Weekly Report Monday 07 August 2017 – Friday 11 August 2017
Crude oil ended the second consecutive week in red, pressured by fears of global oversupply. WTI contract for September delivery was down around 1.6% for the week, while September contract of UK Brent oil registered smaller loss of around 0.7% last week, with both contracts trading within over $2 range during the last week.
Oil prices fell sharply on Thursday, following release of the Organization of the Petroleum Exporting Countries monthly report. OPEC raised its outlook for oil demand this year by 100,000 barrels a day, saying it now expects growth of 1.37 million barrels a day in 2017, adding that production from the group rose further in July, as two exempt producers, Nigeria and Libya, as well as top exporter Saudi Arabia, increased output last month.
Report also raised fears that the OPEC and other oil producers out of the cartel may not be able to stem the glut in supplies by only curbing production, which poured cold water on the optimism from the bullish US oil inventory report which boosted oil prices in previous two sessions.
US Energy Information Administration weekly report released on Wednesday, showed US oil inventories fell around 6.5 million barrels in the week ended Aug 4, overshooting expectations of a draw in oil stocks of 2.5 million barrels.
WTI oil was congested under psychological $50 barrier which was briefly dented on Thursday’s spike to weekly high at $50.20. Oil price failed to break above weekly Ichimoku cloud top on the second attempt and was also unable to sustain break above 200SMA, which lies at $49.40, signalling that larger uptrend from $42.40 (2017 low) might be running out of steam. Pivotal support lies at $48.50, Fibonacci 38.2% retracement of $45.39/$50.41 bull-leg, clear break of which would give stronger reversal signal and open way for deeper correction. The support has been cracked on dips on Thu/Fri, but Friday’s close above it suggests no clear break lower for now.
On the flip side, $50.00 barrier remains as one of key resistances, along with recent highs at $50.20 and $50.41, break of which would be seen as strong bullish signal of continuation of broader uptrend towards target at $51.98, May 25 high.
Brent contract posted new recovery high at $53.62 last week, the highest since mid-May but also failed to sustain gains on probe above weekly cloud top, signalling further indecision on long-legged red daily candle, which came after last week’s Doji.
Brent price remains contained for now by strong support at $51.35, Fibonacci 38.2% retracement of $47.67/$53.62 upleg and holds for now in extended congestion above this pivotal support.
Natural gas rose strongly last week and registered weekly gains of 7.5%, the biggest one-week rally since mid-January. The price rallied strongly on Wed/Thu, boosted by lower than expected build in natural gas storage (28 bcf vs forecasted build of 37bcf). Last week’s strong rally signalled reversal after base has formed at $2.750 zone, with recovery extension above pivotal barrier at $2.967, base of thick daily Ichimoku cloud and Fibonacci 61.8% retracement of $3.105/$2.745 bear-leg, giving strong signal of reversal and improving technical outlook. The price faces strong resistance at $2.980 and psychological $3.000 level, below which bears may take a breather.
Gasoline price remained at the back foot last week, making the second consecutive weekly close in red. Extension of pullback from Aug 1 peak at $1.6835 extended to $1.5841, weekly low, where 100SMA offered solid support on daily chart. Gasoline price was pressured by unexpected build in gasoline inventories, showed on EIA weekly report. Gasoline stocks rose by 3.42 million barrels in the week ending August 4, against forecasted draw of 1.47 million barrels and last week’s draw of 2.51 million barrels.
Technical studies are also showing strong signals of reversal on daily chart. Firm break below 100SMA footstep could trigger fresh weakness towards strong Fibonacci support and next pivot at $1.5734, while consolidation is expected to stay capped by south-turning Tenkan-sen line on daily chart which currently lies at $1.6338.
Spot gold was among the top winners last week, advancing nearly 2.5% against weakening greenback for the week. Rising geopolitical tensions between the US and North Korea maintain strong safe-haven demand, while data from US showing July inflation falling below expectations, reduced the prospect of a rate hike this year, which gave additional boost to interest rate-sensitive yellow metal. Gold price is on track to retest key barriers at $1295, peaks of June 6 and Apr 17, which guard psychological $1300 resistance.
