17 May, 2017
It was widely reported that President Trump shared highly sensitive information with the Russia Ambassador at a recent meeting at the White House putting further pressure on USD. During today’s early European session the dollar index hit the lowest level of 97.74 last seen November 09 2016, EUR/USD traded as high as 1.1121 a level last seen November 09 2016. In line with the continued weakness in USD, spot gold had a fifth day of gains trading at a 2-week high of 1244.91.
To date the dollar index has almost given up all of the post presidential election rally, retracing about 1.4% over the past 4 trading sessions. Per CFTC data (Commodity Futures Trading Commission), Hedge funds’ USD long positions have reduced to the lowest level since August 2016.
Japanese Q1 GDP first reading will be released at 00:50 BST on Thursday. The Japanese economy has seen a recovery since last year. The global economy also saw a recovery, helping exports. However, as inflation has not yet seen a stable upswing the Japanese economic recovery is still fragile. The performance of the Q1 GDP will likely affect JPY and the JPY crosses.
USD/JPY has retraced in the past week as a result of the weakening of USD. USD/JPY hit a 1-week low of 112.24 on Wednesday during early European session.
There are two upcoming events that will likely affect oil markets; firstly, the Iran presidential election will be held this Friday, May 19th and secondly the OPEC meeting will be held on May 25. The result of the Iran presidential election and the associated geo-political risks will likely affect its oil supply. Iran has greatly increased its oil output after the US sanction was removed.
The US shale oil industry has seen a marked recovery since February last year because of higher oil prices. The US Baker Hughes data (that records the number of new Oil Rigs) is showing additional Rigs added every week. The increase in shale oil supply has offset OPEC’s recent output cut effort to an extent.
However, the Saudi Arabia Oil Minister, Khalid al-Falih, stated on May 8th at the Asia Oil and Gas Conference in Malaysia that “the output cut could be extended another 6 months or even further into 2018”. OPEC will hold a meeting in Vienna on May 25 where the decision whether to extend the output cut agreement will likely be announced.
Oil prices have retraced substantially around 12.88% since April 12th and have experienced a 3.74% rebound since May 5th. Last Wednesday’s EIA crude oil inventory data saw a drop of 5.247 million barrels hitting the lowest level this year helping push oil prices higher.
WTI and Brent crude oil will likely see selling pressure at $50 and $53 respectively. The US EIA Crude Oil Inventories data (for the week ending May 12) will be released at 15:30 BST this afternoon. Please be advised that this release is likely to cause significant volatility in oil prices.
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