Oil prices were unable to make any significant headway in European trading on Tuesday and subjected to fresh selling pressure in New York with Brent retreating to fresh 3-week lows near $53.60/barrel.
WTI broke below the $51.0/b level compared with 18-month highs just above $55.0/b seen at the beginning of last week and hit the lowest closing level for over a month.
There were further concerns that US production would increase this year after the latest EIA report. There was renewed speculation that hedge funds were looking to trim very substantial long positions which also undermined sentiment.
The latest API inventories data recorded a slightly higher than expected build of 1.5 million barrels which limited the potential for a rally in crude, especially with a further increase in fuel inventories which raised some concerns over demand conditions. Brent traded around $53.70/b on Wednesday with WTI edging higher to $51.00/b.
The US NFIB small-business confidence index rose sharply for the second month running with an increase to 12-year highs of 105.8 from 98.4 previously. Most of the improvement reflected increased confidence in the outlook rather than a major shift in current conditions.
The job openings data was slightly weaker than expected at 5.52mn for November from a downwardly-revised 5.45mn previously with the labour market still firm, but possibly slowing very slightly.
EURUSD again hit selling interest above the 1.0600 level with support on approach to 1.0550. There were no significant Eurozone developments and the euro drifted slightly lower on Wednesday with markets looking for further guidance on likely US policies under the new US administration.
USDJPY found support above the 115.00 level on Tuesday while there was selling interest above 116.30 as consolidation was the dominant feature. US bond yields were little changed on the day which stifled activity. Lower oil prices had some negative impact on the dollar which settled around 115.75.
US Treasuries were little changed in Asia and the dollar again hit selling interest above 116.00 with the market cautious ahead of a scheduled press conference by US president-elect Trump on Wednesday.
There was a more stable tone surrounding the Chinese yuan which curbed market volatility and lessened potential defensive yen demand.
There were no significant UK fundamental developments during the day with sterling moves primarily sentiment driven amid the ongoing debate surrounding Brexit negotiations.
Markets were frustrated in their attempts to push GBPUSD below the 1.2100 level which helped trigger a limited round of short covering as EURGBP retreated back below the 0.8700 level.
The trade and industrial production data as well as testimony from Bank of England governor Mark Carney will be an important focus during Wednesday with markets dragged back to contemplating fundamentals.
USDCHF was unable to mount a test of the 1.0200 level while EURCHF was held close to 1.0730 as the Swiss currency continued to resist significant selling pressure.
Further evidence of pressure on companies to cut labour costs maintained speculation that the National Bank would resist currency gains.
AUDUSD and USDCAD
AUDUSD found support on approach to 0.7330 and rallied to test 3-week highs just above 0.7380 as a slightly weaker US dollar provided net support along with a firm tone in commodity prices. The pair held firm on Wednesday with stability surrounding the yuan providing support.
The Canadian dollar gained some support from a stronger than expected reading for housing starts, although the impact was offset by falling oil prices. USDCAD again found support below the 1.3200 level with gains to the 1.3250 area as energy prices continued to decline later in US trading, but the US dollar struggled to sustain gains.
Major events for the day ahead: (times in GMT)
0930: UK industrial production
1530 US crude oil inventories
GBP crosses look prime to turn today and here is why:
Monthly – Pulled higher from the Fibonacci confluence area at 1.1593-1.1392. We now have three months of Inside Harami Candles, but that is not surprising after such an aggressive selloff.
Weekly – We look for the last wave (5th) to now be complete at 1.1498. Expect trading to remain choppy while the market re-establishes longs.
Daily – Broken out of the channel to the downside but the selloff has stalled close to the previous swing low of 1.2082
Intraday (six- hours) – Slightly over extended the 261.8% level at 1.2180 (from 1.2773-1.2546). The Elliott wave bear count (5 waves) is now considered complete.
Intraday (30 minutes) – Looks to be forming a bullish reverse Head and Shoulders pattern. Bullish Outside Candle on 30 minutes combined with a Demark correction has triggered the long. The measured move target on a break of 1.2200 is 1.2280 offering a great risk against reward trade.
Daily – We look for the right shoulder of a bearish Head and Shoulders pattern to now be complete. Prime short entry today is at 0.8720.
Intraday (two- hours) – Higher lows look to be forming an ascending triangle formation. On a break of 141.42 the measured move target is 142.68.
Management and risk description
Entry: Long GBPUSD at 1.2166
Time horizon: this week
Long GBPJPY at 141.29
— Edited by Clare MacCarthy
Non-independent investment research disclaimer applies. Read more