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OPEC Cuts Production, USD Running in a Bull Flag Formation

OPEC Cuts Production, USD Running in a Bull Flag Formation

2016-11-30 14:27:00
James Stanley, Currency Strategist
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Talking Points:

- OPEC has agreed on a widely-expected production cut; but the 1.2m actual cut is beneath the rumor of a 1.4m production cut, and no details have been released on production cuts from non-OPEC producers. Details to follow at a press conference at 10AM ET.

- The theme of bullish US data continues with another strong print this morning with PCE; and this is after a blowout consumer confidence print yesterday; all furthering the theme of higher rate expectations in the United States in the coming years.

- If you’re looking for trading ideas, check out our Trading Guides.

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OPEC Agrees on Production Cut (situation still developing)

The big news item on the morning is that OPEC has agreed to an Oil production cut of 1.2m barrels per day. Details haven’t yet been rolled out, this will likely take place at a press conference at 10AM (click here if you want to watch the press conference on the OPEC website); but this did come underneath the 1.4m production cut that was rumored to be taking place. Also of issue that we haven’t yet heard – the agreed-upon production cut from non-OPEC producers, which has been somewhat of a hamstring to any potential supply-cuts that have been discussed over the past nine months.

OPEC Cuts Production, USD Running in a Bull Flag Formation

Chart prepared by James Stanley

As rumors of the 1.4m production cut and then news of the actual 1.2m cut made its way to markets, Oil prices spiked higher, moving off of the lows around the $45-handle yesterday towards the prior swing-high at $49.17. But sellers have come-in ahead of that resistance, and given the additional resistance levels sitting just above current price action, traders would likely want to be careful of trying to chase the bullish move-higher. Also combine this with the fact that Oil inventories are due out later on in the morning, and this could possibly be a reversal situation; but at the very least it does add some question markets to the bullish posture of Oil prices.

OPEC Cuts Production, USD Running in a Bull Flag Formation

Chart prepared by James Stanley

If you want to stay up-to-the-minute with Oil news, including those inventories coming out later on in the morning, we wrote up an article about using Twitter to gain access to news and research data around Oil markets, by using the hashtag of #OOTT. Please click here to read the full article.

The likely drivers on the morning will be details of this production cut, as in, how much of a cut are non-OPEC producers have agreed to; and Oil inventories data due out later on the morning.

US Data Continues to Outperform

While the initial bump across global markets starting three weeks ago was likely resultant of U.S. Presidential Elections, there has been considerable help to the U.S theme of strength of recent. Yesterday saw blowout consumer confidence data out of the United States with a 107.1 print versus an expectation of 101.5. PCE came out this morning at its highest rate in over two years; and this combined with initial jobless claims being at 40-year lows, personal incomes at six-month highs, GDP at 2-year highs and a 4.9% jobless rate make the fundamental backdrop for the United States look more and more positive.

The relevance of all of this is for sustainability of the U.S. Dollar’s run of strength. As the Federal Reserve is one of the few major economies even discussing the possibility of rate hikes, this can bring on continued capital flows into the Greenback. This can bring on relatively-smooth trends as a longer-term biases continues to get priced-in to a market. On the chart below, we’re looking at the U.S. Dollar through DXY, and notice how near-term resistance is being seen off of the 61.8% Fibonacci retracement of the 14-year move.

OPEC Cuts Production, USD Running in a Bull Flag Formation

Chart prepared by James Stanley

If we zoom in on the chart to look at the 4-hour setup, we can see how sellers have responded after this long-term level of resistance has come into play. But sellers haven’t been able to take control, as buyers have stepped-in to defend support. This has produced a bull flag setup on the 4-hour DXY chart, as seen below:

OPEC Cuts Production, USD Running in a Bull Flag Formation

Chart prepared by James Stanley

For those looking to trade on the theme of USD-strength, we haven’t been bashful about looking to USD/JPY to voice that theme. We set another analyst pick for a bullish setup yesterday, and should this theme of US strength under the prospect of ‘reflation’ continue to drive markets, USD/JPY can be an attractive venue to trade that theme. We discussed the makings of that setup in yesterday’s Market Talk entitled, JPY: How to Work with The Trend that Barely Bends.

OPEC Cuts Production, USD Running in a Bull Flag Formation

Chart prepared by James Stanley

--- Written by James Stanley, Analyst for DailyFX.com

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