The Week Ahead – Oil Holds Despite OPEC-Led Volatility

July 9, 2021

USOIL tanks amid OPEC+ deadlock

Oil markets took a hit after OPEC+ supply talks fell apart. The cartel is now between a rock and a hard place.

On the one hand, the Saudis cannot afford to grant a higher quota to the UAE as it may create a precedent for other members, to the detriment of a future rally. On the other hand, an extended stalemate may cause the current agreement to be abandoned.

Markets fear this could turn into an ‘every man for himself’ situation, a reminiscence of the Russia–Saudi Arabia oil price war last year.

WTI is retreating to the rising trendline (69.50). A rebound may give the bulls the hope to reach the psychological level of 80.00.

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USDJPY falls as sentiment erodes

The Japanese yen rallies as the world braces for a surge of the Delta COVID-19 variant. Rising cases across Europe and the US are testing investors’ nerves once again.

While vaccination campaigns go on, lockdowns and prolonged travel restrictions could put a hard brake on the recovery. Markets have taken a ‘better safe than sorry’ approach to bidding up safe-haven assets.

Even though the BOJ is expected to slash its economic forecast this week, cautious sentiment is likely to support the yen in the near term. The greenback has met stiff selling pressure at March 2020’s high at 111.70.

109.20 is the first support on its correction course.

USDCAD rebounds amid commodity sell-off

The Canadian dollar weakens amid broad sell-off in risk assets.

The BOC’s tapering effect has worn out after the Fed planned to cut its own asset purchasing program by the end of this year. The market’s risk-off mode is taking a toll on commodity-linked currencies.

While the rally in the oil price (Canada’s major export) had offered a floor to the Loonie, its sharp correction now has pulled the rug out. The US dollar may bounce higher if the BOC strays from its hawkish path.

The pair is testing the major resistance at 1.2650, a bullish breakout may build a base for reversal. 1.2300 has established itself as the closest support.

NZDUSD holds as hike expectations rise

The New Zealand dollar consolidates ahead of the RBNZ meeting this week.

The kiwi has fared fairly well up to February thanks to the country’s management of the pandemic and anticipation of policy normalization. The latest correction is likely due to the US Fed joining the tapering club and traders taking profit off the year-long rally.

The kiwi remains structurally sound as GDP growth and inflation pressure could call for monetary tightening. Further appreciation could be expected if the RBNZ brings forward its hike schedule.

A bounce above 0.7150 may pave the way for a trend continuation. A drop below 0.6900 could lead to 0.6700.

By Orbex