WTI Crude Hits $62/bbl as US Freeze Creates A Global Energy Crisis

Okay, very good morning to you. It is Thursday the 18th of February. It's 6:50 AM in the morning, so just going into the, the full European open and having a review of some of the news flow and the charts this morning. Overall, I would say relatively quiet in terms of overall market direction this morning, so things relatively neutral. Going to update you on what was said in the FOMC minutes last night. There's obviously more updates on the weather system that's impacting North America at the moment and the impact on energy prices. Have a look at some BoE comments and then talk about the day ahead. We've got things like the ECB minutes, jobless claims, a couple of central bank speakers as well on the docket. Uh, don't forget, if you're watching this on YouTube, really appreciate it if you could like and subscribe to the channel if you don't already do so. Videos coming pretty much every day of the week Um, but remember that you're seeing the morning market briefings delayed, and just to check out AmplifyLive.com if you want to get those early. But yeah, let's start with the charts and have a look at a couple of different ones. I want to look at the euro, pound, and then cycle through a few of the different asset classes from a technical perspective, and then I'll have a look at some of the major headlines in play this morning. And one of the first things to start off with is here. This is a look at that familiar Dollar Index trend line, of which we were looking at yesterday, of which we have now broken out and confirmed the move through that. Um, yesterday's session was here. Quite an interesting point of where we trade now in the Dixie at 91. As you can see here from the dotted kind of horizontal line, if I just make this a little bit more zoomed into the current price action, you can see here we had these previous tests going back to just before Christmas and then also in the new year, in kind of mid-January, and again around late January. And that's around where we're trading at the moment. So for now, the dollar index is pretty flat actually from the intraday perspective at the European open today. However, it's holding on to some of those recent gains with this ongoing kind of reflation trade that's being observed across other assets. Worth noting though that yesterday T-notes did move off their lows and yields backed off a little bit given some— that fairly aggressive move that we saw on Tuesday's US return to markets after the President's Day holiday on Monday. But the dollar remains firm irrespective of some of that yield pullback, and so that still warrants watching. And again, having confirmed the break above the trendline yesterday, um, now just around this key area of 91 is going to be quite interesting. Any further move above there could well just continue this trend of dollar strength. And so it's probably prudent to have a review of the major currency pairs And this is a look at EUR/JPY and, and just the level I'm watching this morning. If I just kind of put my chart a little bit more squeezed so you can see everything, and it's really this area looking in the EUR/JPY future around 1.2055.5, which was the overnight Asia-Pacific high of the range. That was also the low and highs that we were seeing back on kind of the 8th and 9th of the month, was also an area with some respect as well technically back at the beginning of February. So Quite interested to see if that level can hold, um, certainly as well if the dollar strength continues. And we've obviously seen this pretty definitive trend in play since the commencement of this week's trade. I'm interested to see if we start getting down to that low we had on the 8th, which was the low that we printed in yesterday's session, which would come in around that 1.2029 level to watch today. So strong area of upside resistance there to watch. uh, in cable. This is what I'm looking at this morning, which is a few trend lines roughly in play here. We broke below what was quite a nice area that was holding yesterday as, as support, but now is broken. So which was here, which is around 138.63. You can see, uh, held the kind of cap market price. We broke above it quite aggressively going into trade at the end of last week. We came back to test that around kind of this time yesterday, the overnight previous Asia-Pac session, but broke above or broke below that yesterday afternoon. And now we're trading below that level, and I just want to see how we've, we've respected the trend line this morning, uh, early doors. But if we come back down, any break of that, be looking down for quite a quick run down to this kind of area here, which is around 1.30 $8.3127. That would encapsulate yesterday's intraday session low with the S1 on the daily pivots. Uh, anything a little heavier than that, and as I said, if you see the continuation of that overall dollar stronger theme, then you've got $1.38 lower, uh, the S2 just below at $1.91, and then probably the target would be $1.3776, which would be down at the low that we saw the back end of last week. Any further upside recovery, um, on the opposite side, then 138.63 would be looking at here as an area of resistance with that descending trend line and that previous area of some significance. And you've got the pivot sat just above that at 68, which could act as a kind of zone of resistance. For the moment, as far as the currency markets, as I say, there's no real tangible news flow that really gives me any definitive new view on some of these currency moves. So at the moment, I think I prefer to just follow the trend, which is the dollar is holding on to gains. So I prefer just keeping an eye on those downside technical levels as reference points of where the market might