FiboGroup Market Analysis 2018

[fibogroup.com]

The oil price had a rough time last week, hitting its lowest level since join after a report by the energy watchdog showed rising inventories which raises concerns over global growth.

In its latest report, which some say is the worst in years, the IEA announced a huge rise of 6.8 million barrels of oil inventories which many see as a key indicator of sediment in the market and may leave investors on the sidelines waiting to see what this week’s report will bring and if there will be any more major surprises.

“The index tells you all you need to know, but the main detail is that total commercial inventories rose a thumping 17.53 million barrels against the five-year average,” wrote Emily Ashford and Paul Horsnell in a Standard Chartered report.

“Crude oil inventories rose 6.81mb in absolute terms and 9.66mb against the five-year average, with the increase in refinery runs to a record-high of 17.98 million barrels being the only bullish component of the whole crude balance equation. Cushing crude inventories rose for the first time in three months. Implied demand was lower week on week for every product except gasoline.” They added.

Disappointing data out of China last week also weighed on the oil price with fears that the worlds 2nd largest economy may reduce its demand for oil. Turkey may also be in the same boat as the plunge in their currency, the Turkish Lira has pushed oil prices in dollar terms 40 percent higher.

Some analysts say that the upcoming sanctions due to be introduced against Iran are going to create extreme volatility in the oil markets and some traders have already begun to take positions to take advantage of the big movements.

With new sanctions coming into play and also the IMO 2020, we see there is more volatility and therefore more opportunities to trade. So, we see our customers taking, slowly but surely, positions for that to happen,"said Eelco Hoekstra, CEO of Vopak.

 

[fibogroup.com]

The US dollar may feel the pressure of political interference after comments by US president Donald Trump directed towards the US Federal Reserve.

Trump noted in an interview that he was "not thrilled" by US Fed President Jeremy Powell’s decision to raise interest rates and would keep complaining about the matter if rates were to move higher

"We're negotiating very powerfully and strongly with other nations," Trump said. "We're going to win, but during this period of time I should be given some help by the Fed. The other countries are accommodated."

Many Analysts say Trump’s words set a dangerous precedence as it implies he is prepared to pit pressure on the US Federal Reserve when he doesn’t like something which may lead to the central bank loosing it’s independence and be driven by political moves.

The US dollar has risen sharply for the last month against most of the major currencies which has led to some complications in the US economy, namely the export sector where a rising greenback is starting to make some goods expensive.

Trump’s rhetoric may be aimed at bringing down the level of the US dollar and especially since there are elections just around the corner.

Some say the ploy may work in the short term, but in the end the underlying economical factors are still strong for the US dollar and it will eventually rebound.

"Trump’s not thrilled with the Fed raising rates. At the same time, he accused China and the EU of currency manipulation. Taken together with previous comments, we see a clear pattern of the president willing to talk the USD lower whenever it starts to look a bit toppy” said Neil Wilson, the chief market analyst at Capital.com

"Two ways to look at this, one, if done enough times it can exert a powerful influence over market expectations. Two, comments like these will produce diminishing returns for the president. I think on this one the market will come round again and the dollar bounces back, but nonetheless, it does appear the market is worried that the president will exert influence on Fed policy." He added.

 

[fibogroup.com]

The Australian dollar has taken a tumble in today’s trading session on the back of political uncertainty that may see the country install a new Prime Minister as early as this week.

Home Affairs Minister Peter Dutton has decided to challenge Prime Minister Malcolm Turnbull for the 2nd time in a week which was brought about by the resignation of more than 12 ministers from across the government

This caused investors to exit the Australian dollar this morning in droves and if infact the Prime minister is toppled later in the week, more losses are expected.

"This kind of event worries financial markets and it's reflected in the Aussie dollar and other financial assets," said Sarah Hunter from BIS Oxford Economics.

"Hopefully we'll get some clarity in the next couple of days around these issues and we'll be better placed. If we went to an election, that would be an interesting move. If Labor were elected and implemented their policies we would see quite a marked shift for the government." She added.

Some analysts believe this may be a good time to go long in the Aussie dollar because if history is anything to go by, the fall in the currency may be short lived as the market is used to Prime Ministers coming and going at regular intervals

“The trading history of the Aussie dollar in the last 25 years or more suggests that it is not sensitive to who is in The Lodge,” said Westpac senior currency strategist Sean Callow

“But there is the occasional flicker of political risk premium, such as after the hung parliament of 2010.” He added, noting that in 2010 the drop in the Australian dollar only lasted one day.

 

[fibogroup.com]

The Australian dollar has continued to climb today, following on from last Friday’s rally after the election of a new Prime Minister to Australia brought a sense of calm over the markets.

