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Last week’s trading was passing in hopes for the positive result of the OPEC+ negotiation. The result is there now, and we will quickly scan it for the possible outcomes in the next paragraph. Apart from that, the British Prime minister’s treatment in the ICU was another big factor pressing on the Forex market. Lastly, European infection dynamics and the economic response preparations were the third large element that shaped the trade. What happened to each “story” and what do we have to start with week with? We will see them one by one.
Let’s not be pessimistic: the deal is there. 9.7mln barrels per day will be the total supply quantity cut starting from May 1. The market applauded not only to OPEC+ but to Donald Trump personally. A hater of the cartel just a while ago, he is the one who finally convinced Mexico, Russia, and Saudi Arabia to get the deal done. Or so it seems. Anyway, that’s another ace for him to claim in preparing for the November election campaign. How does the oil price look now?
Not really impressive. The hopes for a “definitive victory” which were pushing WTI above $25 are largely erased: strategically, it is now closer to $20 than anywhere else. Why? Mostly, because this 10% output cut comes too late and is too little. The global demand now is roughly 30% lower than the pre-virus level at which the market was stabilized. Cutting 10% leaves the remaining 20% “in the air”. In addition to that, the date which makes the OPEC+ agreement effective is May 1 – that is three weeks away. During that time, the market will be in the free-for-all state. Meaning, everyone pumps as much as they want. That’s why the almost 10mln-barrel-per-day cut appears more like a reality-forced recognition gesture rather than a proactive forward-looking market rectification step.
This was the Sunday news headline about Boris Johnson:
Source: Bloomberg
It’s hard to deny that such a dramatic comment makes the victory of the British Prime Minister over the virus even more shining, emblematic, and inspiring. At least, to his British fellow citizens. It should have supported the British pound as well. Has it?
Indeed, the GBP rose to test 1.2540 against the USD. It broke the four-week resistance of 1.2450, converting it into the current support level, and left the Moving Averages below. Moving further upwards, however, will require something more fundamental rather than one famous individual’s (even if that’s a very important individual) victory over the disease. Does the UK economy have that? Time will show.
The infections picture in mainland Europe seems to be slowly improving. Spain, Italy, and France are reporting decreasing dynamics of the virus spread. The lockdowns are planned to stay in power for several weeks more, subject to authorities’ confirmation, to ensure that the virus spread is sealed. That pushes the biological threat to the second place and pulls the economic agenda into the front row of the agenda. Recently, a financial aid package was formed by the EU finance ministers, but the problem was for the country leaders to approve them. It remains a problem gives the political and economic discords between the states, and this week, we will say how this card is played. That should be the main reason why EUR/USD is now kept in a “waiting” mode.
Currently traded at 1.0932, it goes into consolidation between the resistance of 1.0970 and support of 1.0920. At the same time, the secondary layer of the movement channel is presented by the Moving Averages: 50-MA and 100-MA support the currency pair at around 1.0850, and 200-MA is capping the upside at 1.1030. Very likely, EUR/USD will be staying pretty silent until some decisive fundamental factor comes to the stage.
The United States Bureau of Labor Statistics will publish the US Consumer Price Index (CPI) m/m on January 12 at 15:30 GMT+2. The index measures a change in the price of goods and services purchased by consumers.
The US dollar index keeps rounding above the 103.60 historical support level. The buyers have already defended this level for three weeks, highlighting their interest in the greenback. Thus, buying USD looks less risky right now.
On the H4 timeframe, the US dollar index has formed a bullish falling wedge. At the beginning of the trading session, the price is testing the upper border of this wedge. Thus, in case of a higher-than-expected Core PCE Price Index m/m, the US dollar will skyrocket against other currencies.
The Reserve Bank of Australia (RBA) will make a statement and release a Cash Rate on February 7, 05:30 GMT+2. It's among the primary tools the RBA uses to communicate with investors about monetary policy.
This week may be the most important since the year started as the Fed assess the economic outlook and the US presents fresh NFP readings.
S&P Global, a private banking company, will release a monthly change in British Flash Manufacturing Purchasing Managers Index (PMI) on January 24, 11:30 GMT+2. The index is a leading indicator of economic health as businesses react quickly to market conditions, and purchasing managers hold the most current and relevant insight into the company's view of the economy.
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