The EIA crude inventory data will be instrumental in determining liquidity-driven risk appetite across FX and equities.As the lower yielding USD and JPY stabilize on retreating equities, the question emerges on whether oil prices will further build on yesterday’s climb.
LONDON (SHARECAST) - The EIA crude inventory data will be instrumental in determining liquidity-driven risk appetite across FX and equities.As the lower yielding USD and JPY stabilize on retreating equities, the question emerges on whether oil prices will further build on yesterday’s climb, which emerged on the storm-driven decline in API inventories. FX to remain cautious ahead of the EIA report (15:30 GMT), expected to show a build of 0.8 mln barrels in crude oil inventories following +1.8 mln barrels. But Tropical Storm Ida may have led to a drawdown of inventories, as was shown in the 4.4 mln drawdown by the API report. Whether the storm will be sufficient in extending oil’s 4-day resurrection beyond the previous resistance of $80.50 resistance remains to be seen. A close above $80.50 today (unlikely) would be crucial in propping equities to fresh highs for the year at the expense of the USD. Failure to close above 80, would extend oil sluggishness and cast a pall on dollar-driven carry trades.
Higher than expected US inflation (0.3%), 6-month lows in housing starts (-10.6%) and 5-month lows in building permits may prove to be the catalyst in preventing the S&P500 from breaching above the highly scrutinized 1,120 level, marking the 50% retracement of the decline from the October 2007 high to the March 2009 low.
EURUSD has yet to regain the $1.5055-60 level to persuade the bull camp from retesting last year’s highs. Remarks from JC Trichet backing the importance of USD strength were outweighed by the impact of yesterday’s API data. Only a break of $1.48 would open the door for any considerable downside, as the level represents the closing high from Sep and the right shoulder support in the reverse H&S pattern.
EURGBP breaks 5-day trend line of 0.89 after the 3-way split by the BoE MPC revealed a lack of consensus regarding the £25 bln QE raise. Bullish stochastics suggest 0.8955 is in the works for the week. GBP was the smallest gainer vs. USD, deepening losses against EUR and JPY. But with US equities adding to losses, expect USD stabilization to drag down GBPUSD towards $1.6720, followed by $1.6680.
