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Abstract:Crude oil prices may struggle to sustain gains even as overall market sentiment brightens if EIA inventory data reveals stockpiles grew last week, souring demand bets.
Crude oil, gold price performance chart created using TradingView
CRUDE OIL & GOLD TALKING POINTS:
Crude oil prices rise with stocks as risk appetite broadly improves
Easing geopolitical risks, dovish Fed commentary buoying markets
EIA inventory data may cap oil gains after downbeat API results
Crude oil prices rose alongside stocks as risk appetite improved across global financial markets. Moderating political risk in Italy, the UK and Hong Kong helped buoy investors spirits. Dovish comments from New York Fed President John Williams likewise helped.
Rome is set for a new government excluding the EU‘s budgetary nemesis, Matteo Salvini. The UK Parliament foiled the government’s moves to allow for a no-deal Brexit. Hong Kong Chief Executive Carrie Lam withdrew the controversial extradition law that sparked violent protests over recent months.
For his part, Mr Williams said the US central banks “number one goal” is to keep the economic expansion alive, to which end policymakers will “act as appropriate”. Tellingly, he flagged global uncertainties as a major factor, bolstering bets on further easing this month despite relatively resilient domestic data flow.
Bond yields fell while the priced-in outlook for policy implied in rate futures moved further toward the dovish end of the spectrum as Williams. That burnished the relative appeal of non-interest-bearing assets, offering a familiar boost to gold prices. A broadly weaker US Dollar also helped the anti-fiat yellow metal.
CRUDE OIL BUOYED IN RISK-ON TRADE BUT INVENTORY DATA MIGHT TRIM GAINS
Oils ability to capitalize may be undermined however if EIA inventory flow data echoes API projections for a surprise build. The trade group said stockpiles added 401k barrels last week. Analysts are expecting official figures to signal a 2.57-million-barrel outflow.
The chipper mood has pulled yields up anew, hurting gold. Incoming US ISM and PMI surveys, the ADP jobs report as well as factory and durable goods orders data may compound pressure if they echo the recent trend toward improvement in US news-flow, cooling stimulus expansion expectations.
GOLD TECHNICAL ANALYSIS
Gold prices are inching toward weekly chart inflection point resistance at 1563.00 but negative RSI divergence warns of ebbing upside momentum, hinting a top may be taking shape. A daily close below rising trend support at 1533.79 sets the stage to revisit the August low at 1480.00.
Gold price chart created using TradingView
CRUDE OIL TECHNICAL ANALYSIS
Crude oil prices continue to idle near trend resistance capping gains since late April, now at 57.22. Breaking above that on a daily closing basis opens the door to test the 60.04-84 area. Alternatively, a turn lower through the August 26 bottom at 52.96 targets support near the $50/bbl figure next.
Crude oil price chart created using TradingView
COMMODITY TRADING RESOURCES
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This week's economic events include: Japan's Monetary Policy Minutes and U.S. Services PMI on Monday, impacting JPY and USD. Tuesday's RBA Interest Rate Decision affects AUD, with German Factory Orders influencing EUR. Wednesday sees German Industrial Production and U.S. Crude Inventories impacting EUR and USD. Thursday: RBA Governor speaks, with U.S. Jobless Claims. Friday: China's CPI and Canada's Unemployment Rate affect CNY and CAD.
The USD/JPY pair rises to 154.35 during the Asian session as the Yen strengthens against the Dollar for the fourth consecutive session, nearing a 12-week high. This is due to traders unwinding carry trades ahead of the Bank of Japan's expected rate hike and bond purchase tapering. Recent strong US PMI data supports the Federal Reserve's restrictive policy. Investors await US GDP and PCE inflation data, indicating potential volatility ahead of key central bank events.
Bank of Japan board members are divided on rate hikes due to high living costs and price risks. Some urge caution, while others push for early action. The BoJ will closely monitor data ahead of potential interest rate adjustments. USD/JPY rallied past 158.40 to 159.00, maintaining a bullish trend towards the next target of 160.20.
The USD/JPY is expected to rise. The Bank of Japan will keep interest rates between 0 and 0.1% and continue its bond purchase plan but may reduce purchases and raise rates in July based on economic data. Technically, the pair is trending upward with resistance at $158.25 and $158.44, and support at $157.00, $156.16, and $155.93.