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Fundamental Events Threaten Price Stability

Event Risk

USD Powell’s Congressional Testimony is Released: Tuesday @ 8:30 am EST

USD Advance Goods Trade Balance: Tuesday @ 8:30 am EST

USD Durable Goods Orders: Tuesday @ 8:30 am EST

USD Powell Testifies to House Financial Services Committee: Tuesday @ 10:00 am EST

EUR German Unemployment: Wednesday @ 3:55 am EST

EUR Euro-Zone Consumer Price Index: Wednesday @ 5:00 am EST

USD Gross Domestic Product: Wednesday @ 8:30 am EST

CHF Gross Domestic Product: Thursday @ 1:45 am EST

CAD Gross Domestic Product: Friday @ 8:30 am EST

We are looking at a volatile week ahead, particularly in the US session, as key economic indicators and Fed speak fill the calendar. The biggest event this week will be Jerome Powell’s testimony before the House Financial Services Committee on Tuesday morning. Powell replaces Janet Yellen as the new Fed Chairman. Traders will be looking for any directional cues from Powell during his statement that could signal a shift in Fed policy. The market is already bidding up the dollar in anticipation of the testimony which signals a bullish sentiment. Overall, the market is expecting a slightly more hawkish stance from the Fed during Powell’s tenure which could lead to additional rate hikes this year.

Following a busy Tuesday, we have three straight days of GDP announcements for the US, Switzerland, and Canada. Any upside surprises on Swiss or Canadian GDP would be bullish for crude and products as global risk continues to fall.

Crude Oil

Crude oil continues its significant rally as price systematically breaks above short-term resistance. The market has paid close attention to OPEC chatter last week where a supply cut extension into 2019 was discussed. This, coupled with a surprise draw in US commercial crude inventories was enough to fuel the extension. Overall, the trend remains to the upside, but we are growing increasingly cautious with the amount of major economic releases this week. There are numerous scenarios that could play out, which makes it more difficult to forecast price. For the time being, we expect price to maintain its upward bias until we see a tangible shift in the fundamental environment.

On the short-term, crude oil prices are at the upper end of a bullish channel and facing some selling pressure on any extensions. The break above trendline resistance was triggered by US Dollar weakness following an overnight rally. The dollar is facing continued selling pressure above $90.00, which has operated as resistance over the last few weeks. Further dollar loses at this level may be enough to keep crude prices elevated above $63.50 and $63.00. We’ll have to see how the dollar plays out over the coming sessions as changes in future Fed policy are on the table.

WTI Futures

US Dollar Index


ULSD and RBOB have followed crude’s lead and broken above short-term resistance. Both are now in the upper halves of their respective bullish channels. RBOB’s next level of resistance is between $1.84 and $1.86, which coincides with the channels upper bound. ULSD faces minor resistance at $2.00, with more major resistance occurring between $2.02 and $2.04. As with oil, current price action for both products suggest further gains on average, which is indicated by the positive slopes of the two channels. We are looking for price to bounce from support on any pullbacks. We’re seeing good levels of support for ULSD at $1.98 and $1.96 and RBOB at $1.80 and $1.78. Any breaches below channel support could signal shifting short-term momentum, which will need to be confirmed by fundamentals.

ULSD Futures

RBOB Futures

Market Sentiment

Hedge funds maintain their record long exposure as the hedge fund ratio for NYMEX WTI futures increased to 20.61. Hedge fund long contracts fell by 17,000 to 460,261 while short contracts fell to 22,330 from 29,270. This is another record low in short positioning in NYMEX futures which surpasses lows made since 2012. As we mentioned earlier, price action remains bullish, but current positioning leaves us vulnerable to significant selling pressure should the risk environment shift. The US Dollar Index (DXY) and the CBOE Volatility Index (VIX, or /VX) are key indicators to follow in terms of risk appetite. If we see a fall in global equities coupled with a rise in DXY and VIX we could see a return of significant selling pressure as investors move to safer assets.