Firmly bullish technical studies and fundamentals working in favor of the yellow metal are strongly supporting bullish scenario. Sustained break above $1295/$1300 barriers would signal bullish continuation and expose targets at $1315 and $1337, however, overbought daily studies and repeated strong rejections at $1295, warn of possible hesitation at this important level. Scenario of stall and corrective pullback remains on the table. Dips should find solid support at $1274/72 zone, where former top and rising daily Tenkan-sen are expected to contain, before fresh upside action.
Copper maintained firm bullish tone last week despite easing from fresh multi-month high at $2.9535, posted on Wednesday, as dips found footstep at $2.8705, keeping strong support at $2.8550 zone intact. Further easing on overbought technicals cannot be ruled out, but the metal is expected to resume its strong uptrend, supported by strong demand from top consumer China, as well as weakening US dollar.
Recent rally approached strong barrier at $2.9540 and also eyes psychological $3.000 resistance, where copper last time traded in November 2014.
The US dollar stayed in red against most of its major counterparts last week, after brief recovery action that commenced last week was limited by fresh political tensions between the US and North Korea, as conflict is threatening of further escalation. The dollar index eased from two-week high, which was hit after data showed US job openings soared to a record high in June (JOLTS data showed rise in job openings by 6.16 million, compared to forecasted rise at 5.77 million) as traders exited positions in risky assets on the back of U.S. President Donald Trump’s warning to North Korea on Tuesday that the isolated nation faces "fire and fury" if it makes more threats to the United States, as geopolitical tensions deepened after Pyongyang replied it was "carefully examining" a plan to strike Guam, where a U.S. military base is located.
The dollar index ended week 0.4% down and is pressuring last week’s fresh multi-month low at $92.37.
The most important release of the week, US inflation data, showed disappointing figures in July. Inflation in the US rose by 0.1% in July, undershooting forecast at 0.2% with identical numbers on Core CPI release. Stubbornly low inflation worries investors who are focusing on Fed’s September meeting, when most expect the US central bank to hike interest rates and signal the beginning of reduction of its massive portfolio.
Escalation of geopolitical tensions prompted investors into safe haven assets, with Japanese yen being among top winners of the last week. The US dollar was down nearly 1.5% against Japanese yen last week.
Yen stayed in green during the whole week, being additionally supported by disappointing US data which kept the greenback under pressure. The USDJPY pair hit fresh multi-month low at 108.72 on Friday, after cracking very strong support at 108.80, June 14 low. With technical studies being firm bearish mode and geopolitical tensions along with weak US data keeping the greenback under strong pressure, the USDJPY pair looks set for final break below 108.80 support and extension towards next key med-term support at 108.11, 2017 low, posted on Apr 17.
Another traditional safe haven instrument -Swiss Franc- was also among last week’s winners, supported by escalation of geopolitical tensions. Swiss was up 1.15% against its US counterpart last week, after investors fled from riskier assets.
Swiss Franc posted its biggest single-day rise against the euro and the US dollar on Wednesday, since the central bank removed its cap on the currency in January 2015.
The New Zealand dollar tumbled to a two-week low against its U.S. counterpart at 0.7250 on Thursday, after the Reserve Bank of New Zealand left interest rates unchanged at 1.75%, in a widely expected move, but added that it still expects inflation to rise gradually.
Another antipodean currency, Australian dollar also moved lower and ended the second straight week in red, amid ongoing global geopolitical tensions. Aussie dollar hit the lowest level in past two weeks at 0.7338 against the US dollar, in extension of pullback from fresh over two-year high at 0.8065, after failing to clearly break psychological 0.8000 resistance.
The Euro ended the fifth straight week in green against the greenback, after pullback from last week’s strong rejection at 1.1900 zone was contained at 1.1690 on Wednesday and fresh recovery rally closed above 1.1800 handle on Friday. Fresh pressure on the US currency kept Euro bulls in play for renewed attempts towards its target at 1.2000, following shallow correction last week and strong bullish momentum that the single currency continues to build.