Crude Oil Prices Soar on Iranian Sanctions Renewal - US Market Open

2018-08-07 13:31:00

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MARKET DEVELOPMENTS – CRUDE OIL PRICES SURGE ON SANCTION RENEWAL

US equities futures (DJIA +0.4%, Nasdaq 100 +0.2%, S&P 500 +0.2%) are trading in positive territory with risk sentiment cheering the rebound in Chinese equities overnight. Alongside this, a plethora of strong earnings from European companies have also buoyed equity markets.

Crude Oil: Oil prices are notably firmer following renewed sanctions on Iran, with Brent back above $74/bbl. The first round of sanctions took place at 1201EDT which are related to US Dollar banknotes, trade in precious metals and transactions involving the Iranian Rial and sovereign debt. The second round of sanctions will be imposed on Iran’s oil sales and energy sector on November. Ahead of this, buyers of crude will likely lower their imports in line with US guidance, as such, fears over supply loss will continue to underpin oil prices. Elsewhere, Saudi Arabia crude production saw an unexpected drop of around 200k in July, which has also added to the gains in crude.

TRY: The descent in the Turkish Lira has showed no signs of abating with the currency continuing to post a fresh record low on a daily basis. The latest move is due to the rising tensions between the US and Turkey. Alongside this, the inaction by the Turkish Central Bank has also sparked further selling in the Lira with many questioning the independence of the central bank. Given the rapid rise above the 5 handle in USDTRY a move towards 6 seems likely in the near term.

AUD: Outperforming in the G10 FX space is the Aussie amid a rebound in Chinese equities, consequently supporting high beta FX currencies. The Shanghai Composite closed higher by 2.7% with Chinese commodity prices notably firmer, as such, the Australian Dollar has made a firm breach above 0.74. Key resistance resides at 0.7480-0.75. Elsewhere, the RBA kept rates on hold at 1.50%, as expected, while they lower their expectations for inflation due to one off effects to take place in September.

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IG Client Sentiment Index: AUDUSD Chart of the Day

AUDUSD: Data shows 53.7% of traders are net-long with the ratio of traders long to short at 1.16 to 1. In fact, traders have remained net-long since Jun 05 when AUDUSD traded near 0.75575; price has moved 1.6% lower since then. The percentage of traders net-long is now its lowest since Jun 06 when AUDUSD traded near 0.76686. The number of traders net-long is 11.8% lower than yesterday and 11.2% lower from last week, while the number of traders net-short is 36.8% higher than yesterday and 21.9% higher from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests AUDUSD prices may continue to fall. Yet traders are less net-long than yesterday and compared with last week. Recent changes in sentiment warn that the current AUDUSD price trend may soon reverse higher despite the fact traders remain net-long.