Market Overview. In the past few months the oil price has been a key factor in driving market sentiment. Gains on oil have been a positive correlation to equity markets and risk appetite. The oil price has broken out above the previous rally high from March to close at its highest level since early December and sentiment has been boosted as a result. The move has come in front of what could be a crucial meeting in Doha on Sunday between OPEC and Non-OPEC countries over the prospect of a production freeze in oil. The news that two of the main players (Russia and Saudi Arabia) had reached an agreement has given the markets the boost. This has helped to drive FTSE 100 to a breakout of resistance yesterday, Wall Street to strong gains last night (S&P 500 up 1%) and Asian markets stronger across the board (Nikkei up 2.8% helped also by a weakening of the yen). European markets are also positive again today, but the oil price has just come off its highs overnight and this could hamper the gains slightly. Added into the mix was an unexpectedly positive reading on the China trade data which saw exports jump +11.5% (which was way better than the +2.6% the consensus expected). Furthermore, imports also were better than expected at -7.6% (-10.2% exp). Now to a certain extent we need to be cautious with these numbers due to the distortions of seasonality (mainly lunar new year), however this has still helped to boost markets today.
Performance on the forex majors shows that the US dollar is making a comeback today. It is interesting that this is coming as Treasury yields have started to pick up again, however the US dollar is showing gains across the majors, with euro, sterling and especially the yen all weaker. The commodity currencies (Aussie and Kiwi) are not quite so weak but the dollar has looked to find support today. The gold price has continued from yesterday’s slide and is again under a little corrective pressure. Interestingly the oil price has slid back by almost 2% and this could curb some of the rally on the European equities today.
Traders will be looking towards the release of US retail sales today at 1330BST which are expected to show a month on month gain of +0.4% for the ex-autos data. This would reflect a slight stalling of the recent recovery in the year on year data. There is also the EIA oil inventories report at 1530BST which is expected to show a return to a build up of oil stocks by 2.6m barrels after last week’s surprise drawdown of 4.9m barrels.
Chart of the Day – USD/RUB
The Rouble has been recovering against the dollar fort the past few months as the Fed has dialled back on its tightening cycle. This has seen the price of USD/RUB falling from the high around 86.00 and yesterday’s breach of support around 66.70 has been another significant technical move. This support had been building from the late March and early April lows but the breakdown has completed another near term technical bearish continuation pattern (a consolidation rectangle break) which implies around 3.00 of additional downside and an implied target of 63.70. However more than that the 76.4% Fibonacci retracement of 60.70/85.97 at 66.67 has also been breached. This now re-opens for a full retracement back to the October low at 60.70. The momentum indicators are all bearishly configured and rallies are seen as a chance to sell. The old support at $66.68 is new resistance. The hourly chart shows that there are intraday pops to the upside that are failing at consistently lower levels. There is resistance at 66.40 and yesterday’s high at 66.97. There is also a near term pivot resistance at 67.40. Next support comes in at 64.29 and then not until 62.04.
