USOIL bulls are driving the price of oil higher as the (mad) rush to save the climate has run into execution problems. There’s nothing wrong with being environmentally friendly but the fact is that the world is oil-dependent Oil is needed in transportation, heating, goods manufacturing, packaging etc. Therefore badly managed transfer from carbon to the so-called sustainable (there are no sustainable solutions by the way) energy sources has meant that there hasn’t been enough investment into oil and gas production. This has not only created massive supply-demand imbalances but has also caused serious geopolitical risks that are now materialising in Ukraine. All this supports the price of oil and has caused some commentators to call for higher oil prices than during the 2008 peak of 147 dollars per barrel. Technically the price of oil is bullish but it is also quite extended and also perhaps vulnerable to good news. If Russia decided to withdraw its troops from the Ukraine border, the price of oil could correct below the bull channel low. 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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EURUSD traded lower again. It was our view yesterday that unless Lagarde comes up with some bullish statements speech today the risks in EURUSD remain to the downside. We said yesterday that if the 1.1325 – 1.1335 zone is penetrated EURUSD is likely to test the next significant support level at 1.1267. The downside risks materialised and the support area was indeed penetrated. EURUSD, however, didn’t yet trade to the 1.1267 level. This far the low has been 1.1279. There is a channel (within a bigger bear channel) that EURUSD has traded out of. This suggests the market could test the nearest resistance area (at 1.1330 – 1.1340) soon. Penetration of this zone could take the market to 1.1430 again. Alternatively, the pair stays within the bigger channel and heads again towards the 1.1267 support.
USDCHF failed to rally beyond the key resistance level we focused on here. Now it seems that pressure is building against the rising trendline support (channel low). If this support is violated and the risk of the market breaking below the 0.9222 support level increases. Should this happen, it’d be likely that the 0.9179 support comes into play again. This is where a measured move points to. Alternatively, if we see a rally from the trendline the 0.9290 resistance could be tested again.
DAX had a volatile day yesterday. It was our view (see here) that recent price action had increased the risk of DAX breaking below the next support levels. The 15058 support was indeed broken and DAX traded all the way down to a highly important (weekly) support at 14840 before bouncing back up again. If the index can rally decisively above the 15120 resistance level we could see a move to the 15274 – 15290 area where we have the 50% Fibonacci level and the SMAs. Alternatively, a failure to penetrate the level would probably keep DAX in a consolidation mode between yesterday’s low and the 15120 resistance level. Keep in mind that equity markets, and DAX especially, have been quick to react negatively to news about the war. Therefore, sudden moves are likely should there be new developments in Ukraine’s eastern border. Trade carefully and perhaps with small lot sizes than usually.
USOIL bulls are driving the price of oil higher as the (mad) rush to save the climate has run into execution problems. There’s nothing wrong with being environmentally friendly but the fact is that the world is oil-dependent Oil is needed in transportation, heating, goods manufacturing, packaging etc. Therefore badly managed transfer from carbon to the so-called sustainable (there are no sustainable solutions by the way) energy sources has meant that there have been not been enough investment into oil and gas production.
This has not only created massive supply – demand imbalances but has also caused serious geopolitical risks that are now materialising in Ukraine. All this supports the price of oil and has caused some commentators to call for higher oil prices than the 2008 peak of 147 dollars per barrel. Technically the price of oil is doing what bullish markets do; trending higher but it is also quite extended and perhaps vulnerable to good news. If Russia decided to withdraw its troops from the Ukraine border, the price of oil could correct below the bull channel low. However, as long as the support levels hold and the price bounces higher we know that the market participants are focusing on the above mentioned macro-dynamics.
At the time of writing this, USOIL is trading relatively close to the bull channel top. Therefore, it makes sense to buy the dips instead of buying far from support levels and seeing if the market can push beyond the channel high. The nearest key support levels are at 87.45, 90.51 and 91.76.
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 Reserve||Fed could be hiking rates significantly this year and even raise the rates by 50 basis points per FOMC meeting (instead of the normal 0.25%). The Fed believes that rates could rise significantly before hurting employment.|
|Stimulus||The US lawmakers have authorised approximately five trillion dollars of economic stimulus since the beginning of the pandemic. Now, US Congress has passed a $1.2 trillion infrastructure spending plan.|
|Yields||In Q3 and Q4 2021, the benchmark 10-year US Treasury yield ranged between 1.1720% and 1.6830%. The hottest inflation readings since 1982 have pushed the 10 yr. yield higher as bonds have been selling off.|
|Employment||The January non-farm payrolls increased by 467K while the analysts had expected only 110K new jobs. Average hourly earnings were confirmed at a much better level than predicted (0.7%, 0.5% expected).|
|Inflation||The annual headline inflation reading for January came in at 7.5% (7% prior). This was the highest CPI print in 40 years. The core CPI (all items less food and energy) was confirmed at 6.0% (5.5% previous).|
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The Next Main Risk Events
- EUR – ZEW Economic Sentiment
- EUR – German ZEW Economic Sentiment
- USD – PPI and Core PPI
- USD – Empire State Manufacturing Index
- GBP – CPI
- CAD – CPI
- USD – Retail Sales and Core Retail Sales
For more information and details see the TIOmarkets economic calendar here.
Market News & Facts
- No indication yet that Putin has decided to invade Ukraine further
- UK Prelim GDP q/q (1.0%, 1.1% expected)
- US Prelim UoM Consumer Sentiment (61.7, 67.2 expected)
- US Wholesale Inventories 2.2% vs 1.7% prior
- US Average Hourly Earnings m/m (0.7%, 0.5% expected)
- US Non-Farm Employment Change (467K, 110K expected)
- US Unemployment Rate (4.0%, 3.9% expected)
- Canadian Ivey PMI (50.7, 55.1 expected)
- BOE hikes 0.25% as expected
- ECB keeps the rates at 0% but turns less dovish
- ISM Services PMI 59.9 (59.5 expected)
- Unemployment Claims 238K (245K expected)
- OPEC to increase oil production by 400k BPD from March onwards
- BOC Macklem: higher rates needed to tackle inflation
- ADP Non-Farm Employment Change -301K (185K expected)
- Crude Oil Inventories -1.0M (1.8M expected)
- New Zealand Employment Change 0.1% (0.4% expected)
- New Zealand Employment Rate 3.2% (3.3% expected)
- Canadian GDP m/m 0.6% (0.4% expected)
- US ISM Manufacturing PMI 57.6 (57.4 expected)
- JOLTS Job Openings 10.93M (10.35M expected)
Chief Market Analyst
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