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CRUDE OIL MARKET FUNDAMENTALS: Crude oil has extended gains in the overnight trade finding price support from outside market influences, but also from a more optimistic demand view. A bounce back in equities overnight is certainly feeding into the macro economic recovery theme which has lifted June crude oil to the highest price level since early January. Hope that economic conditions are improving has enabled the oil market to push aside its clearly bearish fundamental setup and instead focus on the longer-term prospects for a recovery in oil demand. In fact, a more positive oil demand view is being fostered by news that China’s oil imports in April rose to a near record daily rate. Crude oil prices are also being supported by the IEA chief saying the agency does not plan to lower oil demand in its forecast to be released on Thursday. Part of the gains in oil seem to be on expectations that today’s EIA short-term energy forecast will have a less pessimistic outlook. The weak action in the Dollar also seems to be boosting the appeal of oil as an inflation hedge with sidelined investors now starting to flow back into oil on ideas that energy markets will be quick to respond to any macro economic improvements. With the market focused on the macro economic picture and seemingly little concerned over predictions for another sizable jump in oil stocks in this week’s inventory report suggest bullish sentiment in oil is becoming entrenched. While today’s EIA report could add to volatility this session, the market’s bullish bias suggest price dips off the EIA news may be short lived and attract new buyers. But we still suspect the key to higher oil prices will largely depend on seeing more equity market gains. If equities trade higher, then the bullish technical setup in June crude oil is likely to lift the market into a higher $62.57 to $65.00 price range.
PRODUCT MARKET FUNDAMENTALS: GASOLINE: June gasoline has seen a choppy two sided trade overnight as the market seems to be running into some technical overhead resistance near the $1.71 price level. But the market is also finding support from a refinery problem in Texas and from positive outside market influences. Today’s US trade data is likely to offer more insight on the economy and if it supports the market’s view that economic conditions are showing signs of improvement, it could be enough to push June gasoline to a new high for the move. Another stumbling block for the bull camp may be the EIA’s oil demand report. But given the market’s bullish bias and buying interest coming in on yesterday’s price dip suggest any setback off the EIA or trade news may be short lived.
HEATING OIL: Outside market strength is keeping June heating oil well supported and in a good technical position to take out the March highs. However, with the trade expecting another jump in distillate stocks, today’s US trade news and EIA demand report may need to come out positive to lift June heating oil above key resistance at the $1.5364 price level. A rally above the March high would then put the market on track for a move back to $1.60. The fundamentals are bearish for heating oil, but like crude oil, this market has the potential to trade higher if equity market gains continue to feed bullish oil demand sentiment.
TODAY’S ENERGY MARKET GUIDANCE: The bull camp has the early edge mostly due to the firmer equity markets and a weaker Dollar. But price action could turn volatile and the bull camp’s resolve may be challenged by today’s trade data and EIA oil forecast report.
Currency Commentary – 2009.08.17
by Blog Admin on August 17, 2009
Below is a sample of our Daily Commentary. To get this comment, and our daily coverage of 15 additional markets and trade ideas, visit futures-research.com for your free 2 week trial!
DOLLAR: Not surprisingly the Dollar is catching a distinct flight to quality bid this morning. In addition to ideas that global equity prices were ahead of reality, the market seems to have seen a downshift in economic readings, with the US retail sales report and Michigan sentiment readings late last week being joined by a slack UK private housing report and lackluster attitudes toward the Chinese recovery in the overnight headlines. Apparently the currency markets are uninterested in suggestions from Japan that they are poised to climb out of the recession in the next quarter. In fact, with the UK and now the US, seemingly adding slightly to their quantitative easing efforts, the markets are suspecting that the slow down threat remains in place. With a large US financial institution failing over the weekend and the failure apparently the biggest of the year, that clearly rekindles financial market flight to quality interest in the Dollar. With the August 11th Commitment of Traders with Options report for US Dollar showing the Non-commercial position to be net short 10,110 contracts, with the Non-reportable position net short 1,693 contracts, that made the “combined” spec and fund position net short 11,803 contracts as of early last week. Therefore the September Dollar looks to be poised to rise to the late July highs of 79.81, but we doubt that the Dollar is going to completely throw off the downward bias that has been in place since early March.
EURO: The Euro is clearly under a liquidation watch, as the markets have once again rekindled concerns for the recovery. We would suggest that weakness in equities at the end of last week and into the opening this morning, were the result of ideas that the equity markets were ahead of reality and to see equity prices fall consistently throughout this week, might require fears of a failed recovery effort. However, in the near term slumping sentiment looks to apply pressure to the Euro and that could easily send the September Euro down to the first consolidation support zone of 140.00 on the charts. With the August 11th Commitment of Traders with Options report for Euro showing the Non-commercial position to be net long 17,551 contracts, with the Non-reportable position net long 18,905 contracts, that made the “combined” spec and fund position net long 36,456 contracts as of early last week. Therefore from a technical basis, the Euro would seem to retain at least a couple more days of long liquidations selling pressure.
YEN: The yen clearly seems to be a currency in vogue, with strength being seen in the Yen recently in the face of strength in equities and the currency also being bid higher in the face of slumping equities. Clearly the Yen is garnering some flight to quality type buying and that in combination with mostly upbeat macro economic views toward the Japanese economy looks to give the Yen an additional flight to quality benefit. Near term upside targeting in the Yen is seen at 106.41 and perhaps even higher if the anxiety being thrown off by the equity markets intensifies.
SWISS: A big range down extension in the Swiss clearly suggests that the Swiss, Euro, Pound and Canadian are all set to lose in the face of an economic letdown in world equity markets. While the Swiss looks to follow the lead of the Dollar and the Euro in the coming trading sessions, we would be surprised if the September Swiss didn’t fall quickly back to the 92.00 level in the coming trading sessions.
POUND: In addition to deteriorating macro economic views, the Pound also seems to be getting pressure from news of a privately generated housing survey. With the Pound into the August highs, technically and fundamentally overbought, that seems to set the stage for a slide to at least 162.63. In order to see a full washout in the September Pound, down to the 160.00 level, probably requires extensive liquidation carnage in global equity markets!
CANADIAN DOLLAR: Since the Canadian has already seen an aggressive liquidation washout to the even number 90.00 level this morning, a good measure of the macro economic disappointment is probably already factored into prices. However, it would appear as if the negative outlook toward the global recovery, is still destined to play out over the coming trading sessions and that could put the September Canadian down to the 89.31 level in the coming two trading sessions.
TODAY’S MARKET IDEAS: Expect the Yen and Dollar to extend overnight gains for at least the first two trading sessions of the new week.