By Lukman Otunuga, Research Analyst, FXTM
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WTI crude surged with a new lease of vitality on the last trading week of August, surpassing technical resistance above $42.50 and concluding the week gaining $11. This was the strongest gain for over four years and the surge rippled across not only the FX markets, but the equities and global stock markets as well. This also provided a welcome boost for currencies reliant on commodity exports, with emerging market (EM) currencies particularly benefitting after receiving punishment throughout the earlier weeks of August.
EMs such as Brazil and Nigeria were offered a breath of fresh air, and EM stocks in general rose the highest in two years. The unexpected gains in WTI on Thursday and Friday showed that the commodity continues to trade with extreme sensitivity. The good news for WTI is that the oversupply in the markets is a continual threat to investor sentiment, but the impressive US GDP result has encouraged optimism over the global economic recovery. Saying that, the news that two major pipelines in Nigeria were shut down due to leaks and sabotage might have contributed to the improved investor sentiment as this could lead to a short term decline in supply.
Looking at the recent developments and gains with WTI, it would appear that investors have temporarily forgotten the supply side issues. Whilst Saudi Arabia and neighbouring producers might have increased investment in oil output, other OPEC members such as Nigeria and Venezuela have cut production, suggesting that depressed prices are hurting these exporters. The next OPEC meeting is in early December, and the issue of oversupply and a possible cut in output may be discussed if low prices continue to hurt producers.
The main focus this week will be the non-farm payrolls (NFP) in the U.S. While recent events have inspired suspicions that a September rate hike will be postponed, the Federal Reserve continues to repeat that any US rate hike will be data dependent, and another impressive jobs number will encourage optimism the central bank might still raise rates before the end of 2015.
EURUSD: As the USD gained last week with bullish sentiment reimbursed, the EURUSD traded on the downside. While USD has regained momentum, there was a recent paradigm shift on the Euro and the currency might still benefit from a risk-on environment. Technically the EURUSD has shown bearish tendencies with four negative days last week. Monday started intraday bullish with support found around 1.1150. For bulls to take control once more, this level must hold, followed by a further breach of 1.1300.
GBPUSD: USD strength last week was the main ingredient which caused the GBPUSD to sink to the lows of 1.533, levels not seen since early July. This market has become technically bearish and both leading/lagging indicators concur. The monthly pivot of 1.5560 may act as a resistance which should bring prices lower. Strong NFP results this week might drive the GBPUSD lower.
AUDUSD: The AUD continues to be suppressed by a global decline in demand and prices for commodities. This currency is fundamentally bearish and a strong NFP this Friday can drive the AUDUSD back to its 2015 lows at 0.7035. The AUDUSD is currently finding technical resistance at 0.72, the pair is still technical bearish but trading in a period of consolidation. It might be wise to monitor how strong the 0.72 resistance continues to act, if the AUDUSD extends above, then the next relevant resistance can be found at 0.74.
USDJPY: The USDJPY corrected itself following the aggressive moves on Black Monday. Prices surged back up to the 61.8% Fibonacci level following the initial drop, and 121.70 has become the new trend defining level. Prices must stay below here for the bearish daily outlook to hold. Fundamentally, the JPY is still strong due to the risk-off environment, but Friday’s NFP has the ability to break through these technicals and because of this, the outlook is only valid until Friday morning.
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