Oil Prices Risk Further Losses as U.S. Output Approaches Record-High
- AUD/USD Clings to Bullish Formation Ahead of RBA Meeting.
- USOIL Remains Under Pressure Despite Hurricane Harvey, U.S. Output Approaches Record-High.
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AUD/USD appears to be on its way to test the 2017-high (0.8066) as the recent developments coming out of the Australian economy put pressure on the Reserve Bank of Australia (RBA) to remove the record-low cash rate.
Even though the 27.9K expansion in Australia Employment was largely driven by part-time positions, the unexpected pickup in the Participation Rate instills an improved outlook for the real economy as discouraged workers return to the labor force. As a result, Governor Philip Lowe and Co. may adopt a more upbeat tone at the next policy meeting on September 5, and the Australian dollar may exhibit a more bullish behavior over the remainder of the year as central bank officials forecast a ‘neutral nominal cash rate of around 3½ per cent, given that medium-term inflation expectations were well anchored around 2½ per cent.’
However, the RBA may merely attempt to buy more time as ‘ongoing low wage growth and the high level of debt on household balance sheets raised the possibility that consumption growth could be lower than forecast,’ and the Australian dollar stands at risk of facing a more bearish fate as the central bank toughens the verbal intervention on the local currency and warns ‘an appreciating exchange rate would be expected to result in a slower pick-up in economic activity and inflation than currently forecast.’
AUD/USD Daily Chart
Chart - Created Using Trading View
- Near-term outlook for AUD/USD remains constructive after failing to test the former-resistance zone around 0.7720 (23.6% retracement) to 0.7770 (61.8% expansion), with the pair at risk for a larger advance as it comes off of channel support.
- At the same time, the Relative Strength Index (RSI) appears to be threatening the bearish formation carried over from the previous month, with a close above the 0.7940 (61.8% retracement) hurdle opening up the next region of interest around 0.8020 (38.2% retracement) followed by the 2017-high (0.8066).
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Crude struggles to recoup the losses from earlier this month, with oil prices at risk for further decline as the U.S. approaches record-output.
Even though Hurricane Harvey halts production around the U.S. Gulf coast, fresh figures from the Energy Information Administration (EIA) showed field production climbing to 9,528K b/d in the week ending August 18 to mark a fresh 2017-high. With output quickly approaching the record-high (9,610K b/d), the ongoing expansion in U.S. capacity continues to cast a long-term bearish outlook for crude prices even as the Organization of the Petroleum Exporting Countries (OPEC) increases its effort to rebalance the energy market.
USOIL Daily Chart
Chart - Created Using Trading View
- Crude oil pared the decline from earlier this month as the $46.40 (50% expansion) region offered support, but the downside targets remain on the radar for USOIL as it continues to operate within the downward trending channel carried over from the end of February.
- May see USOIL continue to come off of the upper bounds of the channel especially as the near-term price action remains capped by the former-support zone around $48.60 (38.2% retracement); next downside region of interest comes in around $44.90 (78.6% retracement) to $45.30 (23.6% expansion) followed by Fibonacci overlap around $44.10 (61.8% retracement) to $44.50 (78.6% retracement).
- Retail trader data shows 34.2% of traders are net-long AUD/USD with the ratio of traders short to long at 1.93 to 1. In fact, traders have remained net-short since June 04 when AUD/USD traded near 0.74772; price has moved 6.3% higher since then. The number of traders net-long is 11.3% higher than yesterday and 4.5% lower from last week, while the number of traders net-short is 9.6% higher than yesterday and 6.4% higher from last week.
- Retail trader data shows 70.7% of traders are net-long with the ratio of traders long to short at 2.41 to 1. In fact, traders have remained net-long since August 14 when Oil - US Crude traded near 4776.5; price has moved 0.8% lower since then. The number of traders net-long is 12.1% higher than yesterday and 56.3% higher from last week, while the number of traders net-short is 3.2% lower than yesterday and 24.4% lower from last week.
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--- Written by David Song, Currency Analyst
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