Daily Commentary | 12/06/2019
USD weakens as rate cut expectations rise
The greenback weakened yesterday somewhat as market expectations about a possible rate cut by the Fed seem to increase. Market focus is expected to focus on the Fed’s coming policy meeting, next week, looking for possible signals about the bank’s policy direction. Analysts tend to point out that the market has priced in a rate cut by the Fed to a significant degree yet seems to delay it until end of July. Please bear in mind that a number of Fed officials, not excepting Fed’s Chair Powell, in the recent past had implied that the Fed may be open to some monetary easing. Also note that long term US treasury yields show no signs of the recovery yet, which may also weigh on the USD. We expect the release of the US inflation rate to affect the USD today somewhat, yet at the same time we could see the dollar remaining somewhat under pressure. EUR/USD maintained a sideways movement yesterday, yet at the same time showed some bullish tendencies, aiming for the 1.1340 (R1) resistance line. We could see the pair rising even more should the USD side remain under pressure, yet to switch our sideways motion bias, we would require for the pair to break the 1.1340 (R1) which could also be considered as the upper boundary. Should the bulls dictate the pair’s direction, we could see it breaking the1.1340 (R1) resistance line and aim for the 1.1375 (R2) resistance level. On the flip side, should the bears take over, we could see the pair breaking the 1.1300 (S1) support line and aim for lower grounds.
Oil prices drop weaker demand outlook
Oil prices dropped yesterday and during today’s Asian session, as the demand outlook for the commodity seems to weaken. A surprise widening of the US inventories surplus yesterday also did not help oil prices and the official EIA count later today is expected to be closely watched by traders. The slack of the US oil market and rising US stockpiles, despite the OPEC production cuts enhance worries for oil prices according to analysts. On a report released on Tuesday the EIA cut its forecasts for 2019 world oil demand growth and U.S. crude oil production. We expect oil prices to show some increased sensitivity to the EIA inventories release today, yet should there be another indication of a slack in the US oil market we could see oil prices weakening even further. WTI prices dropped and as these lines are written, test the 52.70 (R1) support line (currently turned to resistance). We could see oil prices dropping even further should disappointment continue to direct the commodity’s price action, however we expect that the market may prove sensitive to today’s EIA crude oil inventories figure release, later today. Should the oil remain under the selling interest of the market, we could see it aiming if not breaking the 51.25 (S1) support line. Should the market sentiment be reversed and oil long positions be favored by the market once again, we could see WTI’s price action, breaking the 52.70 (R1) resistance line and aim for the 54.45 (R2) resistance level.
Other economic highlights, today and early tomorrow
Today during the late European session, we get from Turkey CBRT’s interest rate decision. Polls conducted by Reuters and Anadolu news agencies, show an expectation among the majority of the economists which participated for the bank to maintain its current level and we tend to concur with this view. However, we may see the bank issuing a more dovish statement in order to pave the way for future rate cuts, which could weaken the Lira. In today’s American session, we get the US inflation rates for May as well as the EIA weekly crude oil inventories figure. In tomorrow’s Asian session, we get Australia’s employment data for May. As for today’s speakers, we tend to underscore Mario Draghi’s (ECB President) speech, however do not underestimate RBA’s Ellis, as well as ECB’s De Guidos and Coeure which are also scheduled to speak today.
• Support: 1.1300 (S1), 1.1260 (S2), 1.1220 (S3)
•Resistance: 1.1340 (R1), 1.1375 (R2), 1.1425 (R3)
• Support: 51.25 (S1), 49.50 (S2), 47.90 (S3)
•Resistance: 52.70 (R1), 54.45 (R2), 56.00 (R3)