Daily Market Analysis From Forexmart

January 14, 2021 – Why is the oil market declining?

Yesterday, Brent quotes updated an almost annual maximum at $57.38 per barrel, but today the asset has dropped to $55.77.

The pressure on prices was exerted by data on changes in US oil product inventories. According to a report by the Energy Information Administration (EIA) of the US Department of Energy, crude oil inventories in the country fell by 3.2 million barrels for the week, while analysts predicted a decline of 3.8 million. A day earlier, API released a similar report, according to which oil reserves decreased by 5.8 million

The report from the EIA also showed that gasoline inventories rose by 4.4 million barrels, and distillate stocks by 4.8 million barrels, which was worse than forecasts (3.2 million and 2.8 million barrels, respectively).

Additional pressure on Brent came from the recovery of the US dollar in the Forex market. The USD Index, which measures the US currency against a basket of six major foreign exchange competitors, rose 0.3% on the day. The new US President Joe Biden will speak today. The head of the White House may announce new measures to support the economy, which will put pressure on the dollar and, as a result, lead to an increase in oil prices.

 

GBP/USD. 15.01 | Consolidation in the 1.36-1.37 price range

The GBP/USD pair continues to trade within the range of 1.36-1.37. The current quote is 1.3655.

Currently, the epidemiological situation in the UK continues to deteriorate. Moreover, on the eve of the country's Ministry of Transport announced the cancellation of flights with a number of South American states and Portugal after the discovery of a new strain of coronavirus in Brazil. Despite this, the British currency continues to trade in the area of the recent two-year highs. The fact is that market participants still take into account the high probability of the introduction of negative rates by the Bank of England.

At the same time, the dollar is under pressure from the decline in Treasury yields and the weak report on claims for unemployment benefits, published yesterday. According to the US Department of Labor, the number of Americans who filed initial applications for unemployment benefits amounted to 965 thousand, more than the forecast of 795 thousand. During the day, the movement of the pair within the current price range will continue.

 

EUR/USD. January 18, 2021 – Euro continues to decline

The euro continues to decline against the dollar on Monday, reaching 1.2060. Weak economic statistics from the US, as well as uncertainty in the timing of the discussion of Joe Biden's stimulus program put pressure on risky assets.

It is noted that the package of measures to support the economy proposed by Biden includes direct payments to Americans in the amount of $1,400, a temporary increase in payments to the unemployed, and an increase in the minimum wage at the federal level to $15 per hour. However, experts believe that the new president will not be able to pass the stimulus plan in this form through Congress.

This week, all the attention of the markets will be drawn to the speech in the Senate of the former chairman of the Federal Reserve System Janet Yellen on Tuesday. Market participants expect that the country's new finance minister will make it clear that they are taking an approach in which the dollar should be determined by the market. This will mean that the Ministry of Finance does not intend to interfere with the dynamics of the national currency.

Today is a day off in the United States to celebrate Martin Luther King Day, so the pair will continue to trade weakly around 1.2080.

Brent. January 18, 2021 – The oil market continues to decline on Monday

On Monday, oil prices continued to decline, reaching $54.50 per barrel. Such dynamics was a consequence of the strengthening of the US dollar, as well as a decrease in traders' optimism amid an increase in the incidence of Covid in the world. However, statistics from China, showing GDP growth of 2.3% (more than forecast) and an increase in industrial production in December by 7.3%, limit the decline in oil prices today.

Experts note that the oil market has grown strongly lately, and the current decline is giving it some respite. The key event for the market in the near future will be the inauguration of the US President-elect Joe Biden and his further economic program.

Brent was also under pressure at the end of last week with data from the American oil service company Baker Hughes. The report reflected an increase in the number of operating oil rigs in the US last week by 12 units to 287 rigs. The number of work units has been increasing for eight consecutive weeks.

The current Brent quote is $54.80. During the day, we expect a slight recovery in the price to the $55 per barrel area.

 

EUR/USD. January 19, 2021 – The pair is awaiting Biden's inauguration

On Tuesday, the major currency pair started recovering from the 1.2050 area. The current quote EUR/USD is 1.2135.

Today the macroeconomic calendar is empty, but market participants have something to think over. For example, the results of the Reuters poll showed that the new stimulus package from the ECB is unlikely to have a positive impact on the European economy. In particular, we are talking about the already agreed PEPP package of 185 trillion euros, which was extended for another 9 months. Against the backdrop of such pessimistic opinions, the economic outlook for the eurozone looks rather bleak.

As for the United States, not everything is smooth here either. Former head of the Federal Reserve System Janet Yellen said that the US economy could find itself in a long and rather severe recession if Congress does not agree on additional support measures. Today, attention should be paid to Yellen's speech, which, as expected, Joe Biden intends to appoint the new head of the Federal Reserve System.

