08-Apr-2020

1) Why There Is Retracement In Oil Price?
2) EUR/USD Pressured As EZ Ministers Fail To Reach A Deal
3) GBP/USD Is Hovering Around 1.23 As Updates on the PM Are Awaited

1) Why There Is Retracement In Oil Price?

Oil prices have rallied since last Thursday on the back of hopes that there will be a supply cut from the OPEC. The cartel assured the market on Friday that it will hold a meeting on Monday, but then it was pushed till Thursday, and this has dampened the oil prices.

On the 2nd April, oil prices spiked on the hopes that a supply cut is coming. Donald Trump, the president of the United States said in his tweet that Russia and Saudi Arabia will cut oil production. On Friday, the WTI crude oil touched a high of 29.13 on the back of hopes that on Monday, a supply cut will be here. Over the weekend, the OPEC+ meeting was delayed till Thursday, and this was enough to take some air out of the oil rally. On Monday, the WTI crude price started to drop and on Tuesday, we experienced intense sell-off that pushed the price towards its low of 23.50 (today it is back above that level and trading above $25 at the time of writing this report). The price of WTI is still holding on its partial gain, and the OPEC+ virtual meeting is taking place tomorrow.

The question which many investors are asking themselves is why have we seen such an intense sell-off, especially if the OPEC+ is still going to hold its supply cut meeting on Thursday? The answer is very simple: The OPEC officials have a history of going back and forth, and the oil price dances to it. The supply cut is still on the table, and for me, the minimum that we are going to get from the OPEC+ will be 10 million B/D. If there were no prospects of such a supply cut, then we should have seen the oil prices dropping like a rock and visiting the previous levels.

Investors are wary if the US is going to join the production cut tomorrow, and this is what haunting traders now. Remember, the initial actions of Donald Trump gave the markets’ perception that this time the US will join the production cut as well. So far, there is no clarity if the US will cushion the burden, and whether it will scale back on its production. During the previous oil production cuts by OPEC+, the US hasn’t joined the cartel in its supply cut efforts. Investors are paying attention to this particular factor and wondering if the production cut is going to make any difference.

The US is likely to be willing to cut oil production if the crude price remains below $35 or $30. This is because, for most of the US oil producers, the breakeven price is higher than $40. A 10 million barrels per day production cut isn’t enough for the price to move higher than $35. What we need here is a strong message, and that is “whatever it takes”. If the US joins the OPEC plus in the production cut, the message will be strong for the industry. Then even a small production cut, something along the lines of 10 M B/D could be sufficient to push the price higher. But without the US on board, a 15 million B/D production may not be able to push the price higher than $40.

One thing is for certain, coming on Thursday we are going to get a production cut, and this means higher oil prices. I think that the price has pretty much bottomed out for now, and any pullback in the oil price remains an opportunity for investors to bag something cheap. But another following up report will look into more details to answer the question if the bottom is in place.

2) EUR/USD Pressured As EZ Ministers Fail To Reach A Deal

EUR/USD is trading around 1.0850, down on the day. Euro zone finance ministers failed to reach a deal on a joint response to the coronavirus crisis. Disease-related headlines are eyed.

From a technical perspective, the pair’s inability to capitalize on the attempted recovery move points to persistent selling bias at higher levels. Hence, the near-term bias remains tilted in favour of bearish traders. Meanwhile, immediate support is pegged near the 1.0835-30 region and is followed by the 1.0800 round-figure mark. Failure to defend the mentioned handle might turn the pair vulnerable to slide further below weekly lows, around the 1.0770-65 region, towards challenging the 1.0700 round-figure mark.

On the flip side, the 1.0900 mark now seems to act as an immediate resistance, above which a bout of short-covering has the potential to lift the pair further towards 50-day SMA hurdle, near the 1.0975 region. The momentum could further get extended towards the key 1.10 psychological mark en-route 100-day SMA, currently near the 1.1035 region.

