OPEC Crisis Or Game Of Bluff?

Okay, very good morning. It is Tuesday, the 6th of July. Hope you're doing well. In terms of debriefing, going to run you through some of the major news from overnight and then an outlook for the day ahead. But really wanted to start with a bit more of a top-level assessment of things as they reside at the moment, because in my mind there's been two real major, more top-level moves really initiated in the middle of last month, which is when we had that hawkish surprise from the FOMC where we saw the dot plots move up unexpectedly to 2 rate hikes in 2023 and some of the commentary around the inflation situation. However, since that point and really nonfarm payrolls on Friday, which we know was a fairly okay report, but it kind of fitted within that narrative of, of Goldilocks scenario. We saw bonds and equities appreciate, the idea being that it's a good economic development, but not excellent enough that it's going to really shift the middle ground of what Powell and the rest of the center kind of FOMC are thinking in terms of the timing over future tightening. And so I think that really explains a lot of the moves that we've been seeing, uh, at the moment. And definitely I'm going to cycle through the charts technically first, and then we'll go over some of the news stories like OPEC and the RBA meeting overnight and what UK Prime Minister Boris Johnson said yesterday on the lockdown easing. But going to kick it off here and talk about the US dollar. This is looking at the dollar index first. I think it's important to then, before we start launching into looking at EURUSD and cable on a slightly more narrower time frame, this is looking on a daily chart for the DXY. And here you've got the peak of price activity in September of 2020. You've then got the retest of around that area in late March, and the peak of where we saw just before then payrolls came out. And obviously since payrolls, what we have seen is generally a weakening trend in the greenback, which has helped some support for those major pairs with EURUSD and cable, which of course had been under quite a bit of persistent pressure. And the rationale for that is, well, this dollar pop that you can see here, this was the FOMC. And since that point and up until the release of payrolls, the dollar had put in, in fact, its best June that we'd seen in several months. So payrolls has been very significant here, um, in line though with some quite strong technical levels. And for one, here you can see this trend line came in with that payroll initial spike high pretty much perfectly for this about-turn. And what does that look like then in the major currency pairs? Well, for one, EURUSD now continues to push on up short-term here. Looking at a more intraday viewpoint, you can see then that previous low that we printed back on the 29th, the that area of resistance going back to where we were Thursday and then yesterday has now been broken through. This morning seeing a bit of a further acceleration of that currency move as European players have come in, and some of these technical levels short-term are being breached on the upside. So up to the R1 already in EURUSD and trading up about 50 pips already this morning. You can see after that volatility that we had on the initial payroll release We're now trading up nearly a point from that area. Cable, some people talking about semi-assisted as well by the confirmation of the unlocking confirmed by Boris Johnson last night of the final step on July 19th of the current lockdown in the UK. I don't buy that too much, although potential another supportive variable in, in terms of direction perhaps, given the fact that a lot of what he said was very much expected. So I don't think you could pin it as any type of surprise. Dollar weakness definitely is the key metric here. You can see this is looking at the last kind of 9 or 10 price, price movement over the last 9 or 10 sessions. And we were on that persistent trend lower, really, up until the point of when that data point came out on Friday. This was that payroll response with the dollar weakness. We've then broke above. This came very early yesterday and used as support then that previous trend line that was coming in and being fairly respected as a channel over the last week or so. And we've just managed to continue to push on up. And during the Asia-Pac session, a bit of further continuation of dollar weakness helped support the pair. And now again, we've also continued to trade higher, up around 90 pips in fact at the moment for cable, just looking to reclaim the 139 handle. Having just on Friday traded more proximity to 137 handle. So pretty decent turnaround there and certainly has outperformed the euro on that recovery move, um, for the time being. With the currency moves, the one thing that's been moving definitely in an inverse relationship to the dollar has been gold, and gold has definitely benefited from that, um, story in terms of from when payrolls came out. Um, so the Asia PAC session, we've just seen a further extension of that in step with dollar weakness for gold. And we just run up to test up the R2 on the daily