The Crude Chronicles - Episode 146

Oil Traders Increase Longs The latest CFTC COT institutional positioning report shows that oil traders increased their net-long positions last week for first time in a month. Overall upside bets were increased to 271k contracts from 268k contracts previously. While the move does little to rebalance the massive reduction in upside exposure seen over recent months, it is important nonetheless and might signal a near-term turning point for oil prices if bulls continue to add to upside positions this week.Weaker USD Helping Oil PricesRecent price action has reflected this pause in downward positioning momentum. Crude prices have been stalled along the 95.93 level support. The pullback in the US Dollar over recent weeks has been a big help for oil bulls. Ahead of the FOMC, some pushback against the idea of a larger 1% rate hike helped soften the Dollar, allowing commodities prices (oil included) some room to breathe.More Neutral Tone at FOMCThis USD weakness has persisted this week, helped by yesterday’s FOMC meeting. The Fed stuck to the previously signalled .75% hike and sounded less hawkish in its forward guidance. Fed chairman Powell noted that inflation was still well above target but said that rates were now broadly around the area the bank would consider neutral. Powell acknowledged too that economic activity in the US is slowing though reassured markets that the US is not yet in recession.Powell’s comments appeared to leave plenty of room for Fed action in either direction. Given slowing economic activity, some have interpreted the comments as a sign that the Fed will begin slowing down the pace of further hikes this year. However, Powell himself warned that inflation doesn’t moderate in coming months, the Fed stands to ready to do more, including further “unusually large” hikes if necessary.Recession Fears Weighing on Oil Sentiment Consequently, the outlook for oil prices is not clear. Fears of a recession and higher US rates are clearly negative for oil demand. However, if the Fed is right in its optimism and the US economy can avoid a recession and if rate hikes do begin to slow with a moderation in inflation, this would allow oil prices room to rebound. Alternatively, if a recession does materialise or if the Fed is seen having to continue hiking above the neutral rate to battle inflation, this will no doubt weigh on oil prices.EIA Reports Large Drawdown The latest report from the Energy Information Administration this week had good news for crude bulls. The EIA reported a massive 4.5 million barrel drawdown, three times the size of the expected decline in inventories, reflecting better demand last week. Additionally, gasoline stores were also seen falling by over 3 million barrels, assuaging market concerns on the back of a large surplus the prior week.Technical ViewsCrude OilThe sell-off in crude oil over recent months has seen the market trading lower within a well-defined bear channel. The decline has recently stalled along the 95.93 level support and, with both MACD and RSI turning higher, there is potential for a reversal higher if bulls can get above the 103.80 level near-term. To the downside, a break of the 95.93 level will open the way for a test of 83.75.

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Investment Bank Outlook 28-07-2022

Credit AgricoleA second 75bp hike to curb inflationAs widely expected, the Fed delivered a second 75bp rate hike in its fight against four-decade high inflation prints, taking the policy rate to 2.25-2.50% in a unanimous vote. FOMC officials remain “highly attentive” to inflation risks, maintaining a laser focus on returning inflation back to target.Looking ahead, the statement offered unchanged guidance stating that the “FOMC “anticipates that ongoing increases in the target range will be appropriate”, which clearly signals that more tightening is on the way, though leaves the Fed’s options open by not committing to any specific path.Chair Jerome Powell followed this up by suggesting at his press conference that another unusually large rate increase would depend on incoming data, but it would be appropriate to slow the pace of hikes at some point. Powell reiterated that the FOMC is looking for “compelling evidence” of inflation moving down.However, given significantly higher uncertainty than usual, Powell also noted that the Fed will offer “less clear guidance” on future rate decisions, which will be made on a meeting-by-meeting basis depending on the data. This makes sense to us as the Fed would prefer to avoid another situation like the June meeting, when Committee members had explicitly signalled a preference for a 50bp hike before switching to 75bp at the last minute. As a result, the Fed will continue to offer guidance, though will stress data dependence and avoid committing to a specific path.That said, Powell did note that the Fed sees “significant additional tightening” in the pipeline as rates move to a “moderately restrictive” stance by the end of the year. While he was clear that it will be updated at the following meeting and should not be taken as set in stone, he pointed to the latest dot plot as a rough guide, which shows rates hitting a 3.25-3.50% target range by yearend and modest additional tightening in 2023.The market pricing of the terminal policy rate has evolved over the past couple of months, from as high as 4.00% to the latest 3.30%, as the market has transitioned from inflation fears to recession angst. Additionally, the market sees the Fed cutting rates in 2023, potentially as soon as March, with rates dipping below 3% by yearend.We currently see the Fed raising rates to3.50-3.75% by yearend 2022, with a 50bp hike at the upcoming September meeting, though another 75bp move remains a risk. That said, we are less convinced that the Fed will cut in 2023 and instead see it remaining on hold despite softening data as it continues to place a higher weight on the inflation side of the mandate.In its statement, the FOMC acknowledged a slowdown in the economy, highlightingsofteningspendingandproduction,butnotedthatthelabour market has remained robust. Inflation has stayed high, due to Covid-related supply/demand imbalances plus higher energy prices and broader price pressures.