respond to if we continue a downward trend in those current major currency pairs. Um, just a quick look elsewhere. As far as gold is concerned, that's been a very volatile one of late, and obviously under some quite heavy downside pressure as the trend, given the pickup in yields and the whole, uh, view about the economic kind of story going in the months ahead. This is a look on a 30-minute chart, so just zooming in on some of the recent price action. And again, gold, quite technical and momentum-based when it trades, as I'm sure some of you guys are more than familiar with. And so on the upside, the areas I'd be keeping an eye on as key areas to, to watch on any reversal, just to reclaim back some of the aggressive nature of the sell-off that we've had, which is around the best part of $50 through the, the beginning of this week. So I don't think it would be too unsurprising to see maybe a little bit of a push back up if we are indeed to push down lower. So on the, on the kind of more under the microscope of the intraday market, I'd be keeping an eye on $17.84 and a half which, as you can see by this first rectangle, that was the previous support, broke, market traded heavy, came back up to test to the tick on a couple of prior occasions here in the last 24 hours. So I think that's quite a key area to watch. Anything above that, if we did break above, um, I'd look at then 1793 in the futures, just encapsulating some of the previous highs that were holding back on Monday's session. On the daily chart, if we do remain heavy though, there is obviously a very important long-term um, level of support here that definitely needs watching, and that's around that $1,762. A few people were eyeing that yesterday because things were looking quite heavy again. As you can see, yesterday saw the confirmation of the break that we had on the 4th of February. That just kind of added to the weight, in combination with the dollar strength, to the downward trend we've had in gold, which had dropped very rapidly from north of the $1,800 mark. And so that's a key area. Of course, the 30th of November low print was 1762, and that starts to then play into some of the previous price action we were seeing really towards the spring of last year. And obviously these mark the initial highs that we had on some of the initial volatility on the outbreak of the pandemic. Before then, we sort of shot up north of 2000. So on the intraday, as I said, upside levels, keep an eye here. And then the downside kind of any retest down at 1770, which was the floor largely for the price activity yesterday afternoon. If that comes under pressure, then that 62 is going to be obviously very key. Below 64 is actually the S1 today as well on the daily pivots. Otherwise, T-notes— I did mention T-notes. We did see a bit of a bounce yesterday after— on the daily chart, you know, this is what we're looking at here on the daily, which is encapsulating really the pandemic. So this is 2020. If I just put a, a marker here, so you can see, um, since the onset of 2020, this is obviously the big surge we had with the plummet in yields after the Fed threw everything in the kitchen sink in policy terms to try and support the market. And now we've broken through some very key levels. There was the initial kind of area here that was very important on the initial break that we had, um, on the 6th of January. You'll remember quite clearly the trigger point here on this yield move was the Georgia Senate switch, meaning that a full blue control of Congress, and that resulting in the, the kind of belief of the reflation trade at its initial phase on the Biden stimulus having more hopes of being more powerful on the fiscal side to really fire up the economy, and that saw yields move. We then had a bit of reprieve thereafter before this latest kind of breakout that we've had, which again, the short term was a break from the beginning of this month, and prices and yields have continued to shoot higher here. So definitely on the, on the higher time frame, it's like this is the underpinning, the reason why people are a bit yield focused at the moment. There's a lot of people saying, well, if this yield environment continues with the threat of even, albeit temporary, inflation, as some would see it, but with stimulus coming in the future, then does that high-yield environment play negatively for the equity market? There's an interesting article talking about that in the FT this morning that I shared off the Amplify Live Twitter account. If you get a chance to read the kind of removal of lower rates essentially, which has been a key component obviously to help elevate equities on this, on this kind of record tear that we've been seeing. So on the, on the shorter time frame, this, this area here I think on the upside could be quite interesting to watch if we were to see a continuation of the general trend we had yesterday. So this is going back to last week and you've got this kind of a— I know it's broken out here, but a trend channel with that upside support resistance level So 136.02, you've got the R1 above at 03. I think that's a pretty strong area of resistance for price on the intraday. And on any downward test, I'd be looking down at the trend line and the pivot level, uh, if we're going to remain heavy once again. But fairly light today in terms of the economic calendar in the States, not too much coming out. Jobless claims is the only real feature. Um, so I'm not sure we're going to see any dramatic moves in the, in the 10-year market, not unless there's something unexpected that develops. And then this is just a quick look at the oil market, and obviously it's been quite the move that we've seen materialize. So here, let me just squeeze it into shot. We're looking at really the big— the last 2 weeks worth of price action, a really dramatic move that we saw at the end of last week. We gapped up and then we've remained pretty well supported in price, and in fact a decent acceleration last night seeing overnight the Asia-Pac session, a high at 6229. Now on the daily chart, what does 6229 really look like? Well, here it is on the daily. You've got to go all the way back to really some key areas that I'd be looking at here on the upside would be around here on the much more higher time frames. This is over a 2-year period. 