pivot levels, which just looking horizontally here does bring in then the next peak of interest, which was that technical area of respect that we had back on the 17th, which coincides with around that level. So a bit of a further extension of that directional play which was really initiated from the overnight session. But again, go back to where we were at the release of the payroll data. This explains this volatility here. But as the dollar's continued to drift south, it's just lent support here for gold, which on a slightly higher time frame— perhaps this makes a bit more sense. This is looking at a daily chart for gold futures, and you can see here the two phases of these moves as I've been describing, the FOMC-inspired dollar strength, i.e., weighing on gold prices, and then the payroll kind of initiating. Then technically gold had already run into a bit of a zone of support. You can see from these previous technical areas of both resistance and support at around the $54 to $60 level was quite key. But then NFP just helping accelerate that recovery. And now, as I said, as we push on up, you can see where we're at at the moment at around this $1,608 on the higher time frames. Has also been an area of some interest as well from a technical perspective. So interested to see now on this latest phase of recovery how much further it can push on, and that's likely going to be— continue to be dictated by the dollar. But already this morning going into the European open, um, up, uh, still, still have a decent margin. In the equity space, obviously Independence Day holiday yesterday, so as you would anticipate, pretty sideways price action observed in the major indices. and we'll await our friends across the pond to come back into market today. Yet the S&P tells again a pretty supportive story here, and certainly payrolls, as you can see annotated on this chart, helping things even further to accelerate to all-time high record levels. So we've kind of thrashed out now a near-term range, as you can see, from really 34 to 48, and would continue to expect that to be respected till the moment— till at least the US come in. We've got the likes of the ISM Services PMI coming out this afternoon, which is obviously going to be quite important as well. But got this, this trend line as well that I've been keeping an eye on. So where that comes in with this range play and the pivot sat just beneath should be quite interesting to see if that just acts as an area of kind of support for price. The NASDAQ looks very similar in that respect in terms of the consolidation of price at the moment at these elevated levels. Having pushed up to record high, um, area on the chart here. Just gonna pinch it a little bit to look at the last couple of sessions to bring in this trend channel. And as you can see, we are just respecting that range, and that's to be expected in electronic trade being very quiet given the cash markets closed yesterday. But looking out for that to resume now back to normal as the US starts to come back in. Again, technically keeping an eye on that downside. 14674 was the low that we had yesterday morning, and then on the upside, 14729. The either side of that, that range pivot just below, and then the bigger supporting areas might come in. Then I'm still keeping on the trend line, which probably coincides around the pivot where price is at the moment. So as you can see here, that trend bottom end of that trend channel being respected from the 21st and through the 1st and 2nd, Thursday, Friday of last week. And again, that late— that NFP-inspired rally that ensued thereafter has put us up to this, this current period of consolidation. But any pullback further, not for the session today so much perhaps, but for the week, still eyed around that 14,598 or 14,600 is quite a key area there short term for the Nasdaq 100. Okay, well, that kind of gives you an update of where we're at at the moment. Um, just technically in the DAX, one thing I am keeping an eye on as well, again, a trend line being respected from the 21st, 30th, and on Monday that has held up fairly nicely so far. So we've got pivot in sight here, but technically I wouldn't see that as too relevant given the pattern of price action over the previous few sessions. However, as we start to come down, that's an area I'll be keeping an eye on. So around that S2 and that rising trend line you can see as shown on the chart at the moment. Oil prices then will lead us into the first story to talk about, which of course is OPEC. It's really dominated a lot of the news of late, and as you can see here We've seen a big pop in price yesterday, and that came after, uh, Riyadh and Moscow had pushed for that proposal, of course, to increase production by 400,000 barrels a day each from August to December and to extend the OPEC+ supply deal agreed last year beyond its scheduled April 2022 end date. But while the UAE said that it supports increasing output, it demanded that its own baseline production from which supply cuts are calculated factors in higher output capabilities, and it is being reviewed before agreeing to extending any type of deal. So that's where we kind