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USDJPY, H4 | Potential Bearish Continuation

Type: Bearish BreakoutKey Levels:Resistance: 136.697Pivot: 134.516Support: 131.464Preferred Case:On the H4, with price broken out of the ascending trendline and moving below the ichimoku indicator, we have a bearish bias that price will drop to our pivot at 134.516 where the swing low support, 61.8% fibonacci retracement, 78.6% fibonacci projection and 161.8% fibonacci extension are. Once there is downside confirmation of price breaking pivot structure, we would expect bearish momentum to carry price to the 1st support at 131.464 where the swing low support is.Alternative Scenario:Alternatively, price could head for 1st resistance at 136.697 where the overlap resistance is.

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Daily Market Outlook, July 28, 2022

Daily Market Outlook, July 28, 2022 Overnight Headlines Fed Raises Rates By 0.75 Points For Second Month In A Row US Expected To Dodge Technical Recession With Weak Q2 Growth Australia’s Retail Sales Cool As Rising Rates, Prices Take Toll Australia Cuts GDP Growth Outlook On Inflation, Higher Rates BoJ Dep Gov Amamiya: BoJ Needs To Continue With Easing China Paper Sees Low Chance of Further Drop in Short-Term Rates N.Korea's Kim: Country Ready To Mobilise Nuclear War Deterrent Joe Manchin Backs Senate Deal On Tax, Spending And Climate Yen Climbs To Strongest Level In Three Weeks As Dollar Drops Oil Extends Gains After US Crude Stockpiles Drop, Exports Soar BofA Sees Japan Voiding Treasuries As Hedge Costs Erase Yields Most Asia Stock Indexes In The Green, US Futures In The Red Samsung Electronics Q2 Net Profit Up 15.2 Pct On Strong Chip Biz Facebook-Parent Meta Forecasts Revenue Below EstimatesThe Day Ahead Asian equity markets are mostly up this morning but the gains are generally smaller than those seen in US equities yesterday. As expected, the US Federal Reserve raised interest rates by 75 basis points yesterday, the fourth consecutive increase. Fed Chair Powell warned of further rate rises but markets seemed to take comfort from hints that the pace of tightening may now slow. However, former New York Fed President Dudley warned that financial markets are under-estimating just how far the Fed will go. US President Biden will talk with Chinese President Xi today. Meanwhile, Russia has signalled more problems with gas supplies to Europe via the Nord Stream pipeline. The Q2 US GDP release seems set to provide further confirmation that growth disappointed in H1. The unexpected fall in Q1 GDP was generally thought at the time not to be a major concern as both consumer and investment spending had speeded up. However, retail sales fell in real terms in Q2 and overall consumer spending growth seems to have been modest, while business investment also slowed. Q2 growth is now forecast to be only a very modest 0.5% annualised rise and there is a risk of a second quarterly decline. Eurozone GDP data for Q2 due early tomorrow is expected to show only modest growth, at best. Ahead of that, July industrial and service sector confidence data for the Eurozone are due today. Given the falls seen in already released PMI and German IFO measures it seems likely that both of the confidence measures will have fallen. Today’s July German CPI report will be watched for clues on tomorrow’s outturn for the Eurozone as a whole. Annual headline inflation is expected to have slipped modestly compared to June, primarily due to the slide in energy prices. However, given the recent rebound in gas prices that trend seems unlikely to continue