Oil inches higher as OPEC meetings continue

Hi Everyone,

Strong NFP Report Pushes Markets Higher

A stronger than expected payroll report last Friday pushed equity markets to another all-time high. The U.S. economy added 850,000 new jobs during June when the consensus expected 700,000. Whilst the headline number looks good, there’s plenty to be worried about under the hood, as the new jobs are mostly in those sectors of the economy that have reopened. For instance, the leisure and hospitality sectors added 343,000 new jobs, education around 269,000, and the retail sector 67,000. These add up to around 80% of the total; this is great at first glance but not in the long run since these sectors do not drive the productivity or wage growth required for sustainable expansion. In particular, the U.S. economy is 70% consumer driven, which emphasizes the importance of a healthy and wealthy labor market. With the country still 7 million jobs short of pre-pandemic levels and most of the recovery happening in low-paying and low-productivity sectors, there is still a long way to go before the Federal Reserve Bank and the U.S. government take their foot off the stimulus gas.

Equity markets jumped on the back of the jobs report. S&P 500 was up 0.75% while Nasdaq 100 rose 1.15% on Friday. Both of these indices once again closed at an all-time high despite being over-extended based on technical indicators. While momentum indicators signal a bullish trend, prices are more than 3 standard deviations away from the mean when looking at the Keltner channels. Also, 14-day RSI and stochastic signal overbought levels. As such, a pullback to more sustainable levels seems likely during the upcoming week.

Oil Inches Higher as OPEC+ Continues Negotiations

Oil price, measured by USOIL, closed the week at $75 per barrel, its highest price since 2018, as OPEC and its allies failed to come to an agreement about future output. The bad apple this round was the UAE who refused to accept production cuts after April 2022, month when the initial agreement to curb output is scheduled to come to an end. The 23-nation group had agreed to increase production from August until year-end by around 400,000 barrels per day but also sought to extend the existing agreement until the end of 2022. The UAE, however, has disputed the extension past April of next year on the premise that its baseline production has increased. The proportional cuts of the UAE are much higher than those for the rest of OPEC+ members due to additional investments made by the Abu Dhabi National Oil Company.

UAE’s attempt to keep the existing agreement separate from the proposed new agreement for the remainder of 2022 is causing friction among the cartel members who unanimously voted in favor of the tabled plan. OPEC+ ministers are scheduled to meet again on Monday, but the negotiations are going to be tense. Once the door is open for the UAE to increase its baseline, other members might request the same.

A higher baseline for the UAE might put downward pressure on oil prices, considering too that Iran’s supply might hit the market later this year. Extension of the production curbs, however, might push oil to new highs. Oil price is already up 55% year-to-date and technical indicators signal further upward momentum. Price is currently extended, as 14-day RSI is at 72 and stochastic at 80. However, strong momentum is likely to push the price through the near-term resistance level of $76. The next resistance level to be tested is at $80. Support levels have formed close to the 8-day exponential moving average at around $74 and the 79% Fibonacci retracement level at $73.

Equity markets benchmark index S&P 500 closed at 4,352.33 points, up 1.67%, while Nasdaq 100 gained 2.67% to 14,727.63 points. Russell 2000, representing small-cap stocks, shed 1.23%. The U.S. dollar, represented by the DXY index, had a strong week, as the greenback was up half a percentage point to $92.2. Despite a strong dollar, gold and oil rose by 0.33% and 1.50%, respectively.

Have a great trading week ahead!

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In The Spotlight

DateCurrencyEventPrevious Consensus 
MondayUSOILOPEC + meeting
TuesdayAUDRBA Interest Rate Decision and Monetary Policy Statement0.1%0.1%
TuesdayEUREuro Area Retail Sales (YoY) – May23.9%7.9%
TuesdayUSDISM Services PMI – June64.063.5
WednesdayUSDFOMC Meeting Minutes
FridayCADUnemployment Rate8.1%8.2%

● U.S. Services Purchasing Manager’s Index
Purchasing Managers’ Index measures the sentiment for businesses in the services industry in the U.S. This is survey based and considered as a leading indicator. Higher than expected print is generally bullish for USD, while lower than expected is bearish.

● Canada Unemployment Rate
Unemployment rate measures unemployed workers divided by the total civilian labor force and is considered as a leading indicator for the health of the economy. Generally, a decrease of the figure is positive for CAD, while an increase is negative for CAD.

Market Sentiment

EURUSD continues to trend lower with the price trading below the 8-day exponential moving average (EMA). Moving averages are signaling bearish momentum, while ADX signals that there is strong energy in the trend. RSI is currently neutral while stochastic indicates oversold levels. Price is likely to move lower, as the weekly chart confirms the bearish trend. Resistance levels have formed near 1.18925 and 1.19360. Support is near 1.18450 and 1.18060.

Resistance: 1.18925
Support: 1.18450

GBPUSD has turned bearish with short-term momentum indicators signaling strong downward momentum. Price is flirting with oversold levels as the 14-day slow stochastic is near 11 but RSI still sits in neutral territory. With the weekly chart still bullish, the pound might attempt a recovery, should it pierce the resistance levels near 1.38360 and 1.38670. However, the daily chart signals a clear bearish momentum with support levels near 1.37950 and 1.37550.

Resistance: 1.38360
Support: 1.37950

NZDUSD is testing the 8-day EMA resistance level and attempting to break higher. Momentum indicators signal a strong bearish trend with the 200-day moving average above the price. Price is currently in a neutral trading range and the weekly chart still looks bullish. The daily chart, however, signals that a downward move is likely with support levels near 0.70030 and 0.69820. Resistance levels are near 0.70395 and 0.70530.

Resistance: 0.70395
Support: 0.70030

The XAUUSD pair is currently testing the 100-day moving average resistance near 1,790.24. Despite the price moving largely sideways since mid-June, the price is in a very strong bearish trend and momentum indicators signal that a further move lower is likely. Resistance levels have formed near 1,790.24 and 1.803.55, while support is near 1,781.70 and 1,773.49.

Resistance: 1,790.24
Support: 1,781.70

Kaia Parv, CFA, is an experienced Portfolio and Investment Manager with exposure to both public and private markets. Before joining FXPRIMUS, Kaia was a Senior Investment Associate at EFA Group and a Vice President in Bank of America Merrill Lynch.

Any opinions, news, research, analyses, prices or other information contained here are provided as general market commentary and do not constitute investment advice. FXPRIMUS does not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information.

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