The US dollar witnessed some aggressive long-unwinding trade on Tuesday and allowed the EUR/USD pair to stage a goodish recovery from near two-week lows set in the previous session. The global equity markets enjoyed a second day of strong gains on Tuesday amid signs that the coronavirus pandemic may be reaching its peak in Europe and the United States. The risk-on mood dented the greenback’s perceived safe-haven status against its European counterpart and was seen as one of the key factors behind the pair’s goodish intraday positive move of around 140 pips.

The pair rallied to three-day tops, albeit struggled to find acceptance above the 1.0900 round-figure mark. The overnight optimism turned out to be short-lived amid increasing numbers of fatalities from the COVID-19 pandemic and forced investors to take refuge in the traditional safe-haven currencies. This comes on the back of growing concerns over the negative economic effects of the coronavirus crisis, which should continue to benefit the USD’s status as the global reserve currency and keep a lid on any meaningful positive move for the major, at least for now.

Apart from the overall coronavirus pandemic situation, investors on Wednesday will further take cues from the release of the FOMC meeting minutes. In the absence of any major market-moving economic releases from the Eurozone, the pair remains at the mercy of the USD price dynamics and the broader market risk sentiment.

3) GBP/USD Is Hovering Around 1.23 As Updates on the PM Are Awaited

GBP/USD is trading around 1.23, stable. Updates on PM Johnson’s condition are eyed amid fears of a partial power vacuum. Updates related to the disease are eyed.

Pound/dollar remains in a tight range with the Relative Strength Index and momentum stabilizing on the four-hour chart. The currency pair is trading below the 50 and 200 Simple Moving Averages and above the 100 SMA. All in all, the picture is mixed.

Support awaits at 1.22, which provided support late last week followed by 1.2130, which was a cushion in late March. The next lines to watch are 1.20 and 1.1980.

Resistance is at 1.24, which was a high point on Tuesday, followed by the stubborn 1.2390 level. Further up, 1.2605 and 1.2710 are eyed.

More: GBP/USD downtrend intact, Gold has room to rise, top tips for traders – interview with Slobodan Drvenica.

Prime Minister Boris Johnson is not on a ventilator – Downing Street’s message has had mixed in message in trying to soothe confidence. The 55-year old leader has been in intensive care since amid persistent symptoms of COVID-19 on Monday evening, with Foreign Secretary Dominic Raab in charge of the government.

Updates from St. Thomas hospital in central London are few and far apart – keeping Brits on edge and in markets, holding GBP/USD in a tight range after initially falling in response to Johnson’s ICU admittance.

The new man at the helm has little time to get used to his role which may last between days and much longer. The coronavirus crisis continues raging, with the UK suffering its deadliest day yet, reporting 854 mortalities on Tuesday. Officials have admitted that the initial government response of trying to achieve “herd immunity” – letting the virus run – has been a mistake.

Raab – has limited powers while deputizing as PM – will soon have to lead the government in deciding how to extend the UK lockdown that expires on Monday. The

Crossing the pond, New York also confirmed the highest number of daily deaths from COVID-19 with total deaths reaching 5,489, around half of all US mortalities. The nation’s number of infections is on the verge of crossing 400,000. President Donald Trump blamed the World Health Organization for giving bad advice. However, memos reveal that Trump was aware of the outbreak’s deadly potential already in January.

The broader market mood is mixed. Stocks pared their gains on Tuesday, allowing the US dollar to recover. Early advances in S&P futures are marginally weighing on the greenback.

Coronavirus headlines – and especially updates on the PM’s condition – are set to dominate trading during the day. Any improvement could boost the pound while worrying news could weigh on it.

Late in the day, the Federal Reserve publishes its Meeting Minutes from the recent emergency meetings. The Fed slashed rates to 0%, unleashed unlimited Quantitative Easing, and also launched several swap and loan programs. The document may reveal how worried officials were before taking these decisions and perhaps what more they have in store.