in the near term. Meanwhile, ‘core’ inflation is expected to be up modestly possibly suggesting a broadening out in inflationary pressures. It’s been a light week for UK data but the Lloyds Business Barometer, which is out early Friday, could provide some interesting new insights. So far it has showed business confidence holding up relatively well this year, but the June headline reading did fall by 10 points. Nevertheless, that still only took it back down to its long-term average so the July measure will be watched keenly for indications of further slippage.FX Options Expiring 10am New York Cut EUR/USD: 1.0050-55 (547M), 1.0200 (844M), 1.0250 (620M), 1.0300-05 (1.30B) USD/JPY: 136.20 (1.40B). NZD/USD: 0.6000 (857M), 0.6075 (495M) AUD/USD: 0.7000 (325M), 0.7020-25 (463M), 0.7150 (414M) USD/CAD: 1.2810 (810M), 1.2850-55 (902M), 1.2915 (540M)Technical & Trade ViewsEURUSD Bias: Bearish below 1.0350 Fading after early JPY bid supported EUR/JPY pulling back and weighing, Tokyo's reaction to the FOMC Far-right leader Giorgia Meloni in pole position for Italian PM Market weighing response to a potential Italian shift to the right impacts the EU Resistance 1.0250/60, support 1.0100-05, 1.0070-75 Price continues to rotate around the 20 Day Bearish VWAP 20 Day VWAP is bearish, 5 Day bullishGBPUSD Bias: Bearish below 1.2280 Bid in Asain session testing towards pivotal 1.22 Mixed UK data - strong car production in June Weak outlook for UK commercial real estate according to RICS GBP traders unsure of +25 or +50 at Aug 4 MPC Offers sited at 1.22 bids 1.2090 20 Day VWAP is bullish, 5 Day bullishUSDJPY Bias: Bullish above 134 Slides in the Asain session as JPY bears weigh Fed rate expectations USD/JPY drops 0.8%, weighed down by broad reduction of short JPY positions Undermined by Fed flagging softening of economy after raising rates 75bps Tokyo traders sell from the outset, triggering stops at 135.90-136.00 Offers sited 137.30/50 bids at 135.10 20 Day VWAP is bearish, 5 Day bearishAUDUSD Bias: Bearish below .7050 Rally capped by retail sales miss combined with, AUD/JPY supply AU June retail sales +0.2% m/m against 0.5% expected AUD bid by less hawkish than expected Powell Wednesday Commodity recovery adds support iron ore up 3.5% Thursday Iron Ore recovered 20% from July 20 low Offers sited .7000/10 AUD/USD support is at Friday's 0.6876 low and break targets 0.6840/45 20 Day VWAP is bullish, 5 Day bullishBTCUSD Bias: Bearish below 25.3K BTC surges 8.0% Wed as FOMC delivers expected hike Rally puts price back into the VWAP uptrend channel But that might not be enough to keep momentum going Bulls need a close above 25k to gain significant upside momentum Closing below 21k will be a noteworthy downside development 20 Day VWAP is bullish, 5 Day bullish

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Market Update – July 28 – Stocks & Treasuries Rally, USD dives post FOMC

USDIndex tanked over a whole big number to 106.00, from 107.25 as the FED raised interest rates 75bp (its 4th rise in 2022). Ongoing rises will be be “appropriate” and they are “highly attentive” to Inflation. However, Powell gave no notice as weather 50bp or 75bp in September was appropriate*. US Stocks rallied hard** (NASDAQ +4.06%), betting on 50bp. NVDA+7.60, AMZN+5.37%, TSLA+6.17%. However, after hours Meta +6.55% posted a 1% DECLINE in Revenue (the first in its history), shares dropped -4.65%.  Asian markets mixed (1 million in Wuhan in lockdown again) (Hang Seng -0.35%, Nikkei +0.23%). European FUTS higher. Yields up again +1.78%,  Oil rallied to $98, Gold higher at $1740 and BTC moved up to $23k.

