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Crude Oil Price Recovery to Carry Into July Amid Slowing U.S. Outputs

Crude Oil Price Recovery to Carry Into July Amid Slowing U.S. Outputs

David Song, Strategist

Talking Points:

- Crude Oil Price Recovery to Carry Into July Amid Slowing U.S. Outputs.

- Japanese Yen Weakness to Persist as BoJ Endorses Dovish Outlook.

DailyFX Table

Symbol

Last

High

Low

Daily Change ($)

Daily Range ($)

USOIL

45.07

45.45

44.75

0.16

0.72

Oil prices continue to carve a bullish sequence after slipping to a fresh 2017-low ($42.08) in June, and the near-term recovery may carry into the month ahead as market participants turn their attention to the slowdown in U.S. production.

A report by the U.S. Energy Information Administration (EIA) showed crude outputs fell the most in nearly a year, while BHP Billiton Ltd. Chairman Jacques Nasser showed regrets about venturing into U.S. shale, with the chair noting ‘in terms of shale, if you had to turn the clock back, and if you knew what we knew today, you wouldn’t do it.’ Headlines pointing to lower supplies may keep oil prices afloat over the near-term, but keep in mind the broader outlook remains tilted to the downside especially as the Organization of the Petroleum Exporting Countries (OPEC) resists calls to implement deeper production cuts.

USOIL Daily

USOIL Chart

Chart - Created Using Trading View

  • Broader outlook for USOIL remain tilted to the downside as crude broadly track the downward trending channel from earlier this year, and oil prices may continue to carve a long-term bearish series over the remainder of the year amid the ongoing adjustment in energy market.
  • Nevertheless, the near-term bias tilted to the topside as USOIL comes off of channel support, and carves a string a higher highs & lows; the Relative Strength Index (RSI) highlights a similar dynamic as it breaks out of the bearish formation carried over from the end of May.
  • A close above the former-support zone around $45.30 (23.6% expansion) hurdle may spark a move back towards $46.30, with the next area of interest coming in around $47.10 (61.8% retracement) to $47.60 (38.2% expansion).

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Symbol

Last

High

Low

Daily Change (pip)

Daily Range (pip)

USD/JPY

112.27

112.93

112.14

3

79

The Japanese Yen remains under pressure, with USD/JPY grinding to a fresh monthly high of 112.93, and the low-yielding currency may continue to weaken against its major counterparts as the Bank of Japan (BoJ) appears to be on course to retain its Quantitative/Qualitative Easing (QQE) Program with Yield-Curve Control throughout 2017.

BoJ board member Yutaka Harada pledged the central bank has no intentions of reducing its exchange-traded fund (ETF) holdings until the inflation approaches the 2% target, and it sees as though Governor Haruhiko Kuroda and Co. may now be the only game in town especially as the European Central Bank (ECB) gradually alters the outlook for monetary policy. The BoJ’s widening balance sheet is likely to keep the Yen under pressure as the central bank continues to flood the market with its local currency, and USD/JPY may continue to gain ground in the second-half of 2017 as the pair appears to be making another attempt to break out of the downward trend carried over from December.

USD/JPY Daily

USD/JPY Daily Chart

Chart - Created Using Trading View

  • USD/JPY may continue to work its way towards the May-high (114.37) as price and the Relative Strength Index (RSI) start to establish a bullish trend, with a close above the Fibonacci overlap around 112.40 (61.8% retracement) to 112.80 (38.2% expansion) opening up the next topside target around 113.80 (23.6% expansion) to 114.30 (23.6% retracement).
  • Nevertheless, another failed attempt to close above near-term hurdle may produce range-bound conditions, with the dollar-yen exchange rate at risk of facing choppy price action as market participation thins going into the end of the month/quarter; first downside hurdle comes in around 111.10 (61.8% expansion) to 111.60 (38.2% retracement) followed by the Fibonacci overlap around 109.40 (50% retracement) to 109.90 (78.6% expansion).

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  • Retail trader data shows 75.4% of traders are net-long with the ratio of traders long to short at 3.07 to 1. In fact, traders have remained net-long since April 19 when Oil - US Crude traded near 5266.2; price has moved 14.3% lower since then. The number of traders net-long is 12.1% lower than yesterday and 20.0% lower from last week, while the number of traders net-short is 16.2% higher than yesterday and 28.0% higher from last week.
  • Retail trader data shows 59.5% of traders are net-long USD/JPY with the ratio of traders long to short at 1.47 to 1. In fact, traders have remained net-long since May 17 when USD/JPY traded near 113.757; price has moved 1.3% lower since then. The number of traders net-long is 2.3% lower than yesterday and 20.3% lower from last week, while the number of traders net-short is 10.2% lower than yesterday and 4.3% higher from last week.
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--- Written by David Song, Currency Analyst

To contact David, e-mail dsong@dailyfx.com. Follow me on Twitter at @DavidJSong.

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

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