Thursday 13, July 2017 by Georgina Enzer

Oil higher after API reports huge draw: FXTM

FXTM Research Analyst Lukman Otunuga comments that the Oil is higher after API reports huge draw

Oil higher after API reports huge draw 

WTI Crude edged higher during Wednesday’s trading session with prices clipping $46.00 after reports that the Energy Information Administration (EIA) was lowering its forecast for 2018 production, encouraged investors to profit take. The upside was complimented by reports from API showing a decline in US Crude which plunged almost three times more than forecast in the latest week, ultimately exciting oil bulls and easing some oversupply concerns.

Although Saudi Arabia exceeded its oil production cap for June as it pumped 10.07 million barrels, this was eventually overlooked by markets. While further upside could be expected in the short term amid the speculations of a cut in US production, gains may be limited by the firm oversupply dynamics of the markets. From a technical standpoint, WTI Crude is experiencing a technical bounce on the daily charts. Sellers still have some control below $47.

Dollar sluggish ahead of Yellen’s testimony

Yellen is scheduled to testify on the economy before Congress on Wednesday and Thursday; her remarks will be closely scrutinised for clues on when the Federal Reserve plans to raise rates. While markets expect Yellen to reiterate her hawkish remarks and upbeat outlook on the US economy, this may not be enough to support the US Dollar. Investors not only need fresh insight on when the Federal Reserve plans to raise rates, but also require greater clarity on the timings and magnitude of the balance sheet reduction. It will also be very interesting to hear Yellen’s thoughts on falling inflation rates and tepid wage growth, and how these may impact the Fed’s path to monetary policy normalisation.

A situation where nothing new is brought to the table may punish the vulnerable Greenback further. From a technical standpoint, the Dollar Index is pressured on the daily charts. A breakdown below 95.50 may open a direct path towards 95.00.

Sterling gifted a lifeline

Sterling bulls were offered a lifeline on Wednesday following a mixed UK employment report that slightly eased some Brexit-related concerns. The UK employment market continued to display resilience against Brexit, with the unemployment rate falling to 4.5 per cent for the three months to May, marking a landmark 42-year low. Despite the encouraging jobs picture, wage growth disappointed, signalling another fall in total earnings. With inflation outpacing wage growth, British consumers are seeing their spending power diminish and as such, may fuel concerns over the longevity of the UK’s consumer-driven economic growth. This simply takes us back to the question - will the Bank of England be willing to raise interest rates during such fragile economic conditions? Markets may pay very close attention to the UK’s macro fundamentals, political developments in Westminster and Brexit talks for further clues on what actions the BoE may take.

Commodity spotlight – Gold

Gold bulls received inspiration on Wednesday as investors sought safety, following reports of emails that show President Donald Trump’s son meeting with a Kremlin-linked Russian lawyer prior to the general elections last November. A weakening Dollar supported the metal further as prices found their comfort zone, around $1218. Although the zero-yielding metal has been noticeably pressured by the rising prospects of tighter global monetary policies, the return of uncertainty could support prices in the short term. From a technical standpoint, although Gold has popped higher it still remains under pressure on the daily charts. Sellers may exploit the current technical bounce to send prices lower with $1200 acting as a level of interest.

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