Biden & Xi due to speak today, Manchin (the Dem. Senator holding up Biden’s climate Bill) backs down. PBOC to pump $148bn to stabilize real estate sector.

• USDIndex weakens further to 105.92 now. YEN outperforms in Asian session.
• Equities – USA500 closed higher +102.56 pts (+2.62%) (4023), US500FUTS at 34019 now. 4th 8%+ rally of the year, previous 3 have resulted in lower lows..is the bottom in or is it a dead cat bounce? 
• Yields 10-year yield dived into close  2.734%, recovered to 2.78% now. 
• Oil – in–focus again as inventories had a 4.5m drawdown vs 1.5m, rallied to $98.90. 
• Gold weaker USD also helped lift the precious metal to $1740 highs currently from $1711 lows yesterday. 
• Bitcoin also rallied to trade at $23.1K now. 
• FX Markets – EURUSD rallied from within 7 pips of 1.0100 yesterday to trade at 1.0227, USDJPY dived under 135.30 now, from 137.50 yesterday. Cable broke resistance at 1.2080 to trade to 1.2180 now. 

Overnight – NZD Business Confidence improves (-56.7 vs -62.6) AUD Import Prices slip and Retail Sales miss significantly (0.2% vs 0.9%) 

Today – German CPIs, US Q2 GDP Advance, Q2 PCE. Earnings from Barclays, Anglo American, Nestle, EDF, L’Oréal, Amazon, Apple, Intel, and many more.

Biggest FX Mover @ (06:30 GMT) USDJPY (-0.87%). Rejected 137.50 yesterday and tested to 135.15 lows earlier. MAs aligned lower, MACD histogram negative & falling, RSI 31.55 & falling,  H1 ATR 0.361, Daily ATR 1.225.

 

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Stuart Cowell

Head Market Analyst

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SOYBEAN，H4 | Potential Bullish Continuation

Type: Bullish BreakoutKey Levels:Resistance: 1652.38Pivot: 1565.69Support: 1493.93Preferred Case:On the H4, with price recently breaking out of the descending trendline, we have a bullish bias that price will continue to rise from the pivot at 1565.69 at the pullback support in line with the 38.2% fibonacci retracement to the 1st resistance at 1652.38 at the swing high in line with the 61.8% fibonacci retracement.Alternative Scenario:Alternatively, price may reverse off the pivot and drop to the 1st support at 1493.93 at the pullback support.

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Trading: Dunelm will keep growing, here's how to play it

Furniture retailer Dunelm surged during the pandemic, but its shares have since fallen back. But it is well placed to take more market share from rivals, says Matthew Partridge. Here, he explains how to play the Dunelm share price.

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Preview of the FOMC Meeting: Hints on Interest Rate Path in 4Q Could be the Key Thing to Watch

