IEA sees 'hefty' oil supply cushion building in 1H 2020

IEA comments in its latest report on the oil market

Oil

The agency says that it expects global oil markets to remain "calm" next year as soaring non-OPEC production and high inventories will keep consumers comfortably supplied.

Adding that non-OPEC supplies will increase by 2.3 mil bpd next year, almost twice the expansion in global oil demand. That is a 100k bpd upgrade from its estimate last month.

"The calmness is supported by a well-supplied market and high inventories. This may continue into 2020 because non-OPEC countries will grow their production significantly.

The hefty supply cushion that is likely to build up during the first half of next year will offer cold comfort to OPEC+ ministers gathering in Vienna at the start of next month.

However, a continuously well-supplied market will lend support to a fragile global economy."



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AUD/USD is looking down

A quick glance at the AUD/USD pair

FBS 1
The Asian trading session on Thursday wasn't kind to the AUD: Australia released weak labor figures and investors got worried about the prospects of the trade deal between the United States and China.

AUD/USD that has settled below the 100-day MA in the 0.6840 area. The pair is currently testing the 50% Fibo retracement level of the October advance around 0.6800. The loss of this support will lead the price down to 0.6770 (61.8% Fibo) and 0.6725 (78.6% Fibo). Resistance lies at 0.6815 (200-period MA on H4) and 0.6830/40.

FBS 2

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USD/JPY sits higher on the day but sellers still hold near-term control

USD/JPY buyers have much work to do in order to recapture near-term bias

USD/JPY H1 15-11

The pair is sitting higher on the day as the yen is weaker following renewed hopes of a trade deal from Kudlow's remarks earlier. The bounce also comes after sellers ran into support around 108.27 in overnight trading.

Despite a slight nudge higher, sellers remain in near-term control as price holds under both key hourly moving averages.

In that sense, price action suggests that markets are a tad more positive on trade talks but not to the extent to fuel a significant shift in the risk mood just yet.

As such, buyers still have much work to do if they are to try and take away near-term control from sellers in the coming sessions.

The first key resistance point is the support-turned-resistance at 108.65 before the key hourly moving averages around 108.88-98 come into play. Those will be the two key levels to watch out for in the event buyers extend the move earlier today.

But as mentioned earlier, markets could yet err on the side of caution if there are no follow-up headlines to bolster the positive narrative from Kudlow.

A case of easy come, easy go may just reinvigorate sellers to test support at 108.27 and then the 108.00 handle next as they continue to hold near-term control.



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Cable buyers face test to keep near-term upside move going after weaker UK retail sales data

GBP/USD made a run higher ahead of the data release above the 200-hour moving average, can buyers hold on after the data disappointed?

GBP/USD H1 14-11

Buyers held a defense of the trendline support earlier today before moving back above the 100-hour MA (red line) once again. The upside move gathered some momentum going into the UK retail sales data release with price testing a high of 1.2867.

However, the data was once again disappointing and that is tempering with gains a little as buyers now look to try and hold price above the 200-hour MA (blue line) @ 1.2850.

If they can manage that, the near-term bias turns more bullish with further resistance seen towards 1.2872-74 and then closer to the 1.2900 handle.

While election sentiment is the major factor driving the pound right now, the softness in economic data (jobs, inflation, consumption) this week should not go unnoticed.

If anything else, this will lower the threshold for traders to start increasing easing bets by the BOE in the coming months - even as the Brexit fog is yet to be lifted.

That could yet come back to bite at the pound if we see further deterioration in the economy as traders continue to look past data releases in favour of Brexit for the time being.



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AUD/USD sellers look to extend downside momentum below 0.6800

The aussie continues to be dragged lower by a softer jobs report and weaker risk sentiment on the day

AUD/USD D1 14-11

Price action is starting to run away from the 100-day MA (red line) after a break below said level earlier in the week, with sellers now extending the bearish momentum towards the 0.6800 handle.

The catalyst for the move today is the softer jobs report as well as the defensive risk mood amid caution seen in US-China trade talks during the week.

Bond yields are sinking further on the day now with US 10-year yields down by over 5 bps to 1.835% and that is further weighing on the risk mood today.

For AUD/USD, price is threatening to hold a break below the 25 October low @ 0.6809 with sellers testing the 50.0 retracement level @ 0.6801 currently.

A break below the latter as well as bids around the 0.6800 level will open up some decent momentum towards the downside if the fundamentals allow for it.

The 0.6700 handle will be a key level that sellers are keeping their eye on upon a break with a daily close below that likely to precipitate further weakness in the pair.

As things stand, the market is only pricing in a ~28% chance of a RBA rate cut next month (it was ~14% yesterday) but if economic data continues to worsen and if US-China trade talks break down, that could yet accelerate those odds and weaken the aussie further ahead of the 3 December monetary policy decision.