of reside at the moment as far as OPEC is concerned. People familiar with the UAE's position have said that Saudi and Russia needed more time to discuss, um, Abu Dhabi's position, which remains unchanged at this present point in time. Couple of things that I was reading about this last night as to, you know, why is it that there's such tension at the moment between the UAE? And there's a couple of different things. One is on the production value side. The UAE at the moment, even at the current quota level, they kind of want to be pumping a little bit higher, more up to 3.8 million than the 3.2 as currently being dictated to them as part of the deal. Um, also, Abu Dhabi has international companies as equity investors in its oil and gas field. I was reading last night the likes of BP, Total. There's Chinese and Indian oil firms as well based in the country specifically, which makes it quite unique to the UAE compared to some of the other OPEC nations. And so the government is feeling the pressure at the moment in order to try and appease those foreign entities who have facilities within their country. And then the other thing is the friction that generally exists between Saudi Arabia and the UAE, and largely emanating from the UAE withdrawing its military presence in Yemen, leaving Riyadh mired in a costly war that directly threatens its security, which we've seen, you know, very often, frequently in recent months and years, where in western Yemen those Houthi militants attacking key facilities in the infrastructure, particularly situated in the southwestern part of Saudi Arabia. And so there's quite a lot of different angles here going on that are playing out. And certainly it's always interesting with, with OPEC. And, you know, the basic rule of thumb is, is that, you know, when oil, as it was not that long ago, is trading down at $35, then everything just gets put aside. And because everyone's feeling the pain of such a low price point, everyone collaborates and coordinates. When price starts trading up $75, then people start to push the envelope a little bit and try to make a better deal for themselves. So I don't think it's particularly unexpected. Iraq's oil minister has said he hopes to witness a date within the next 10 days for another OPEC+ meeting, which should be able to reach a deal that satisfies everyone. So at the moment, oil is trading still holding on to around a dollar and a half gain. On the daily chart, obviously this puts us up to levels that really haven't been seen in a very long time, 3 years in fact. And I'm just going to move my chart over here so you can see oil. These were the levels that I had marked up from, you know, we've been looking at these charts for a long time on the briefing, but you can see here the significance of where we're at at the moment. You know, forget that negative price point blip on the chart at the moment on the downside. But this peak of price that we see, we have seen back in 2018. You can see a breach above that is going to be very meaningful for price because we've not traded otherwise up that high going back until the last 6 years, uh, would be the last time we were trading up at around an $80 handle, or even longer. That would take us back to around November of 2014 if we can really punch on from here. My overall take for the time being is probably more one of— I think the UAE are just seeing what they can push at this point. Um, and I think it's probably sensible to look at the pact in two sides: the actual production increase, separate that from then the duration of how long it's scheduled to go on for, i.e., this push between it scheduled to end on April 22nd or to the end of next year. Is what I'll be looking at for headlines. I do kind of still feel like this is all part of a tactical negotiation for a number of these countries, and particularly UAE for themselves at the moment. And in the end, a compromise will be met. And I'm basing that assumption on the fact that that is normally the case. And so if that does happen again, the composition of that agreement is going to be quite key for price. But given the fact that we're kind of priced in at the moment, a failure of a deal any type of deal being made might well see just a little bit of profit taking from this initial pop that we've seen sustained from overnight and from yesterday in WCI, which trades up $1.50 still. But remember, those daily changes are a bit off given the lack of US close yesterday for the holiday. So we're trading at 76.68 at the moment. The other thing you probably read about last night, again, I don't think this is particularly surprising at all. So I'm a little bit reluctant to really pin outperformance in sterling on this, but, you know, sterling has outperformed euro-dollar about 2 to 1 at the moment. So I'm sure it is an added variable that certainly fits to the mix of what generally has been dollar weakness, which has been helping support those other currency pairs. Boris Johnson announced plans to end social distancing and capacity limits at venues in England from July 19th. So confirming a lot of those reports that we read at the weekend. Face masks will remain