Greenback index continues to consolidate in a tight range on Wednesday in the run-up to the FOMC meeting. The range has been forming for about a week and indicates short-term equilibrium in USD supply and demand before the release of key market information. The presence of the pattern suggests that a breakout on Fed information will indicate the direction of a fresh trend leg. From a technical perspective, the market looks poised to test the lower edge of the channel (105.70-106) before possible resumption of the upside:The risk of surprise in the policy today is quite low, according to Fed funds rate futures, the chance of a 75 bp rate hike is more than 90%. At least two Fed speakers stated unequivocally that they will vote for 75bp, leaning towards the idea that the US inflation spike in June above 9% was transitory. In addition, data from the U. Michigan showed that inflation expectations declined in July, which in fact is one of the key goals of the Fed’s monetary tightening. It’s also important to note that the Fed rarely goes against market consensus, so most likely today we will see a rate hike of 75 bp and a lack of significant market reaction to this outcome.Instead, market participants can focus on hints that may help to assess the size of rate hikes in 4Q meetings. Current consensus on market estimate of the rate path suggests that the Fed will deliver 50 bp in September and 25 bp in November and December. Any surprises in this direction will likely determine short-term demand for USD and US Treasuries of shorter maturity.The Fed will not release updated economic forecasts or a Dot Plot at today's meeting, so keep in mind that Powell's press conference and FOMC statement will be the main sources of information.The Conference Board's report on consumer confidence, released yesterday, pointed to a weakening US expansion in the third quarter. The key indicator has been declining for the third month in a row, although not as fast as in June. The current conditions index, based on consumer assessments of business prospects and the state of the labor market, fell from 147.2 to 141.3 points. The Expectations Index also moved lower, but the decline turned out to be insignificant - from 65.8 to 65.3 points:Inflation expectations, according to the CB report, fell to 7.6% from 7.9% in June.The moderately weak report and the signal of easing inflation expectations have become another argument in favor of the fact that the Fed will be cautious today, raising the rate by 75 bp and will likely hint at a slowdown in the pace of policy tightening in line with current expectations.

from Tickmill Expert Blog - Forex Traders Blog https://www.tickmill.com/blog/preview-of-the-fomc-meeting-hints-on-interest-rate-path-in-4q-could-be-the-key-thing-to-watch"
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10 Year US T-Note Futures (TN1!), H4 Potential For Bullish Rise

Type: Bullish RiseKey Levels:Resistance: 131'06'0Pivot: 130'00'0Support: 128'12'0Preferred Case:On the H4, with prices moving above the ichimoku indicator, we have a bullish bias that price will rise to the pivot at 130'00'0 where the pullback resistance is. Once there is upside confirmation that price has broken the pivot , we would expect bullish momentum to carry prices to 1st resistance at 131'06'0 where the swing high resistance, 61.8% fibonacci projection and 127.2% fibonacci extension .Alternative Scenario:Alternatively, price could drop to the 1st support at 128'12'0 where the pullback support, 50% fibonacci retracement and 100% fibonacci projection are.Fundamentals:No Major News

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Walmart’s latest shock profit warning tells us a lot about the post-pandemic world

US retail giant Walmart has issued its second profit warning in ten weeks as consumer spending habits shift. That’s bad news for Walmart, says John Stepek – but is it bad news for the rest of the economy?

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Downside USD Risks Into FOMC?

USD Off Highs Ahead of FOMCAhead of the conclusion of the Fed’s two-day FOMC meeting later, the question traders are grappling with is whether the Dollar has room to run higher here? The Dollar Index is around 12% higher on the year, sitting just off the highs printed earlier in the month. Much of the recent correction was fuelled by two Fed members pushing back against the idea of a larger 1% hike on the back of record inflation in June. Following the larger-than-signalled .75% hike in June, traders began adjusting their rates view higher for this month until those comments from Waller and Bullard.The reaction to those comments shows just how elevated USD upside positioning has become as well as the sensitivity in markets as traders seek to gauge when the Fed is likely to begin slowing the pace of hikes or even pausing tightening altogether. That time might soon be approaching.Consumer Confidence Drops in JuneThe latest data yesterday showed consumer confidence cratering once again last month. With inflation soaring and financial conditions tightening, fears of a slowdown are growing. We’ve also seen a slew of big US companies issuing profit warnings and or undershooting earnings forecasts. Walmart downgrading its profit outlook yesterday has been viewed as a clear warning sign over recession risks.Traders will therefore be paying close attention to the Fed’s outlook and forward guidance today. Regardless of whether the Fed opts for a .75% or 1% hike, the larger market impact is likely to come from its comments around growth concerns and recession fears.Recession Fears in FocusIf the Fed is seen sounding more alarmed over economic conditions and the growth outlook, this might well fuel a reduction in traders rate projections over the rest of the year. In particular, any signal that the Fed is willing to reduce the size of its rate increases from September would likely weigh heavily on USD near-term. Indeed, USD has fallen following six of the last eight Fed rate hikes, raising downside risks for the Dollar into today’s meeting.Technical ViewsDollar IndexDXY has been moving higher within a broad bullish channel this year. However, recent peaks have seen plenty of bearish divergence on momentum studies, raising reversal risks. Price is currently being underpinned by a bullish trend line within the channel. If 105.70 breaks, this might be the signifier for a deeper move towards 104.03 initially. Topside, 108.77 is the level for bulls to break.

