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Oil Prices Carve Near-Term Range; Recovery Sputters Ahead of SEP-High

Oil Prices Carve Near-Term Range; Recovery Sputters Ahead of SEP-High

2017-10-17 15:00:00
David Song, Strategist
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Talking Points:

- Crude Oil Carves Near-Term Range as Recovery Sputters Ahead of September-High ($52.83).

- Subdued U.K. Household Earnings to Fuel GBP/USD Losses.

- DailyFX 4Q 2017 Forecasts Are Now Available!

DailyFX TableUSOIL

The near-term recovery in crude appears to be sputtering ahead of September-high ($52.83), with oil prices at risk of facing range-bound conditions ahead of the Organization of the Petroleum Exporting Countries’ (OPEC) November meeting amid growing tensions in Iraq.

US Field Production

Even though U.S. field production sits near the 2017-high (9,561 b/d), recent remarks from OPEC suggests the group will continue to carry out its efforts to rebalance the energy market, and expectations for stronger global demand may keep oil prices bid especially as crude breaks out of the bearish trend from earlier this year.

USOIL Daily Chart

USOIL Daily Chart
  • Broader outlook for crude oil prices remain constructive as both price and the Relative Strength Index (RSI) preserve the bullish formations carried over from the summer months.
  • However, the lack of momentum to hold above the Fibonacci overlap around $52.00 (50% expansion) to $52.10 (23.6% retracement) may open up the downside targets especially as USOIL snaps the series of higher highs & lows from the previous week.
  • First downside hurdle comes in around $50.20 (38.2% retracement) with the next region of interest coming in around $48.60 (38.2% retracement) to $49.30 (23.6% retracement), which largely coincides with the monthly-low ($49.13).
GBP/USD

GBP/USD struggles to hold its ground even as the U.K. Consumer Price Index (CPI) expands at the fastest pace since 2012, and the pair may continue to give back the rebound from earlier this month should the Jobless Claims report dampen the outlook for underlying inflation.

UK CPI

Despite the 3.0% expansion in the headline reading, a deeper look at the report showed the pickup was largely led by higher costs for housing & household services, with food prices also expanding from the previous year, all while transportations costs have been driving up by rising energy prices.

UK CPI

A monthly breakdown of the data set suggests underlying inflation may continue to lag behind the headline reading amid discounted prices for clothing & footwear, with the costs for household goods & services also highlighting a similar dynamic. With that said, another 2.1% print for U.K. Average Weekly Earnings may produce a bearish reaction in the British Pound as it dampens bets for a Bank of England (BoE) rate-hike.

Keep in mind, BoE officials have argued that ‘a withdrawal of part of the stimulus that the Committee had injected in August last year would help to moderate the inflation overshoot while leaving monetary policy very supportive,’ but Governor Mark Carney and Co. may tame market expectations for a series of rate-hikes as ‘there remain considerable risks to the outlook, which include the response of households, businesses and financial markets to developments related to the process of EU withdrawal.’

In turn, GBP/USD remains vulnerable to further losses ahead of the next BoE meeting on November 2 as the fresh developments coming out of the U.K. economy drag on interest-rate expectations.

GBP/USD Daily Chart

GBP/USD Daily Chart

Chart - Created Using Trading View

  • Near-term outlook for GBP/USD remains capped by the 1.3300 (100% expansion) to 1.3320 (38.2% retracement) region, with a break/close below the overlap around 1.3090 (38.2% retracement) to 1.3120 (78.6% retracement) raising the risk for a test of the monthly-low (1.3027).
  • Downside targets will stay on the radar as long as the Relative Strength Index (RSI) preserves the bearish formation carried over from the previous month, with the next downside region of interest coming in around 1.2950 (23.6% expansion) to 1.2960 (78.6% retracement).

Retail Sentiment

Retail Sentiment

Track Retail Sentiment with the New Gauge Developed by DailyFX Based on Trader Positioning

  • Retail trader data shows 46.0% of traders are net-long Oil - US Crude with the ratio of traders short to long at 1.17 to 1. The number of traders net-long is 5.4% lower than yesterday and 25.7% lower from last week, while the number of traders net-short is 19.4% higher than yesterday and 39.0% higher from last week.
  • Retail trader data shows 54.4% of traders are net-long GBP/USD with the ratio of traders long to short at 1.2 to 1. The number of traders net-long is 9.7% higher than yesterday and 4.4% lower from last week, while the number of traders net-short is 2.2% higher than yesterday and 2.7% 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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