Oil prices swung violently before noticeably declining during trading on Tuesday following the disappointing production freeze agreement between top oil exporters Russia and Saudi Arabia which left investors empty handed. Not only has production been frozen at January 2016 record levels, which will have a minuscule impact on the excessive oversupply, the meaningless freeze is only valid on the premise of other producers joining in. While Russia and Saudi Arabia may be commended for their ability to take advantage of the explosively volatile oil markets which have allowed expectations of production cuts to translate into speculative boosts, investors are losing faith in the ability of oil producers to cooperate and as such this should result in more selloffs.
The obstacles for the pending production freeze are noticeably overwhelming as Iran remains on a quest to reclaim lost market share, while Iraq’s production continues to soar as it incessantly pumps to generate revenue to recover from years of conflict. OPEC’s greed has played a part in this painful decline and the visible conflict of interest between OPEC and Non-OPEC members suggests that low oil prices may be the theme for an extended period. WTI Oil is heavily bearish on the daily timeframe and a solid breach below $29 may open a path to $25 and $20 respectively, a level which may leave all producers under immense pressure to move forward with a real production cut.
From a technical standpoint, prices are trading below the daily 20 SMA while the MACD has crossed to the downside. Previous support at $30 should act as a dynamic resistance which should encourage sellers to send prices towards $25.
Stock markets decelerate
The violent swings in the oil markets yesterday triggered a wave of risk aversion which punished risk appetite and consequently left global stocks under pressure. Asian equities were mostly down on Wednesday morning as the sharp decline in oil prices overwhelmed the previous optimism around the Bank of Japan unleashing further stimulus measures to boost growth. European and American equities may follow the same negative pattern as anxious investors systematically flock away from riskier assets amid the oil production freeze which may have opened the door to lower oil prices. With ongoing fears towards slowing global growth still alive and investor confidence towards the global economy quite fragile, stock markets may be in for more pain in the near term.
GBPUSD breaches 1.44
The GBPUSD breached the stubborn 1.44 support sinking to fresh weekly lows at 1.425 during trading on Tuesday as risk aversion swept across the board amid the crash in oil prices. This pair was already under immense pressure from the elevated anxieties over the potential Brexit vote, while the eroded expectations around the Bank of England raising UK rates in 2016 diminished investor attraction towards the pound. Although CPI for January 2016 rose by 0.3%, this tepid figure is still far from the 2% goal and may have acted as a catalytic which enabled bearish investors to attack the GBPUSD towards 1.42
From a technical standpoint, this pair is bearish as prices are trading below the daily 20 SMA while the MACD has also crossed to the downside. Previous support at 1.44 should act as a dynamic resistance which may offer a further decline towards 1.42.
FOMC minutes preview
The main focus today will be the FOMC meeting minutes this evening which should provide some clarity on how and when the Fed may decide to raise US rates in such unsteady economic conditions. It must be understood that expectations over another rate hike in March continues to fade as ongoing China woes and heavy declines in oil prices have left the US economy open to downside risks, while mixed data from the States challenges the data dependent approach taken by the Fed. In the testimony last week the Fed remained firm towards the view of raising rates at a gradual pace and today’s minutes will be interesting to see why this view has survived despite financial conditions in the US becoming less supportive of growth. A dovish reading FOMC minutes may open leave the USD vulnerable as any remaining expectations towards the central bank taken action anytime soon is erased.
Commodity spotlight – Gold
Gold bulls decided to exploit the re-established wave of risk aversion from the sharp decline in oil prices and this offered a platform for the precious metal to trade back above $1200. The noticeable support just above $1185 may provide a foundation for prices to appreciate and with expectations around US interest rates raised in 2016 quite dim, bullish investors may have been provided an opportunity to install another round of buying. This yellow metal still remains bullish and USD weakness may act as a catalyst for a sharp incline back towards $1263. From a technical standpoint a breakout above $1215 should open a path towards $1263 and potentially higher.
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