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Beware of cheap emerging markets

Emerging markets look cheap, but tread carefully – they tend to be highly cyclical and a global recession would weigh heavily on them.

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Who will follow Sri Lanka into a debt crisis?

Sri Lanka defaulted on its debt in May as soaring global food prices and a tourism slowdown collided with years of profligate state spending. Which countries could follow?

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Investment Bank Outlook 27-02-2022

Credit AgricoleCould the US economy already be in recession?The advance Q2 GDP report is set for release later this week, and while the Bloomberg consensus and our own forecast sit in positive territory, other models are tracking a negative print. If so, this would represent a second consecutive contraction, which is sometimes referred to as a “technical recession”.However, the official arbiter of recessions in the US is the Business Cycle Dating Committee of the National Bureau of Economic Research (NBER), which defines a recession as “a significant decline in economic activity that is spread across the economy and that lasts more than a few months”.In the committee’s definition, there is no mention of two consecutive quarters of negative GDP. Instead, the NBER relies on a variety of monthly indicators including real personal income less transfers, nonfarm payroll employment, real personal consumption expenditures, employment in the household survey, and industrial production.A closer examination of these measures shows that all of these metrics are above levels typically associated with recession, in some cases significantly so. With the NBER’s usual indicators not consistent with recession at the moment, we believe it is unlikely the NBER will determine that the US was in recession in H122, even if Q2 GDP shows a second consecutive contraction.To be clear, this analysis is not meant to rule out recession. Economic activity has exhibited a clear slowdown in momentum through Q222 and, with inflation stubbornly elevated and the Fed tightening aggressively, we expect further slowdown into next year, making recession a real possibility. However, if a recession does arrive, we expect that to happen late in the year or into 2023 as opposed to already being here.INGUSD: Post-FOMC correction possible, but likely shortThe dollar enjoyed a corrective rally yesterday, rising mostly against European currencies as market fears about a gas crunch in Europe rose further (more in the EUR section below). Also contributing to the dollar move were some shockwaves sent across equity markets from US earnings jitters, and possible market positioning ahead of today’s FOMC.We suspect this pre-FOMC dollar rally has reduced the scope for a positive impact on USD today. A dollar correction after the FOMC announcement would not be out of the ordinary after all: when looking at the six hours after previous rate announcements, the DXY index dropped in six of the last eight occasions.EUR: A grimmer outlookThe euro has come under pressure with other European currencies as Russia is reportedly planning to keep squeezing gas flows into Europe, keeping them at minimal levels as long as the standoff over Ukraine persists. Meanwhile, EU members agreed on emergency plans based on a 15% gas consumption cut – even though some exceptions will be considered.The message that is being conveyed to markets at the moment is that what used to be a black swan risk has now morphed into a very tangible and constant threat. A complete shutdown of gas supply from Russia to the EU is now looking much more likely, and something that is unequivocally being priced into European assets.In FX, the euro, Swedish krona and Norwegian krone are looking particularly vulnerable. When it comes to EUR/USD, we could see a small correction higher (to 1.0170-1.0200) thanks to some “sell-the-fact” reaction after the FOMC announcement today, but the downside risks remain significant, and we suspect markets could take advantage of a temporary rebound in the pair to enter bearish EUR positions. A re-testing of parity in the near term still seems a very material risk.

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