We are now entering the busy part of the trading week. The RBA governor did not deviate from the previous RBA release, so the Aussie is unchanged. However, the US dollar continues to support some of the previous moves higher, so Brent is also supported as US inventories decline.
According to the American Petroleum Institute (API), crude oil inventories in the United States fell by 1.645 million barrels in the week ended January 28. Weekly distillate stocks which include diesel and therefore a good measure of commercial activity, fell by 2.508 million barrels. Meanwhile, gasoline supplies increased by 5.816 million barrels.
The price action on the daily Brent chart played out as expected with the $87.40 level holding as support. The tails on the daily chart show buying pressure between $87 and $88 so if we get a close below these levels the sellers may take control and start tripping the bulls sell stops.
I don’t personally think we’re going to see lower closes, as the ActivTrader sentiment indicator for Brent shows an increasingly larger number of traders trying to sell these highs. We should go higher and stop this cohort out or at least get them to flip to neutral or bullish before the uptrend peaks.
Philip Lowe, Governor of the Reserve Bank of Australia (RBA), reiterated the statement that came out with the rate hike decision and said the board is prepared to patiently monitor factors affecting inflation, such as price pressures, consumption, and wages. Lowe said the RBA sees the wage price index increasing to 2.75% this year and then 3.00% next year. And that the unemployment rate will decline to 3.75% by year-end.
"Based on the evidence we have, it is too early to conclude that inflation is sustainably in the target range. In terms of underlying inflation, we have just reached the midpoint of the target range for the first time in over seven years," said Lowe.
Furthermore, he said the bank is committed to doing what it takes to attain its inflation target. "We don't want to see inflation too low or too high," he concluded.
The AUDUSD on the daily time frame is showing a positive divergence between the swing lows on the price chart to the swing lows on the Stochastic oscillator. The sentiment is balanced so there is no directional bias from the ActivTrader’s so we could grind higher and find structural support at an imbalance around 0.72078.
Today the forex markets will be focusing on the European inflation data in the London session and then waiting for the US ADP Employment data in the US session. Oil traders will be watching social media for early signs of what is being said in the OPEC+ meeting, so traders need to be aware that trends could change quite quickly today.
EURUSD traders on the ActivTrader platform are adding to their shorts as the EURUSD climbs off its lows.
1.13192 is the first target above that I would like to see get tested but we may have to go as high as 1.15692 to get the retail traders to flip being bullish as we stop them out at the previous swing high. Ideally, some good inflation data out today would get the EURUSD to the first target and then the ECB press conference or US NFP later this week continues the downtrend price action.
The US dollar index could not hold above $96.255 so we should come down and test the previous balance area for support. Below $59 and the daily 200-period EMA becomes a legitimate target and possibly the last line in the sand for the bulls to keep in control. A decent ADP number should give the US dollar enough support should we find ourselves down at $95.80 today.