains of over 0.8%, but monthly chart shows that natural gas is on track to end trading in July flat, after trading with approx 200-pips range during the month.
Spot gold was among strong gainers last week as weaker dollar on uncertainty about next Fed rate hike inflated the yellow metal, sensitive on changes in the US interest rates. Gold ended the third consecutive week positively, advancing 1.1% for the week and also being on track for bullish end of the month. Spot gold price hit the high of the week at $1270, the highest levels since mid-June and generated strong bullish signal on eventual close above important Fibonacci barrier at $1261 on Friday.
Bulls eye net target at $1280 and may extend towards key short-term resistance at $1296, high of June 6.
Meanwhile, traders can anticipate some mild corrective actions, signalled by overbought technical studies.
Copper was among top market gainers last week, as prices rallied strongly and hit their highest levels since mid-May 2015. Copper price was boosted by signs of robust demand from top consumer China, tight supplies, weakening dollar and a break of key technical levels. Market commentators pointed to perfect combination of decent demand and tighter supplies that greatly supported metal’s price.
Copper contract for September delivery surged to fresh multi-month high at $2.9040 on Wednesday, in extension of strong three-day rally that commenced on Monday. Copper advanced by 5.6% last week, on its biggest weekly rally since the first week of February.
The price showed initial signs of stall under fresh high at $2.9040, as renewed attacks on Thursday stalled below and extended lower on Friday, but dips were short-lived. With strong bullish sentiment remaining in play, outlook remains biased higher and current consolidation may precede fresh rally, as psychological $3.000 barrier came in focus after last week’s rally.
On the other side, strongly overbought technical studies warn of correction, which might be sparked by profit-taking action after strong rally. Important supports lay at $2.8405 and $2.8251, with break of the latter, expected to generate bearish signal for deeper pullback.
The US dollar registered the third week in red and hi thirteen-month low against the basket of major currencies last week, maintaining strong bearish stance which was additionally inflated by Fed. US central bank ended its July’s policy meeting on Wednesday, with widely expected outcome on changes in the interest rates but surprised markets by signalling cautious moves on interest rates and policies. Fed this time shifted focus from growth to inflation, which remains weak and undershot market expectations for four-straight months, showing little sign of improvement. Slowdown in inflation which remains well below Fed’s 2% target increased concerns among policymakers but also raised fears among traders that the Fed might not raise interest rates for the third time this year, as Fed said in its statement that interest rates interest rates are likely to remain low for some time, highlighting that increases in its benchmark rate will depend on incoming economic data. Fed also said that expected to begin normalising its $4.5 trillion balance sheet relatively soon, which could be in the next big meeting in September.
US gross domestic product increased 2.6% in the second quarter, meeting expectations, however, the first-quarter GDP was revised downwards to 1.2%, fuelling concerns that U.S. economic growth was not as robust as previously expected.
Adding to negative sentiment on the greenback was continued political uncertainty from Washington, following the US Senate’s failure to pass a repeal of Obamacare, formally known as the Affordable Care Act after some of Republican senators refused to vote for the plan before proper replacement will be ready.
The US dollar index was down over 0.7% for the week.
The euro remained firm at the beginning of the week and cracked 1.1700 barrier for the first time in nearly two years on Tuesday, supported by upbeat euro-zone sentiment.
Greece is returning to the primary bond market for the first time since 2014 that contributed to the positive outlook and Ifo economic institute reported on Tuesday that German business morale unexpectedly rose in July to a new record high. Ifo business climate rose to 116 in July, beating forecast at 114.9 and coming above June’s upward-revised release at 115.2.
The single currency held firm tone ahead of the outcome of FOMC two-day meeting and extended gains to the highest levels in nearly two years after Fed held steady as expected but pointed to cautious moves on interest rates and policies.
Upbeat German CPI data for July, released on Friday (0.4% m/m vs 0.2% f/c and 1.7% y/y vs 1.5% f/c) additionally supported the Euro.
The Euro maintained firm tone towards the end of the week and rose around 0.7% for the week, also ending the third consecutive week positively, as well as being on track for the fifth straight bullish month.
The dollar turned to red against Japanese yen after rallying to 112.10 barrier in Tue/Wed recovery, as investors booked profits on earlier shorts. Recovery rally proved to be short-lived as it was capped by strong technical resistance and dollar was hit by Fed’s statement that hit the dollar. The pair erased all previous gains and fell further as the greenback accelerated further down on Friday and hit fresh 14-month lows against its major counterparts, smashed by US GDP data miss.
The pound hit fresh multi- week high at 1.3158 last week benefiting from weaker dollar. Steady ascend has fully reversed pullback from previous high at 1.3125, showing scope for further advance on fresh bullish signal, generated on weekly close above pivotal 1.3110 resistance, provided by Fibonacci 38.2% retracement of 1.5016/1.1932 fall. Cable was slightly lower on Wednesday after data showed that UK economic growth picked up slightly in the second quarter of the year, with the service sector driving growth.
UK gross domestic product rose by 0.3% in the second quarter, from 0.2% growth in the first three months of the year, which was in line with forecasts.
On annual basis, the economy expanded by 1.7% in Q2 from 2.0% in the first quarter, also in line with forecasts.
Britain’s service sector drove growth with output rising by 0.5%, but industrial output shrank by 0.4% and construction output contracted by 0.9%.
Head of National Accounts said the report showed that Britain’s economy has experienced a notable slowdown in the first half of this year, as weaker performance from construction and manufacturing pulled down overall growth.
Pound’s weakness after GDP data was short-lived, as fresh boost came from Fed, whose statement disappointed those expecting firmer signals for the third rate hike this year and sent dollar significantly lower, inflating its major counterparts.
Cable ended week positively, registering gains of 1.2% and is also on track for the second straight bullish monthly close.
The Swiss franc was among top losers last week, marking significant losses against the Euro and dollar. Swiss made its biggest weekly drop against the dollar for more than 22 months after breaking through some major technical levels, on strong bullish acceleration that commenced on Monday and took out some important technical barriers. USDCHF pair hit weekly high above 0.9700 barrier, on rally from the lowest level of the week at 0.9456.
Swiss Franc also fell sharply against the Euro, on its over 3.3% descend, marking the biggest weekly fall in a number of years. Swissy hit the lowest levels since Jan 2015, when the SNB de-pegged the currency. Swiss Franc’s weakness against the euro was even more pronounced as investors grew more optimistic about euro-denominated assets after recent upbeat comments from policymakers. Traders suspect that the SNB is behind last week’s strong fall of the franc, as SNB chief Jordan, in its speech on Monday, suggested that the national currency was overvalued.
The antipodean currencies Australian and New Zealand dollars climbed to 26-month highs against their U.S. counterpart on last week, with the Aussie dollar eventually cracking strong psychological barrier at 0.8000 as demand for the greenback weakened amid fresh uncertainty over additional interest rate hikes later this year.
The Australian and New Zealand dollar showed a modest impact on release of downbeat Australian inflation data. Australian Bureau of Statistics said its consumer price index rose 0.2% in the second quarter, disappointing expectations for an increase of 0.4% and after a 0.5% gain in the three months to March. Annualized inflation in Australia increased by 1.9%, compared to expectations for a 2.2% climb.