Oil markets yet again showed why they are under so much stress at present as US crude oil inventories came in stronger than expected showing surplus of +4.5M barrels (2.8M barrels exp). This strong surplus shows what the market already knows, and that is in the long run the OPEC production cuts will have to be much greater to help drive a deficit in the market, and with shale producers able to just switch the taps on and off it could be very hard to drive prices up. One thing we can expect though is more jawboning from the major nations such as Saudi Arabia and Russia in order to try and get the market being more bullish, but so far those actions have hardly been effective when it comes to market movements. In fact so much so that the Russian comments the other day caused a brief spike before aggressive selling kicked in.
For oil traders it all seems very bearish at present, with the technical’s pointing to a clear downtrend and the fundamentals backing this up strongly. The previous days candle has shown though that there are some bulls in the market and we’ve been left a very long wick on the daily candle, this tells me that we could see some bullish action around this level for some time, and that the bulls can still catch the market out. If we do see the bulls have a run I would expect a push upwards to 48.97 and near the 50.0 fib level – though it would be hard work to push through unless we saw a change in the fundamentals. Further extensions lower are likely to find support around the 61.8 level with a long term support goal of 46.39.
The New Zealand economy had its monthly official cash rate decision today, and the Reserve Bank of New Zealand proceeded to hold rates flat at 1.75%. This should come as no surprise as the NZ economy has been a mixed bag as of late and the RBNZ is likely to remain accommodative when it comes to policy. It did however throw in its usual jawboning of the NZD but markets have come to expect this as in the RBNZ eyes it remains to high at present. For NZD traders though it’s not big news but it presents some interesting trading scenarios now.
NZDUSD has been the main focus for me, despite the murky nature of the USD at present. Strong resistance around the 0.7076 level has been preventing further momentum, and it will be hard work to get the NZDUSD higher at present. We could in theory see it look to fall back further and retest the support levels around 0.6887, but it may take some time to get to this level as economic data is quite weak this week apart from trade balance due out tomorrow.