There were 3 candidates who put there hat in the ring to become Prime minister and in the end, it was Scott Morrison who unseated the former PM Malcolm Turnbull which caused a rally in the Aussie dollar as he as seen as the most business and market friendly candidate.

"PM Morrison is the most market-friendly option, having successfully negotiated through multiple portfolios such as social security, border security, and more recently presiding over a substantial improvement in the budget balance as Treasurer," said Annette Beacher, Singapore-based chief strategist at TD Securities.

Time will only tell whether Australia will once again regain some political stability and this may be a worry for some investors but some say the big picture for the Australian economy and indeed the Australian dollar is commodity prices and interest rates.

Interest rates in the US have now overtaken the rate in Australia for the first time in many years which has seen the appeal of the carry trade erode and with the reserve Bank of Australia predicted to leave interest rates on hold for up to 2 more years, the situation will probably only get worse.

A recent slowdown in China has raise concerns that they will reduce their demand for commodities such as Iron ore which is Australia’s biggest export and that will be another minus for the Australian dollar

“It is hard to avoid the conclusion that we have seen a rare instance of the Aussie carrying a small political risk premium,” said Sean Callow, a senior currency strategist from Westpac.

“But history argues for this effect to be short-lived. Investors seem to follow the reasonable assumption that commodity prices and yield differentials are the key drivers of the Aussie, regardless of which party or which prime minister is in power in Canberra.” He added.

 

[fibogroup.com]

It’s not long until November before the sanctions against Iran take effect which is likely to cause a significant spike in the oil price but it seems as if Iran is not going to take the news lying down as noted in their latest round of threats.

The country believes that if they are unable to export oil from the Persian Gulf, nobody should be able to and have threatened to block the straight which some say could cause a military confrontation with the US

,"We can ensure the security of the Persian Gulf. Said General Alireza Tangsiri, of the navy of Iran's Revolutionary Guards

"There is no need for the presence of aliens like the United States and the countries whose home is not in here. All the carriers and military and non-military ships will be controlled and there is full supervision over the Persian Gulf”. He added.

The upcoming sanctions against Iran are already starting to have a significant affect according to one analyst and even though the European Union is trying to find a way to salvage the Iranian deal, the reality is that some EU countries are already making moves in order to comply with the sanctions.

It still remains to be seen whether China and India toe the line and jump on board which will really hit the Iranian economy.

“Iran remains the largest risk factor on the supply side of the market, with declines expected to accelerate ahead of US oil sanctions in early November.” Said Robbie Fraser, commodity analyst at Schneider Electric.

“The practical reality of the U.S. sanctions threat has already forced several European buyers to curtail purchases of Iranian crude. In determining the extent of likely production losses from Iran, the key factors continue to be the extent to which China and India are willing to cut imports despite the threat of U.S. secondary sanctions.”

 

[fibogroup.com]

The Canadian dollar has taken a dive in today’s trading session as doubts surfaced over a proposed North American Free Trade Agreement (NAFTA) between The US, Canada and Mexico.

Going by reports, it seems that a deal between The US and Mexico is on the cards but a deal with Canada remains elusive which is in stark contrast to reports out last week that a deal with Canada was looking like the most likely scenario.

The Canadian dollar has been climbing in recent weeks against the major currencies on the back of a proposed NAFTA deal, as well as a recent rate hike delivered by the Bank of Canada which was expected to also lift rates again in September.

Some analysts predict a fall of up to 20 percent if US President Donald Trump decides to walk away from the deal

“We expect Trump to remain motivated by his campaign promises and continue his protectionist rhetoric and threat tactics,” says Brittany Baumann, a macro strategist at TD Securities.

“We cannot entirely rule out the event of termination, bearing in mind Trump's motivation to treat trade deals like Humpty Dumpty - a break-it-then-fix-it strategy - along with his desire for bilateral deals over multilateralism. The combination of stringent US proposals, a lengthening timeline of talks, and President Trump’s persistent threats of termination and campaign motives have raised the risk that Trump triggers Article 2205, setting off a six-month notice of termination,” she added.

 

[fibogroup.com]

Just when we thought that a deal between the European Union and Great Britain was in the making and thus avoiding a hard Brexit, another spanner was thrown in the works which saw the British pound come under pressure towards the end of last week.

The EU's chief Brexit negotiator Michel Barnier, at the beginning of last week noted that a mutually beneficial deals was in the best interests of both the EU and the UK which sent the pound rallying

But it seems like Mr Barnier did an about turn on the weekend by noting that the EU would stick to its `guns regarding EU regulations meaning the UK could not have it’s cake and eat it too.

