USD and Oil in focus

17 July, 2018

The USD lifted again against all majors, as US retail sales m/m came in strong at 0.5%, in line with expectations. At the same time the previous month was revised to 1.3%, which was another strong indicator about the US economy and the pace of growth that it's going through. This could have some roll on effects for inflation and will also be viewed positively by the FED. At the same time this rise makes sense given the recent jump in consumer credit, so markets will be expecting further strong signs from consumer markets in the coming months. Manufacturing also lifted to 22.6 in the Empire survey as well, beating expectations of 21.0. So while we have seen the USD lift on the back of all of this, it seems like the market is holding off slightly as Powell is set to speak twice this week, so markets will be listening closely to his words to see if they can glean anything from them.

For the USDJPY it has been another case of lacking any bite on the charts, but it has been creeping upwards for traders and the USD strength is a strong catalyst. Adding to this fact is that safe haven currencies at present are seeing some strength, but that is mainly against emerging markets and not the likes of the USD. On the chart we saw a brief pull back from resistance at 112.862, and the market is looking a little coy for further pushes. That being said the USDJPY is drifting towards support at 112.033 and it's likely to hold up strongly here if previous support levels are anything to go by. Any push through would send the USDJPY down to 111.083, which is also a very strong level and would tie in with the current trend line as well.

Oil was a big mover today as it saw sharp drops as the USD strengthened. Even though last week saw large draw downs from the US official reserve, it looks like oil bulls may be giving up the fight to keep oil above 70 dollars a barrel. However, markets will be very much fixed on the coming oil inventory data due out on Wednesday now with expectation of a much lighter drawdown, I would watch this figure closely as it could lead to some panic in oil markets if we saw a surplus surprisingly.

Looking at oil from a technical perspective, and it would seem that the bulls are cashing out of their gains at present as oil has pushed down through support at 67.45 and is heading to the next level of 66.03 at a rapid rate. If we see a push through here then the next level at 63.98 will be the key target but for we head into the area of the bullish trend line. Markets may even be looking to test it, but I can't see oil falling under 60 dollars a barrel at present as demand is high and the USD is the main catalyst for such a decline, rather than any fundamental factors. If the bulls are to regain control they would need a strong breakthrough of resistance at 67.45 and would likely extend to 69.38, but this area has been hotly contested so I would be surprised to see it break anytime soon.

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