Crude oil falls on supply worries & despite China’s GDP beat
Oil prices are slipping on Monday, weighed down by concerns over a global glut as US-China trade tensions add to concerns that an economic slowdown and weaker energy demand.
Brent has fallen into contango, a market structure where earlier contracts trade below later contracts, which encourages traders to pay for storing oil so it can be sold at a higher price later when supplies are expected to have shrunk. This occurs when there is an ample supply.
Last week's International Energy Agency report showed expectations that open plus may increase production further, adding to expectations of a market surplus.
Meanwhile, US-China trade tensions remain a focus. Over the weekend, President Trump rowed back some of his more threatening comments, saying that he was going to meet with Chinese President Xi Jinping at the end of the month. His comments come after the WTO urged a de-escalation of the U.S.-China trade war for fear it could slow global growth considerably.
Data this morning showed that Chinese Economic growth was stronger than expected in Q3, but was still a second straight quarter of softer growth, easing to 4.8% YoY, down from 5.2% in Q2.
Other Chinese data showed that industrial production unexpectedly increased to 6.5% but retail sales fell to 3% from 3.4%. China is the world’s largest oil importer, so weak data hurts the oil demand outlook.
There is also some uncertainty surrounding Russian oil supply, as Indian PM Modi pledged to Trump that India would cease Russian oil imports. Trump vowed massive tariffs on India until Russian oil imports end. India already has an additional 25% tariff on US imports due to its Russian oil imports.
Crude oil forecast – technical analysis
Oil has broken below its multi-month falling trendline, invalidating the falling wedge pattern. The price has dropped to a low of 56.15. Sellers will look to extend losses towards 55.35 the 2015 low.
Any recovery would need to rise above 59.30 the falling trendline resistance and 60.00 the round number to expose 61.75. A rise above here negates the near-term downtrend. A rose above 65.00 creates a higher high.
EUR/USD steady despite France’s credit rating downgrade
EUR/USD is starting the week in a calm manner after a three-day winning run. While the improved mood is offering support to the EUR, this is being offset by news that the S&P Global lowered France’s credit rating to A+ from AA-.
The eurozone economic calendar is relatively empty across the early part of the week, meaning that the USD and market sentiment could be the likely market drivers.
The calmer situation in French politics has helped the EUR recover from recent lows, and the market is taking the S&P Global credit rating downgrade in its stride. The downgrade comes even after a budget was pushed through in France, which provided a reduction in the budget deficit. However, the government decided to freeze pension reform, offering only a temporary breather while complicating the budget. The situation remains fragile in France, which means it is too early to price it out from the EUR fully.
On the data front, German PPI was -0.1% MoM, up from -0.5% in August.
Attention will now turn to ECB speakers Schnabel and Nagel. The ECB is not expected to cut rates again this year.
The USD is unchanged against its major peers after losses last week. Concerns over US regional banks continue to weigh on sentiment after earnings last week raised credit concerns. US-China trade worries have eased slightly after Trump said that he will meet with Xi Jinping later this month.
The US government shutdown continues, so data remains in short supply. However, US CPI data will be released on Friday just ahead of the FOMC rate decision next week.
EUR/USD forecast - technical analysis
EUR/USD fell away from its 205 high of 1.1925, finding support at 1.1540 before rebounding higher. The recovery has encountered resistance at 1.17, a round number, the 50 SMA, and the multi-month rising trendline resistance.
Buyers will need to rise above this level to extend gains towards 1.1830, the July high, before bringing 1.1925 back into focus.
Failure to close above this level could see the price retest the 1.1540 lows. A break below here creates a lower low opening the door to 1.14.
By Fiona Cincotta