voluntary in all settings, and the government will no longer instruct people to work from home. If you are interested in just seeing the full breakdown of some of this in more detail, here's a number of bullet points that really summarize the speech that I tweeted. It's my handle here if you want to check that out for your own personal interest. Otherwise, AUDUSD is rallying a little bit here in the— it's into the European open. Um, that might be just worth just keeping a half an eye on at the moment. In fact, I'm just bringing up the Aussie chart here now because I was just having a look on the daily to see where we were, because on the short-term chart we've had a bit of volatility overnight and then we've had a bit of a run-up here in the Aussie going into the European Open. But remember that EURUSD break higher, cable on the run, that's just helped as well, that, that extension of dollar weakness, which has helped the Aussie. But overnight we did have the RBA meeting. Sorry, I'll look at the Aussie chart in a moment with you. And what did they say? The RBA left its cash rate at a record low of 0.1%, which was very much as expected, and they said it was likely to remain at that level until 2024. The bank retains, though, their April 2024 bond for its 3-year yield target of 0.1%, but again, largely as expected. And they did announce a third round of its quantitative easing program, albeit at a smaller size slightly than their previous purchasing of 4 billion Aussie dollars per week from the previous 5 billion. So a little bit of movement overnight, but also again assisted by the softer dollar. And as you can see here, technically on the AUD/USD chart, having appreciated here. Again, the catalyst definitely to me dollar-led here. The Aussie meeting just adding just another, um, kind of news element in the mix, but the big one was NFP because this is what initiated this turnaround and has continued to remain that way as the dollar has remained on that pattern of weakness. And on the daily chart We're just coming up and having a test around the 21 DMA at the moment. And if we're looking here, technically that's up and around these range highs that we're seeing in late June, which going back were supportive areas that we saw some of the price activity in late March as well to be aware of in the Aussie currency. Final thing for me to mention then is about vaccines. And yeah, I feel really bad for this girl. I'm sure she wouldn't have wanted this picture shared. Pulling a face like that, getting her injection. But nonetheless, BioNTech-Pfizer vaccine is seen as less effective in halting the spread of the Delta variant than that of the previous strains of coronavirus, according to a preliminary study coming out of Israel and their health ministry. They said data collected over the past month suggests the vaccine is 64% effective at preventing infections among those who are fully inoculated. Efficacy against previous strains of the virus were up, of course, with the Pfizer-BioNTech vaccine as much as 95%. So against Delta comes down to 64%. There's also still quite a bit of conversation about Delta Plus, specifically located in India around one of their quite key states which houses then Mumbai. That's still as well on my radar at the moment. So I'll keep you updated with that, with any further developments. But as far as the calendar is concerned for today, um, you've got the construction PMIs coming out for the UK and Eurozone. Very rarely, if ever, a market mover, so I'd kind of brush that aside. Put some attention on the ZEW survey coming out at 10 o'clock from Germany. Again, for anyone new to markets, the difference between IFO and ZEW— IFO is companies, whereas ZEW is economists' and analysts' assessment about economic conditions currently and forward-looking expectations over a 6-month horizon. So as far as that is concerned, yeah, Germany still kind of tackling at the moment the ongoing increase that we're seeing, much as like in other areas like the UK and mainland Europe, of the new Delta outbreak. And so does that mix a little bit and add a bit of uncertainty to the general state of reopening. So the top line level headline is expected to decrease slightly but still remain fairly elevated. And then going into this afternoon, no major 1:30s out the US. The focus will be on ISM Services PMI, which should show the sector is growing very strongly with increased business opportunities as the general US economy continues continues to go through that reopening phase. So the number expected to remain fairly static from previous for June at 63.5. And then ECB's de Coste speaking a bit later on this morning and de Guindos to follow up, but no techs expected there at 8 and 9 AM respectively. And then fixed income auctions coming out of the Debt Management Office in the UK and some supply coming out of the German Bundesbank as well this morning. Um, but that is it. Gonna leave it there, let you guys get on with the day, and I'll see you in Amplify Live Community, or feel free to drop me a comment if you have any questions if you're watching this on the YouTube channel. All right, take care guys, have a good one.