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Crude Oil Volatility Steals the Show Ahead of Super Thursday

Crude Oil Volatility Steals the Show Ahead of Super Thursday

Tyler Yell, CMT, Currency Strategist

Talking Points:

  • ECB expected to lower inflation expectations; Fed may do the same
  • Packed Thursday agenda (UK Election, ECB, Comey testimony) may provide volatility spark
  • Sentiment Highlight: Crude Oil sentiment per IGCS showing possible breakdown approaching

You would be forgiven if you had a hard time coming up with the top event to watch on Thursday. First up, we will have the European Central Bank providing updated economic projections, which could be a mixed bag. A report out early Wednesday that took EUR/USD toward 1.12 stated that the ECB is likely to lower their inflation forecasts through 2019, but it’s difficult to say this would fundamentally shift the direction of the EUR trend. On the one hand, the economic surprises in the Eurozone continue to be encouraging. On the other hand, inflation pressures as evidenced by the breakdown in commodity indices like the CRY are lower on the month by 2.3% and on the year by ~9%. Bond yields, as we discussed yesterday, also show this worrying trend. However, traders are understandably questioning the unusually quiet “data-dependent” Fed and whether or not they will pullback from their anticipated number of hikes in this tightening cycle. If they did, this would undoubtedly put further pressure on the already weak USD.

After the ECB rate announcement and speech by Mario Draghi, we’ll be looking at the ex-FBI director, James Comey testimony for clues on whether or not this will be a simple exit interview or a prelude to more political drama.

Would you like to know what our top minds are watching over the long-term in markets?

Falling close behind the Comey testimony is the snap election that UK PM Theresa May called for earlier in the spring to solidify Parliament heading into Brexit negotiations. While polls have misled markets before, recent surveys of UK voters have shown a tighter race than initially forecast. Going into Thursday, the more likely risk, if any, is that a hung Parliament could come or at the least, the PM May may be unable to increase her majority, which could put pressure on the GBP in coming sessions. Most polls 24-hours before the vote showed the Conservatives with a comfortable 10%-point lead.

While there is a lot to discuss in anticipation for tomorrow, Crude Oil is worth talking about today as it looks to close lower on the day by ~5%. WTI Crude fell by the most in four weeks as on an unexpected climb in US Crude and gasoline stockpiles will do little but add to concerns that demand is falling as supply remains near record levels. Such an environment makes it difficult not to fear a possible price breakdown toward and possible below $40 is on the horizon, which aligns with the sentiment picture described below.

JoinTylerin hisDaily Closing Bell webinars at 3 pm ETto discuss tradeable market developments.

Why are havens rising alongside risk assets and what do our analysts think will happen with oil? Find out here!

Closing Bell’s Top Chart: June 07, 2017, DXY hard to believe in below 97.78

Crude Oil Volatility Steals the Show Ahead of Super Thursday

Tomorrow's Main Event: EUR European Central Bank Rate Decision (JUN 08) – Top spot per ON Implied volatility.

GBP UK Parliamentary Elections (All Day)

Former FBI Director James Comey at a Senate Intelligence Committee hearing

IG Client Sentiment Highlight:Crude Oil shows longs have faith, but should they?

The sentiment highlight section is designed to help you see how DailyFX utilizes the insights derived from IG Client Sentiment, and how client positioning can lead to trade ideas. If you have any questions on this indicator, you are welcome to reach out to the author of this article with questions at tyell@dailyfx.com.

Crude Oil Volatility Steals the Show Ahead of Super Thursday

Oil - US Crude: Retail trader data shows 81.6% of traders are net-long with the ratio of traders long to short at 4.44 to 1. In fact, traders have remained net-long since Apr 19 when Oil - US Crude traded near 5383.8; the price has moved 14.7% lower since then. The number of traders net-long is 33.9% higher than yesterday and 49.1% higher from last week, while the number of traders net-short is 19.7% lower than yesterday and 22.8% lower from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests Oil - US Crude prices may continue to fall. Traders are further net-long than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger Oil - US Crude-bearish contrarian trading bias.(Emphasis mine)

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Written by Tyler Yell, CMT, Currency Analyst & Trading Instructor for DailyFX.com

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Contact and discuss markets with Tyler on Twitter: @ForexYell

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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