Posted on: 20 January 2016, by: Pepperstone Support, category: Market Review
WTI came under pressure again towards 28.20 on Tuesday. This influenced another round of “risk-off” trading in NY but by the close, not all was lost. Even equities ended slightly up on the day.
There were no game-changing developments during the risk rout. Just a continued stream news to enforce existing bearish sentiment:
Oversupply. For the second week in a row, the IEA said the oil gut should last through 2016. Language used on Tuesday was that supply could “drown” the market. For the record, the EIA forecasts that Iran’s crude production will grow by 300k barrels per day in 2016; 500k in 2017.
Geopolitics. Iran, keeping up with Saudi’s decision earlier this month, said the National Iranian Oil Company will reduce its official prices in North West Europe by $0.55 a barrel for its light crude and by $0.15 a barrel in the Mediterranean for delivery next month. Saudi Foreign Minister, in an exclusive interview with Reuters, was quoted as saying the country will not rule out seeking nuclear weapon if Iran gets one. He added that US involvement is key to regional and world stability.
Global growth. Highly flagged by recent comments from IMF officials, the organization cut its GDP forecasts: from 4.5% to 4.3% for 2016 and from 3.8% to 3.6% in 2017. China GDP projections remained at 6.3% in 2016, while Brazil saw a large downgrade from -1.0% to -3.5%
BoE Governor Carney used his first major statement since November 15 to continue signalling that rate hikes aren’t on the table in 2016. He made a fairly elegant swerve from his previous statement in July 2015 that the decision on when to make the first rate hike “will likely come into sharper relief around the turn of this year” (ie end-2015). Second, Carney highlighted a range of factors which imply the MPC do not need to follow the Fed’s decision to hike rates. Third, Carney laid out the same triggers for hiking rates as in his July 2015 speech. Carney’s words caused GBP to reverse gains seen in early London and break below the key 1.4230 support region. EURGBP also neared the 0.7755/67 target, marking the next major resistance area resides (2012 low, January 2015 break area). Now 0.7705.
There was also a distinctive surge in FX market volumes following the US equity open at 9:30 EST. Equities looked strong but the support soon faltered. This led to higher levels of interest for AUDUSD, USDCAD, and USDJPY, with the bias being to sell USDJPY and buy the two others.
EURUSD was more on the side-lines than usual, having failed a rally beyond 1.0940. Local data had no impact but for the record, Eurozone final CPIs for December were unrevised at 0.2% YoY. German Zew came in better than expected in January, with the current situation index edging up to 59.7 versus 53.1 consensus and the more important expectations index down to 10.2 versus 8.0 forecasted.