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Oil moves higher on USD weakness

USOIL chart 09 09

USOIL rebounded a bit after dropping 4.6% the day before. The market moved higher despite the US Energy Information Administration reporting a substantial rise in oil inventories (8.8-million barrels). This was the biggest increase since April but still, the price moved higher. Why? The move was probably partly technical (a rebound after a sizeable drop) but I expect the main driver was the USD Index moving lower. If the dollar weakness continues, we are likely to see a move to the proximity of the 85.45 resistance level. If the big money starts to fade the rally near the level I’ll look for shorting opportunities below 87.42. My T1 will be at 78.00 and my T2 at 74.00. Alternatively, if USOIL rallies back above the 87.42 level the market could move to 90 dollars or so. By reading further, you agree with our disclaimer at the end of this report and acknowledge that we do not provide investment advice.

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Gold chart 09 09

Gold dropped lower at first but then started to attract buyers at around the 1707 level. Now we have yet another higher swing low in place and the bulls keep on creating pressure against the 1726 resistance level. With a higher low (1703.90) in place, gold might well move to the 1730 – 1735 range. Below 1703.90 gold probably moves to 1695.

NAS chart 09 09

NAS – Tuesday’s high (12238) was taken out yesterday creating a trend reversal and a bullish breakout from the trend channel. I look for long trades above 12180 with my T1 at 12550 and T2 at 12721 (edit: 12721, not 12271, sorry for the typo). Below the 12180 level, the market could trade down to 120750.

DAX chart 09 09

DAX remained a little weaker yesterday than the US indices. However, the move to the prior day’s low (12700) was used as a buying opportunity. As a result, the index is range bound (in the 8h chart) between 12700 and 13055. I said yesterday that DAX has upside potential above the 12590 low. This obviously hasn’t changed but we need to see an upside breakout from the range.

DJ chart 09 09

DJ has now rallied for two days and broken out of a bearish trend channel. The index is approaching a resistance area (31953 – 32031) but if this is a real trend reversal then we should see the resistance area giving in, sooner or later. As a confirmation, I look for either market breaking above the resistance area or creating a higher low either above 31298 (or at least above Wednesday’s low at 30973).

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 10-week range in the US 10-year treasury yield has been from 2.516% to 3.498%. 
EmploymentThe US economy added 258 thousand new jobs. June number was revised from 390K to +384K and the average hourly earnings increased 0.5% (month over month) vs 0.3% predicted by the analysts. Such strong growth in employment and earnings reminds us how strong the US economy still is. 
InflationThe US inflation rate dropped more than expected. The July reading (YoY) came in at 8.5% after a 40-year high of 9.1% prior. Analyst forecasts had put the number at 8.7%. The cost of energy rose 32.9% (vs. 41.6% in June). Lower cost of petrol (44% vs 59.9%), fuel oil (75.6% vs 98.5%) and natural gas (30.5% vs 38.4%) contributed to the decline. The cost of electricity however increased by 15.2%. Food inflation however increased by 10.9% vs 10.4% prior. 

 The Next Main Risk Events

  • EUR ECB President Lagarde Speaks
  • EUR EU Economic Summit
  • CAD Employment Change
  • CAD Unemployment Rate
  • USD FOMC Member George Speaks
  • USD FOMC Member Waller Speaks
  • GBP UK GDP (Monday)

For more information and details see the TIOmarkets economic calendar here

Trade Safe!

Janne Muta
Chief Market Analyst

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