6340 encapsulates, uh, the high we had September 19th. And you'll remember this pop in price with the record high gap in prices. That was when we had the Saudi drone strike, um, that caused that dramatic leap in prices over that weekend and the recommencement of electronic trade. So that high is not, not actually that far off on the daily, um, at $63.40, only around a dollar above the, the current intraday highs that we've seen overnight in Asia. And then $65 symbolically, and also the high from Jan 2020 pre-epidemic pandemic would be above. But on the shorter timeframe, any— now we've kind of shot up and accelerated in price quite quickly in oil. $61.31. I'd be looking at these areas of kind of to watch on any pullbacks. $61 flat, which is also the daily pivot, and then lower down and on the S1 in this previous area around 6024 would be the things that I'm looking for. Now let's talk about a couple of news stories. One of those will encompass the API inventories as well as the weather situation in North America. But let me just kick things off with the FOMC minutes. And yeah, as I've just looked at the charts, you can see this come out— came out at 7 o'clock last night. No real definitive market move, so nothing unexpected. To give you a summary of what the minutes said, officials did not see the conditions for reducing their massive asset purchase program being met for, quote, some time at their January meeting. And again, this was quite a focus given the fact that any conversation alluding to the idea of even having the discussion about tapering could have been something that could have upset markets in a way that perhaps then accelerate the the kind of any weakness that's been seen in equities on this higher yield idea about not just fiscal policy forthcoming, but also the kind of softening up, if you like, and retightening of some of the loose monetary policy environment. So that didn't materialize, but I'd say that's pretty much expected. On the inflation side, that's the other key thing that people are looking at. So really, Federal Reserve policy is defined by two things at the moment: the idea of tapering and this bond buying, when is that? Are we going to get to the point of talking about tapering? And then secondly, what's the view on inflation? How high might it get once the economy reopens and we start to see some quite fairly aggressive demand in the short term? And how might the Federal Reserve respond? And what the minutes said was a jump in some prices is expected this spring, with, quote, many participants stressed the importance of distinguishing, though, between such one-time changes in relative prices and changes in the underlying trend for inflation. So again, the Fed kind of maintaining in the minutes that kind of dovish stance. I'd say largely a reiteration of what Powell and his— some of his colleagues have said, that, you know, despite some of the recent market movement we've seen across assets, which might constitute, if was more long-lasting, some kind of tweak in Fed language. We're not there as yet. So overall, I would say pretty much as expected. Remember, Powell is to deliver his semiannual testimony next week, and he's probably— largely expectations are going to reiterate this more, um, kind of dovish accommodative stance for the time being, at least. Otherwise, the other things we're, we're looking at, and, and definitely a big talking point in States, is you can't get away from it because you're probably feeling it if you're watching this in America, which is the temperature at the moment. More than 4 million barrels a day of output. Almost 40% of crude production is now offline according to various different traders and executives. Traders and consultants expect a hit to US production that will last between 2 to 3 days and is looking unlikely that things will start to recover much before the weekend. Um, so a key point here is it's obviously had an impact on price given the dramatic and and pretty quick kind of result in, if you like, of the amount of volume of production being taken offline. However, looking at forward-looking temperature forecasts, we could see then things start to thaw slightly, allowing some return of output. The key question is how quickly can that happen? Temperatures in the Midland, the de facto capital of shale production in America, will reach 45 Fahrenheit. So that's about 7 degrees Celsius if you're based here in London. That will rise to 56 Fahrenheit on Saturday, which could allow then crude production to, to see some first signs of restarting. Again, 56 Fahrenheit. I think we got down to like single digits on Monday. So quite a dramatic pickup in more warmer temperatures coming. And hence that's what's giving us this kind of reference point of until the weekend when things start— might start to normalize. And the key for crude traders, I guess, going forward will be the movement of that timeline. How quickly can they get back to some degree of normality? But, you know, quite a severe shock here to the system, and hence the reason why oil has briefly traded above $62 in the futures market. Couple of things to be aware of. Citigroup, they've said on the situation, expects a production loss of about 16 million barrels through early