US makes new highs after strong data; Oil rallies despite large EIA build

Summary:

• US30 makes new record highs after ADP and ISM beat

• Oil shrugs off large inventory build to reach new highs

• Could the market surge to $100 a barrel?

• Where next for these USD pairs?

• Pound little changed as May delivers key speech

There’s been two strong data points from the US this afternoon with the latest readings on both the labour market and the services sector delivering pleasing beats. First off the ADP employment change rose to 230k from 168k previously, comfortably higher than the 185k expected. Just under 2 hours after the ADP release there was more positive news for the US as the ISM non-manufacturing PMI rose to its highest level since 1997. The Wall Street open which occurred in between these two data points saw some choppy trade but not long after the ISM release all US indices made new highs for the day. The US30 is the strongest and has pushed up to notch another record peak.

There’s been some big swings in the Oil price in the past hour as crude first dipped lower then bounced strongly following the latest inventory figures from the US. These moves can be explained by the inventory figure showing the largest rise in 19 months (negative for crude) but this doesn’t really change the longer term outlook and as such there seems to have been many buyers waiting on the sidelines for  chance to get involved.

Until mid-2014 oil prices hovered between $100 and $125 but then a sudden slide occurred. There were numerous reasons behind such a severe slump including Chinese economic slowdown or rampant US output. Economies relying heavily on oil such as Russia, Venezuela or Saudi Arabia experienced a sharp GDP growth deceleration. Between mid-2014 and the beginning of 2016 Brent prices plunged 75%. However, we have had a steady increase ever since and prices are already up more than 200% since they bottomed out. Along with higher crude prices forecasts for the global economy deteriorate. Some commodity experts signal that prices could rise even toward $100.

The US dollar has had a good run of late with a trade-weighted index of the greenback rising to its highest level in almost a month yesterday and back above the 95 handle. However the USD index (USDIDX on xStation) showed a large wick overhead on a daily chart, indicating selling pressure and there is some suggestion that the greenback could be set for a reversal. In this analysis we’ll look at 3 USD crosses and describe the latest technical situation for them.

An early push higher in sterling has run into some resistance against the US dollar with the market dropping back below the $1.30 following Theresa May’s speech at the Tory party conference. Overall the pound is a little higher on the day however. There have been no real standout remarks from the PM as far as Brexit is concerned with her stance seemingly little changed despite the recent blows to her proposal. May warned of the short term damage that a no deal would bring to the UK economy before adding that she will not rule this out as it would weaken the country’s negotiating position - seemingly oblivious that this public admission may well do just that.