21 December 2015
WTI threatened by higher U.S oil rig count
Written by Lukman Otunuga, Research Analyst at FXTM
Oil concluded last week heavily depressed closing under $36 following the Friday report from oil services company, Baker Hughes Inc. showing that the oil rig count climbed for the first time in five weeks. Sentiment towards WTI Oil received a heavy blow as this latest increase in oil rig counts, combined with the consistent rise in crude oil inventories have led to intensifying concerns over the aggressive oversupply in the markets. Investor attraction towards this commodity has rapidly faded, and with Iraq’s oil Minister Adel Abdul-Mahdi reiterating that OPEC will stick to its decision of maintaining a policy of uncapped production levels, prices may remain vulnerable and open to further losses.
It remains clear that OPEC’s decision to leave production unchanged is motivated by the hope of regaining market share and pushing away other competitors from the market. With any expectations of an immediate production cut discounted, WTI Oil remains fundamentally bearish and this should encourage sellers to attack. This catalytic combination of an unrelenting oversupply mixed with the slowing demand in the global markets may offer bears the momentum for a potential decline towards $32.40.
Dollar Index bounces back
The Federal Reserve’s unanimous decision to raise US rates for the first time in almost a decade has boosted the bullish sentiment towards the US economy consequently renewing appetite for the Dollar. The Dollar Index is in the process of turning heavily bullish once more and trading back to the psychological 100 resistance. Many see the 100.00 level on the USD index as a critical resistance, and the profit taking on the Dollar at the start of December supports this. Nevertheless, with three solid consecutive days of gains last week, the Dollar bulls may have been provided with the ammunition to trade back to the 100.00 level.
Currency spotlight – EURUSD
The Federal Reserve succeeded in creating a controlled market reaction towards the US rate decision and this delayed the heavy decline which was pending on the EURUSD. Prices started to depreciate with aggression on Thursday as traders observed the continuing divergence in both economic sentiment and monetary policy between the United States and Europe. With the divergence potentially expanding this should, in theory, encourage sellers to send the EURUSD back towards its lows around 1.05.
From a technical standpoint, the EURUSD is in the process of turning bearish. A breakdown below 1.080 may invite a further decline towards 1.064.
This pair is technically bearish on the daily timeframe. Prices are trading below both the daily 20 and 200 SMA, while the MACD has also crossed to the downside. A breakdown below 2.050 may encourage sellers to send prices towards 2.1700.
This pair may currently trades around a pivotal level. If the 7.080 support prevents bears from moving lower, then this may become a new higher low which should provide the momentum for a bounce back towards 7.220.
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