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Oil bids soften as Biden looks to sell more oil

Technology stocks rallied strongly after the US ISM Services PMI for June jumped to 56.7 (55.3 in June) and beat the analyst forecasts (53.5) by a wide margin. USOIL traded lower as Biden’s administration said it looks to sell more oil from the Strategic Petroleum Reserve. At the same time, OPEC+ is looking to raise oil output by a minuscule 100K barrels per day. This is equivalent to 86 seconds of global oil demand. Analysts have described this as an insult to US president Joe Biden after he struck a deal with the United Arab Emirates to increase oil production. Today’s key risk event is the BOE interest rate decision. By reading further, you agree with our disclaimer at the end of this report and acknowledge that we do not provide investment advice.

In today’s report, I provide you with trade ideas, analysis and key technical levels on:

  • USOIL 
  • USDJPY
  • Nasdaq
USOIL 8h chart 08 04

USOIL made another attempt on the 95.67 level and failed to penetrate it. This resulted in the market breaking below the 92.41 support. Now the retest of the 88.24 looks likely as long as the 92.41 resistance thwarts any potential rally attempts.

I said earlier (here) that when a market is at support we should orient for the long side of the market and if we get a rally the targets should be nearby. That advice certainly paid off again yesterday. Like I’ve said before USOIL is now much weaker than in the spring. This could lead to the market completing a sizeable topping formation. The market created a lower high at 121.32 in June and if the weakness continues (as it now looks likely) we could eventually see USOIL trading down to levels near the November 2021 lows (63.32). That’s where the measured move projection (derived from the topping formation) points to.

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EN – Mobile 3

Before this can happen though the market needs to push beyond the September 2021 high at 85 dollars. The good thing about trading is though that we are never married to a certain market view (especially long-term views) but can play along as the shorter-term price fluctuations create trading opportunities. Just remember to keep your targets nearby if you decide to trade against the momentum. Yesterday’s price action where USOIL rallies from a support level but then sells off pretty quickly after the rally was a good example of why this approach makes sense. 

USDJPY 2h chart 08 04

USDJPY reversed the downtrend and has created a higher low and a higher high in the 2h chart. The market, therefore, is short-term bullish as long as it trades above the 133.42 support. Alternative scenario: The 133.42 support is violated and the market trades down to the 132.50 – 132.90 range.

NAS 2h chart 08 04

NAS – Nasdaq 100 has been relatively strong among the US equity indices. The market is trending higher and is bullish above the 12795 support.

After yesterday’s rally, the market is trading near a bull channel top. This could slow the market down or even create a pullback. There’s no way of knowing this ofcourse but it’s a scenario we should keep in mind. If the market pulls back to a recent resistance level it often attracts buyers somewhere around it. If the support doesn’t we should focus on supports at lower levels. Looking at the 2h chart we have some technical confluence at 12960 or so. That’s where the 38.2 retracement level and the SMA(50) coincide. The next level to keep in mind is the 50% retracement level and a minor support level at 12847 – 12860. 

Macroeconomic data releases and news

The US ISM Services PMI for June increased to 56.7 (55.3 in June) The PMI beat the analyst forecasts (53.5) by a wide margin and rallied the equity indices. 

Biden’s administration has decided to sell more oil from the Strategic Petroleum Reserve. The amount to be sold is 20 million barrels. This adds to the 180 million barrels of crude oil sold from the reserve earlier this year as the administration tries to push petrol prices lower. USOIL traded lower as the news together with USD strength weighed on the market. 

Elsewhere OPEC+ is looking to raise oil output by a fraction. The increase will be 100K barrels per day and is equivalent to 86 seconds of global oil demand. This has been described as an insult to US president Joe Biden after he struck a deal with the United Arab Emirates to increase oil production.

Macro Drivers for the USD 

As the most followed, invested and traded markets for risky assets are priced in the USD it is helpful to understand what macroeconomic factors impact the other side of the equation, the USD. Whether we are trading EURUSD, XAUUSD or US equity CFDs the factors impacting the dollar, the nominator in the equation, have a significant role in the formation of all medium to long-term price action. The following table summarises the most important fundamentals.

The Federal ReserveFed hiked the target range again by 75bps (to 2.25%-2.5%). This was the fourth consecutive rate hike. The rate hike was in line with analyst forecasts. The Fed noted that ongoing increases in the target range will be appropriate but the next decisions will be data-dependent.
YieldsThe US 10-year treasury yield has been drifting lower since mid-June. The high in June was 3.498%. Last week’s close was 2.654%. 
EmploymentThe number of jobs in the US economy increased by 372K in June beating the market forecasts of 268K. The number was only slightly below the revised (down) 384K in May. The increase was in line with the average monthly gain of 383K over the prior 3 months indicating that the labour market stays strong. 
InflationThe annualised inflation rate for June accelerated to 9.1%. This was the highest reading the Q4 1981 (up 0.5% from May). The cost of energy rose 41.6%. Fuel prices increased 59.9%. These were the biggest increases in these items since Q2 1980. Food costs surged 10.4%, the most since Q1 1981.

 The Next Main Risk Events

  • GBP Construction PMI
  • GBP BOE Monetary Policy Report
  • GBP MPC Official Bank Rate Votes
  • GBP Monetary Policy Summary
  • GBP Official Bank Rate
  • GBP BOE Gov Bailey Speaks
  • USD Unemployment Claims
  • USD FOMC Member Mester Speaks

For more information and details see the TIOmarkets economic calendar here

Trade Safe!

Janne Muta

Chief Market Analyst

TIOmarkets.com

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