March, but some trader estimates are now almost double that. You know, I know that OPEC have come out and said, look, we did that, that 1 million additional move when we did the OPEC+ deal at the beginning of the year, and we're gonna, we're gonna take that back. And start pumping some more again. But if you think about it, a million here, million there from Saudi, we're talking about the potential for 4 million barrels a day of output being impacted by this energy situation. So again, it's about an order of priority. At the moment, this energy situation far outweighs in the intraday period of the coming days and probably into the beginning of next week much more so than any impending OPEC conversation or situation that they might do. Remember, OPEC are not really going to be changing their, their current output strategy until we start getting into April, given they're pretty fixed at the moment from their January decisions for what production rates will be during February, January, February, and March. Um, okay, the other thing we've had overnight is you did have in the energy space the latest API oil inventories. As I said, just given the importance of what's happening and the large-scale impact as a consequence of the weather system in America, oil inventories are really a side point. But just so you're aware, the headline crude number was a drawdown of 5.8 million. Expectations were for a draw of 2.15 million. Cushing draw 3 million. Gasoline, on the flip though, was a build of 3.9 million. As I said, I don't think really these are too much of consideration, uh, given the context of what's going on at the moment. And then the final thing I wanted to mention was the Bank of England, and this idea of negative rates I think has been put to bed for now at least. I think that the vaccination program and the speed of which that has been deployed has been what's helped in, say, the forex market reflect the relative divergence between the pound being somewhat cushioned comparative to a more weakening euro narrative that's been happening of late. But we've had some comments out of the Deputy Governor, so not just a normal MPC member. The Deputy Governor, and there's two of them, do tend to be aligned with the Governor and the more kind of neutral um, kind of main stance of the bank. And Ramsden said the central bank could review some of its own constraints on purchasing UK government bonds in financial markets to boost QE. While the Bank of England doesn't rule out negative rates, he said QE is a tried and tested tool, and in combination of the speedy vaccination program, for me, I think the negative rate idea has been eliminated for now. So Could it be used? Yes. Will it be used? No, it would be my view at this present point in time. So I don't think that's particularly important for market price if you're trading sterling today. Um, but again, the kind of negative rate talk in the UK has come and gone. I think it's definitely been way pushed down the line, and the idea being here that their more favored tool is QE. Increasing QE, tweaking QE in terms of its constraints of what it can purchase, gives greater flexibility for still using that before you'd ever entertain using the next kind of available tool, which being negative rates. Looking at the day ahead, I'm not going to mention really the Aussie data too much because it hasn't really impacted markets at all. The Aussie has not really held anything in terms of that move. I'd say dollar implications for any of these currency pairs is much more important. But as a reference point, unemployment rate in Australia 6.4% against expected 6.5%. ECB minutes then coming out at 12:30 London time. I don't really see too much in the way of real market reaction to that. Something to be aware of though, and just keep a half an ear out or an eye on the, the news feed. And then weekly jobless claims expected at 765,000. That's pretty much just a continuation of the rough kind of level of which claims have been tracking at. So again, I don't really see in itself it's going to set the world on fire. However, again, as we've looked at some of these charts, if we start to see, I don't know, a particularly low jobless number, for example, could it act as a catalyst just to perhaps break the dollar pairs out of some recent ranges? And if we get an extension and further confirmation following some of the strong data of late out of the US, it just helps in the short term provide more case for a firmer dollar, and that could put some of those downside pressures in those currency pairs under a bit of pressure. Perhaps equally so in the equity market, because it will fuel— it will fan the flames of this idea of what's really depressed equities of late, which is really great data starts to make people a little bit apprehensive about does the US need this kind of huge stimulus, and will politicians then negotiate that down to a smaller size, which is negative for equities, uh, in combination with this whole kind of will the Fed start kind of talking a little bit more less dovishly going forward, which again is also equity negative. Otherwise, in the afternoon, you've got Philly Fed coming out, Eurozone consumer confidence, the flash reading, but that rarely moves markets. And then you've got the oil inventories, they'll be at 4 PM, not 3:30, owing to the US holiday on Monday. And then speaker-wise, a few things to look out for: Bank of England Saunders at 11, and then Fed's Brainard, Bostic, both voting members, at 1 and 3 PM respectively, London time. All right, that's it. Gonna leave it there, let you guys get on with the day. Any questions at all, just let me know in the Discord room. If you're watching this on YouTube, just drop a comment. I'll be happy to get back to you. All right, have a good day.