Daily Analysis | 22 November 2017
Today, the main event will be the release of the minutes from the FOMC’s latest gathering, where the Committee kept interest rates unchanged and provided no major signals about the future direction of policy. Indeed, the statement accompanying the decision contained very few changes compared to the previous one, with most of the differences being related to the recent hurricanes. The Committee simply noted that hurricane-related disruptions and rebuilding will continue to affect economic activity in the near-term, but past experience suggests storms are unlikely to alter the course of the economy in the medium-term. Given the lack of concrete guidance in the statement, we expect investors to scrutinise the minutes for any hints regarding the Committee’s overall view on the economy and in particular, on the recent soft patch in inflation. Considering that a December rate hike is almost fully priced in at the moment, the risks surrounding the dollar from this release may be tilted to the downside. Any concerned remarks that put the prospect of a December hike in doubt could work against the dollar.
USD/JPY traded lower yesterday, breaking below the support (now turned into resistance) barrier of 112.45 (R1). The rate continues to trade within the wide sideways range between the resistance of 114.30 and the support of 108.70 and as such, the broader outlook still appears to be neutral in my view. That said, the fact that the latest slide started after the price tested the upper bound of that range suggests that we could experience further declines within the range. The catalyst for the next leg down could be a relatively cautious tone in the FOMC minutes today. In such a case, the bears could take the reins again and aim for another test near the support barrier of 111.70 (S1), where a clear break could set the stage for more downside extensions, perhaps towards the 111.10 (S2) zone.
Support: 111.70 (S1), 111.10 (S2), 110.70 (S3)
Resistance: 112.45 (R1), 113.10 (R2), 113.80 (R3)
Oil extends gains on signs of supply disruptions
WTI rose further during the Asian day Wednesday, following news that Canadian crude supply to the US will likely fall a little this month, and the results of the latest API weekly oil inventory data. In terms of Canadian supply to the US, reports yesterday suggested that TransCanada Corp will cut deliveries to the US by at least 85% on its 590,000 bpd Keystone pipeline after the pipeline was shut last week following a major oil spill in South Dakota. The argument that US supply may decline somewhat in the next weeks was reinforced later in the day after the private API inventory data reported a much bigger drawdown than what was anticipated.
Looking forward, oil traders are likely to begin to turn their sights towards the highly-anticipated OPEC gathering next week, at least in the absence of any further news regarding supply disruptions. Market participants currently seem to be anticipating a 9-month extension of the current output-cut deal between the major producers. Thus, the main question now appears to be whether the cartel will deliver something over and above what is currently expected, such as an extension of more than 9 months or deeper cuts in production. Any hints from key officials that they could consider something like that could help WTI extend its recent gains.
WTI surged during the Asian morning Wednesday from near the support level of 56.90 (S1) to find resistance at the 57.80 (R1) hurdle, marked by the highs of the 7th of November. The fact that the price continues to trade above the key level of 55.30 (S3) keeps the near-term outlook positive from a technical standpoint. The 55.30 (S3) level acted as the upper bound of the sideways range that capped prior oil gains, between that barrier and the 51.50 zone. As such, the bulls could take the reins again soon and aim for another test of the 57.80 (R1) barrier. A clear break above that territory would signal a forthcoming higher high on both the 4-hour and the daily chart and could set the stage for further bullish advances towards the 58.70 (R2) level, marked by the lows of the 15th of June 2015.
Support: 56.90 (S1), 56.20 (S2), 55.30 (S3)
Resistance: 57.80 (R1), 58.70 (R2), 60.00 (R3)
As for the rest of today’s highlights:
During the European morning, we only get Norway’s AKU unemployment rate for September. As for the US economic data, we get durable goods orders for October. Expectations are for a significant slowdown in both the headline and the core prints, something that could prove negative for the greenback.
Later during the day, during the early Asian morning Thursday, New Zealand will release its retail sales for Q3. In the absence of a forecast, we see the case for retail sales to have slowed from the previous quarter. We base our view on the New Zealand electronic card transactions indicator, which showed that spending in the retail industries fell 0.6% in July and rose a mere 0.1% in both August and September. A slowdown in the official retail sales print could extend NZD’s latest losses.
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