After several weeks of choppy trading conditions, momentum has turned higher on WTI crude oil and a breakout above $80 is on the radar.
By :Matt Simpson, Market Analyst
Market Summary:
- The US dollar index retreated in line with yesterday’s bias as traders are still betting on a June rate cut by the Fed, although volatility was relatively low for FX majors on Wednesday
- Silver rose nearly 4% during its best day in three months and is on track to close around $25
- Wage-growth negotiations improve the odds that the BOJ could indeed ditch negative interest rates at next week’s meeting, on the news that large corporations have agreed to union demands of higher wages
- Yet the fact the yen actually weakened slightly suggests the wage negotiations were already priced in, leaving it now a question of whether a simple hike to 0% could have little impact on markets given the yen rose across the board last week
- A combination of the weaker US dollar and news that China plans production cuts for copper helped the metal break convincingly above $4 during its best day in 16 months
- And that brings into question whether a supply-shock for copper prices could be enough to trigger another round of inflation
- Ukrainian drone strikes on Russian refineries sent crude oil prices soaring on Wednesday, with prices settling just below $80 – a key level of resistance for bulls to conquer. Given the potential for further weakness on the US dollar, a breakout remains the bias whilst prices remain above the 200-day MA.
- And this helped metals in general perform well, with gold bouncing in line with yesterday’s bias although the question now is whether it will hold beneath its highs and recycle lower, or simply break above the high
- And a move that further cause tension between the US and China, the US House passed a bill that could either force a TikTok sale or ban it in the US
- Australian Treasure Jim Chalmers is expected to warn of a smaller revenue upgrade for the Federal budget later today, due to softening labour markets and falling commodity prices
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Events in focus (AEDT):
We have a quiet calendar for APAC traders today, although any developments on China’s curb of copper output might carry some headline risk for metals. Also keep an eye on China’s loan growth, as Beijing will want to se it come in higher to help them achieve their 5% GDP target for 2024.
The main event is hands down the trifecta of US producer prices, retail sales and jobless claims. With traders will betting on Fed cuts, they will want to see all three show signs of weakness, yet the contrarian with in suspects producer prices could follow CPI higher and, and with retail sales expected to rise 0.8% (which is relatively high) it might take quite a miss to justify a notable reaction.
- 08:45 – New Zealand visitor arrivals
- 10:50 – Japan foreign bond/stock purchases
- 18:30 – Swiss PPI
- 19:00 – Spanish CPI
- 20:00 – International Energy Agency report
- 20:30 – ECB’s Elderson speaks
- 21:00 – China loan growth
- 23:30 – US producer prices, retail sales, jobless claims
WTI crude oil technical analysis:
Price action on the daily chart has been grinding higher since the December low. Over the past 4-5 weeks, price action has been particularly choppy between 76.50-79.50 with a few failed attempts to break and hold above $80. But by including a line chart over this period (blue line), I see a potential falling wedge / pennant on the daily chart, followed by bullish range expansion on Wednesday. RSI (14) is also curling higher from the 50 level to show a pickup of bullish momentum in the positive zone of RSI.
The only thing I do not like is that yesterday’s bullish range expansion day was on relatively low volume. Therefore any break above $80 likely need to be accompanied with rising volume for it to stand any chance of extending its rally. But with a weaker US dollar story alongside rising geopolitical tensions, a break above $80 is the preferred bias whilst prices remain above the 200-day MA.
– Written by Matt Simpson
Follow Matt on Twitter @cLeverEdge
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