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US MBA mortgage applications w.e. 8 November +9.6% vs -0.1% prior

Latest data from the Mortgage Bankers Association for the week ending 8 November 2019


  • Prior -0.1%

  • Purchase index 253.4 vs 241.0 prior

  • Market index 568.4 vs 518.7 prior

  • Refinancing index 2,374.6 vs 2,102.7 prior

  • 30-year mortgage rate 4.03% vs 3.98% prior

Headline measures the change in number of applications for mortgages backed by the MBA during the week. Once again, the rise this week owes much to refinancing activity but overall purchases are also seen higher so there's that.

The long-term mortgage rate is seen settling close to ~4% in recent weeks and with the Fed not looking to cut rates in the near-term, home buyers may not get more added comfort in the meantime.



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Cable still caught in the middle, what are the levels to look out for today?

GBP/USD continues to bounce around between key hourly moving averages

GBP/USD H1 13-11

There's a slight hint of softness in cable in the past hour but in terms of overall price action, the move still leaves a lot to be desired.

Trading this week has seen price bounce around between key hourly moving averages and that continues to define price action in the pair currently.

It's all about election sentiment and so far there hasn't been much to shift the dial in that regard over the past few days.

As such, cable continues to mainly sit in limbo caught between the 100-hour MA (red line) and the 200-hour MA (blue line). Near-term bias remains more neutral for now.

In terms of short-term moves, buyers and sellers will look to push and pull to try and seize control on either side of a break of the levels above.

However, I don't see price running away from the 1.27 to 1.30 range as long as election sentiment continues to stay the way it is at the moment. So, that's the sort of range I'd anticipate to play around on either side of a break of the near-term levels.

Looking ahead today, there will be UK CPI data to come but I won't expect that to have a significant impact on price action.



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NZD/USD higher after RBNZ decision earlier, buyers look to extend upside momentum

NZD/USD lingers near the 0.6400 handle ahead of European trading

NZD/USD H1 13-11

The decision by the RBNZ earlier to leave its OCR unchanged saw the kiwi spike higher, with NZD/USD rising above both its key hourly moving averages.

As such, buyers are now in near-term control and the jump saw price move above the 0.6400 handle before retracing a little to levels just around the figure level.

That is now the key resistance area that buyers must try and break above to keep the upside momentum going, as well as breaking the 61.8 retracement level @ 0.6411.

Despite maintaining an easing bias, the willingness for the RBNZ to keep monetary policy steady suggests that even a Q1 2020 rate cut may not necessarily be on the cards.

As such, with many more months of economic data to navigate through, trading sentiment in the kiwi will then shift more towards how the global economy and risk will perform.

US-China trade talks will be one of the major risk factors in that regard but also keep an eye out on NZ economic data from time to time.

I am of the view that the RBNZ may find itself more disappointed by the data over the next few months but we can only trade what is in front of us and until the data shows further sluggishness, it will be tough to imagine markets significantly pricing in rate cuts again - especially after getting burned today.

For NZD/USD, any further upside momentum will also be tested by the 100-day moving average @ 0.6448. Ultimately, that will be a key resistance level that buyers have to try and break above before attempting a move towards the 0.6500 handle.



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UK September average weekly earnings +3.6% vs +3.8% 3m/y expected

Latest data released by ONS - 12 November 2019


  • Prior +3.8%; revised to +3.7%

  • Average weekly earnings (ex bonus) +3.6% vs +3.8% 3m/y expected

  • Prior +3.8%

  • ILO unemployment rate 3.8% vs 3.9% expected

  • Prior 3.9%

  • Employment change -58k vs -102k expected

  • Prior -52k

  • October jobless claims change 33.0k

  • Prior 21.1k; revised to 13.5k

  • October claimant count rate 3.4%

  • Prior 3.3%

Wage growth is seen slowing down a little but I think the notable thing in the report here is that we're seeing employment fall further (-58k). The figure there is the biggest fall in the three months to May 2015.

If anything, it continues to highlight a bit of a contrast in the UK labour market report. Wages are still relatively robust despite some a minor drop in recent months but employment figures are showing signs of further decline.

That said, all of this matters little for the pound at the moment as Brexit uncertainty continues to put the BOE on the sidelines. It's all about the election now.

Cable is seen steady around 1.2825-35 on the report release, after having moved off lows of 1.2816 earlier in the session.



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Japan October preliminary machine tool orders -37.4% vs -35.5% y/y prior

Latest data released by the Japanese Machine Tool Builders' Association


  • Prior -35.5%

Export orders continue to slump and reaffirms the weakness seen in the global manufacturing sector. Japan is no exception to that and this will feed into another sluggish economic performance in the final quarter of the year.

The reading measures the change in total value of new orders placed with Japanese machine tool manufacturers.



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