The inauguration of the new US President-elect Joe Biden will take place tomorrow. Market participants are waiting for this event, so the dynamics of trading today will not differ in activity.

January 19, 2021. Fundamental analysis of the oil market

The oil market, which has been growing steadily since the beginning of November last year (when the first news of successful trials of coronavirus vaccines appeared), is gradually losing its impetus. Having managed to rise from the $40 per barrel area to $57 from October to January, today oil is traded near the $55 per barrel level.

The January 2021 high at $57.5 was reached after Saudi Arabia unexpectedly announced its decision to unilaterally cut oil production in February and March (by 1 million barrels per day). Then the pandemic and its consequences on transportation and fuel demand again began to put pressure on quotations.

At the same time, some support for the prices of «black gold» is provided by the approval of Joe Biden as the new US president. Market participants expect that its measures to support the economy will raise inflation, which has increased the demand for oil from speculators and investors.

Taking into account the current fundamental background, it can be concluded that oil prices are unlikely to grow significantly in the near future. We believe that the range of fluctuations in Brent quotes will be represented by a corridor of $50-55 per barrel.

Today prices are rising slightly from the $55 level in anticipation of a report from the International Energy Agency (IEA). The experts of the organization intend to share their forecasts for the further dynamics of the market, taking into account the new lockdowns in many countries.

 

USD/CAD. January 21, 2021 – Canadian dollar strengthens to 3-year highs

The USD/CAD currency pair on Thursday dropped to the level of 1.2600. The Canadian dollar strengthened to a maximum of three years after the announcement of the results of the meeting of the Bank of Canada.

As market participants expected, the regulator kept the interest rate unchanged at 0.25%. At the same time, it was announced that the rate would be near zero until at least 2023. The program of quantitative easing also remained unchanged, the volume of which currently amounts to 4 billion Canadian dollars per week.

The Central Bank also shared its forecasts for economic growth this year. Experts expect GDP growth in 2021 to be 4.0%, slightly below the previous forecast of 4.2%, while in 2022 and 2023 the economy will grow by 4.8% and 2.5%, respectively.

However, the «loonie» is showing growth, despite these expectations, as well as weak economic statistics. In particular, Canada's core CPI fell 0.4% in December after rising 0.2% in November, while CPI declined 0.2% after rising 0.1% a month earlier.

Considering all of the above, the pressure on the Canadian dollar should have increased, but the loonie unexpectedly strengthened to highs. Analysts regard such dynamics as a temporary phenomenon, and the pair's growth may continue at any minute. An additional factor that could put pressure on the «Canadian» is one of Joe Biden's first decrees to stop the construction of the Keystone XL oil pipeline, which was actively supported by the Canadian authorities.

 

GBP/USD. January 22, 2021 – Pound falls under pressure from economic publications

Yesterday the British pound fell to 1.3650, today the pair recovered to 1.3670.

Sterling looks pretty stable against the dollar, despite the local correction. The fact is that the currency finally got rid of the strong pressure from the Brexit risks and the confrontation between the politicians of the European Union and London.

At the same time, support for the currency today is also provided by successful vaccination in the UK against the background of a double lockdown, and perhaps the country's population will be able to return to their usual way of life in the second quarter.

Macroeconomic statistics are negative today for the pound: retail sales in December rose only 0.3%, worse than the forecast for growth by 1.2%. Composite PMI also fell short of the forecast: 40.6 points in January against expectations of 50.7 points. The business activity index in the manufacturing sector was 52.9 points (forecast - 57.3), and in the service sector – 38.8 points (forecast - 49.9).

Thus, at the end of the week sterling came under pressure from economic indicators. The RSI indicator is targeting the support area, which signals further currency weakening.

 

Brent. January 25, 2021 – Oil recovers after falling last week

Brent oil quotes are growing on Monday, approaching $56 per barrel. The current price is $55.72.

Last week ended with a fall in prices to $54.60 per barrel. The decline was driven by data on changes in US oil reserves. According to a published report from the Energy Information Administration, crude oil inventories rose 4.4 million barrels in the reporting week, reaching 486.6 million barrels. Analysts, on the other hand, had expected a decline in inventories by 1.3 million barrels from the previous week. Oil production in the United States remained unchanged at 11 million barrels per day.

Additional pressure on prices was also exerted by the increase in the number of cases of coronavirus in China. Experts note that the deterioration of the epidemiological situation in China will inevitably affect the demand for oil.

Today's growth in quotations was due to the news about the reduction in oil production in Iraq. It became known that the country intends to cut oil production in the first two months of this year in order to compensate for the violation of the terms of the OPEC + agreement from last year.

EUR/USD. January 25, 2021 – The dollar started the week with a decline

The main currency pair is trading at 1.2145 on Monday. The macroeconomic calendar for today is practically empty, attention should be paid only to the publication of the IFO business climate index in Germany. The indicator came out worse than forecast: 90.1 points in January against 92.2 in December and the forecast of 91.8 points.