He said that the EU had built up its regulations over many years and if countries were able to pick and choose which rules to abide by, it would be a free for all situation which would break the EU as a whole.

He said the UK was welcome to stay in the EU single market like some other Countries but they must follow the rules.

"They could stay in the single market, like Norway, which is also not a member of the EU - but they would then have to take over all the associated rules and contributions to European solidarity” Mr Barnier said

"But if we let the British pick the raisins out of our rules, that would have serious consequences. Then all sorts of other third countries could insist that we offer them the same benefits." He added.

This uncertainty is creating a volatile situation for the British pound and many investors are not prepared to take positions in the pound in the current environment and even some of the bigger players are preferring to sit on the sidelines and take a wait and see approach.

It’s very hard to invest when you have no more insight than anyone else regarding how the negotiation turns out,” said Paul Lambert, head of currency and portfolio management at Insight Investment.

 

[fibogroup.com]

The Australian dollar has failed to capitalize today after a solid round of economic data which points to ominous signs for the currency as the year closes out.

Data out yesterday showed GDP figures in Australia currently sitting at 3.4 percent which were well above analysts’ expectations for a figure of 2.8 percent.

Shortly after the news was released the Aussie dollar bounced off a 2 year low back up through the US72c mark before giving up most of the gains as investors focused back on the main recent events that have been driving the Aussie dollar which is more global.

Events such as the trade wars between China and the US as well as Brexit among other things have been putting immense pressure on emerging markets and in particular the Australian dollar which is itself part of this group.

Although the Aussie dollar remained flat after the latest round of GDP figures, some say that the positive figures may eventually feed in to higher inflation which will force the Reserve bank of Australia to lift interest rates sooner or later.

"The RBA had stuck to its view that a rate hike was a long way off yet, despite the fact that the economy is moving in the right direction, as today’s data confirms. That makes it clear that AUD strength will arrive later than we had envisaged, but it will arrive. said Esther Maria Reichelt, an analyst at Commerzbank.

“The longer the aussie remains at the current weak levels the more this supports the Australian economy which will lower unemployment further and fuel wage inflation sooner or later. As soon as that emerges the RBA will consider rate hikes"

 

[fibogroup.com]

Bitcoin has now managed to rack up its 2nd straight day of gains after last weeks mini crash which saw the price tumble from $7400 all the way down to $6130 all in a matter of days

This is now the 3rd time this year where the crypto currency has made a significant bounce from the $6000 support level only to be pushed back sharply and this time analysts are scratching their heads as to what may be the trigger for the latest plunge.

It was first thought that the reason behind the fall was speculation that Investment giant Goldman Sachs may delay plans for their cryptocurrency trading desk, which many see would be a rebuke for cryptocurrencies by the big money.

“Many have been speculating that this week’s bitcoin price drop was due to the news that Goldman Sachs would be ditching its cryptocurrency trading plans,” said Danny Scott, cofounder of crypto exchange CoinCorner

“A different theory which we have been following ourselves for the last few days comes from a very old bitcoin wallet beginning to move a large amount of bitcoins. These look to be from MtGox which could match up well with their recent announcement that creditors can now open the claims to any lost funds.” He added.

A representative from Goldman Sachs also displaced the theory that the investment bank was behind the fall in bitcoin and as far as he knew, the banks plans for bitcoin were still on track.

“It wasn’t like we announced anything or that anything had changed for us,” said Marty Chavez, CFO of Goldman Sachs.

“I never thought I’d hear myself actually use this term, but I’d really have to describe that as fake news.” He added.

“Many have been speculating that t bitcoin price drop was due to the news that Goldman Sachs would be ditching its cryptocurrency trading plans,” wrote Scott in an email to MarketWatch.

The market now believes the key to bitcoins future will be the big institutional investors like Goldman Sachs and if they begin to accept and legitimize the cryptocurrency there will be a new wave of investors that will follow suite and ultimately drive the price higher.

This will also force regulators such as the Securities and Exchange commission in the US to take a closer look at bitcoin and introduce tighter regulations which will also attract the more conservative type of investors.

 

[fxstrategist]

Bitcoin stays weak all week after Goldman Sachs placed on hold its cryptocurrency program. Some crypto exchanges have closed for trading and that has also caused weakness on Bitcoin. On the daily chart of Bitcoin we can see that the instrument has been consolidating around the 6310 after dropping from the 200 day EMA zone at the 7477 level. The 6000 level is its closest support level, but the low at the 5769 level could act as a better support. A break down below the 5769 level could accelerate its bearish momentum. To the upside, the 55 day EMA zone, along with the 7000 level could act as resistance.