The US dollar is now showing mainly a downward trend. The fact is that Joe Biden has already officially assumed the presidency of the United States, and the markets are waiting for the imminent introduction of additional measures to stimulate the economy. Therefore, the dollar in its «safe» status is no longer popular as investors intend to buy.

This week promises to be quite interesting. First, a meeting of the Federal Reserve System and a rate decision is scheduled. Market participants are confident that the rate will remain at the current level of 0-0.25% for a long time, however, the FRS comments will be of the greatest interest, which may become more optimistic.

Secondly, interesting statistics from the United States will be presented: the January consumer confidence index from the Conference Board, the US GDP for the IV quarter of 2020, the parameters of personal income and expenses of Americans, as well as data on the trade balance.

 

GBP/USD. January 26, 2021 – The pound is growing steadily after the release of strong statistics

The GBP/USD pair started the day with growth from 1.3600 to 1.3690. The sterling was supported by positive statistics on the labor market in the UK.

In particular, the average level of wages in the country in November rose by 3.6% against the previous figure of 2.8% and the forecast for growth by 2.9%. The number of applications for unemployment benefits in December fell to 7 thousand, while analysts predicted the figure at 35 thousand. Moreover, the unemployment rate rose to 5%, which was better than the forecast for growth to 5.1%. At the same time, experts note that the current unemployment rate has updated its maximum since the beginning of 2016.

In the US today, it is worth paying attention to the CB consumer confidence index. Analysts expect the indicator to rise from 88.6 to 89.0 points.

The RSI indicator is heading towards the resistance area, which signals further strengthening of the pound sterling during the day. The nearest target of the «bulls» is 1.3700, where the pair, however, will see some consolidation.

 

EUR/USD. January 28, 2021 – Euro continues to decline

The euro rate continues to decline on Thursday, the current quotation of the EUR/USD pair is 1.2080. Markets fear that existing vaccines will fail to cope with mutating Covid strains, endangering the prospects for global economic recovery.

Jerome Powell, whose press conference failed to clarify the topic of the Fed's further position and calm the markets, also added negative investors. Although the head of the regulator said that the Fed does not plan to cut QE and will make sure that investors know in advance about the systematic and gradual reduction in the volume of asset purchases. However, market participants did not see a negative assessment of the situation in the general tone of the speech, which provoked dollar purchases.

The euro is also declining in value after the ECB meeting on January 21. Then the regulator announced that it was ready to take action, as it was not satisfied with the high rate of the single currency. And the actions of the ECB are fully justified. According to IMF forecasts, the euro zone will be able to return to pre-crisis levels only by the end of 2022. For comparison, the Chinese economy has already outpaced 2019, and the US economy will return to the trend at the end of this year.

Thus, the pair's downside potential is quite high. During the day we expect further strengthening of the US dollar with the target of 1.2050.

January 28, 2021 – Oil market weakens on concerns about demand prospects

Oil prices began to decline on Thursday amid expectations of a drop in demand due to the continuing rise in the number of Covid-19 diseases and the current restrictive measures. The quotes were not helped either by the data on crude oil reserves in the United States published yesterday: according to the Ministry of Energy, reserves unexpectedly fell by 9.91 million barrels over the week. At the same time, gasoline stocks increased by 2.47 million barrels, while distillate stocks decreased by 815 thousand barrels. Analysts predicted an increase in oil reserves by 430 thousand barrels.

The current Brent quote is $55.18 per barrel. A myriad of concerns about the outlook for demand are putting strong pressure on prices. Moreover, the Chinese authorities are urging their citizens to stop traveling during the Lunar New Year holidays, which is the most active tourist season of the year. And this will inevitably lead to an additional decrease in demand.

Another factor in the weakening of the oil market was a sharp drop in traffic in Los Angeles over the past month due to restrictive measures in California.

 

EUR/USD. February 01, 2021 – Euro declines amid weak statistics

The EUR/USD pair closed last week with a rise to the 1.2150 area. The euro was supported by the GDP data of the leading eurozone countries. In particular, France's GDP growth in December was 23%, exceeding the projected increase by 19%. Spain's GDP in the IV quarter added 0.4%, while experts had expected a decline of 1.5%. Germany's GDP also remained in positive territory at 0.1%. In Germany, in addition, the unemployment rate fell to 6%.

However, today the pair started to decline, which is also explained by the reaction of traders to the latest macro statistics. According to the Federal Bureau of Statistics Destatis, retail sales in Germany were down 9.6% in December from the previous month.

At the same time, the US continues to discuss a new package of measures to help the economy, which puts general pressure on the dollar. Market participants believe that the project will be criticized by the Republicans, who are unhappy with the huge volume and want to reduce it to $600 billion. However, the Ministry of Finance and the Federal Reserve still insist on the need for new incentives. In this case, the pair's rate can rush to new highs.