OIL: Crude Breaks Resistance But Then Moderates As Waits For Trade News
Oil prices were moderately lower while still holding onto most of the gains from recent days as Canadian output normalises after fires and markets wait for news from US-China trade talks. It appears that they will continue on Wednesday with Treasury Secretary Bessent saying he needed to leave to testify before Congress but Lutnick and Greer would remain. Lutnick said that discussions had been “fruitful”.
- WTI fell 0.8% to $64.74/bbl but is still 6.5% higher in June. It reached a high of $66.28, above initial resistance at $65.82, but then declined from there to a low of $64.57. It is currently around $64.69. Initial support is at $59.74, 30 May low.
- Brent was down 0.7% to $66.60/bb; but up 6.1% this month. It rose to $68.00, above initial resistance at $67.73, but then fell to $66.48. It appears that the benchmark is in a bull cycle but it could still be a correction as moving-average studies are in a bear-mode. Initial support is at $62.09, 30 May low.
- Bloomberg reported that US oil inventories fell around 400k barrels last week, according to people familiar with the API data. There was 700k barrels destocking at Cushing. Product stocks were higher with gasoline up 3mn and distillate 3.7mn. The official EIA data is out Wednesday.
- The EIA is forecasting a drop in US oil output in 2026, which would be the first fall since 2021, and accounts for a 120kbd downward revision from May. Lower prices are discouraging extraction and there are expected to be fewer working drilling rigs. It also revised down its expected increase in global demand by 200kbd to 800kbd.
- In terms of the long-term, OPEC doesn’t see a peak in oil demand for now and expects consumption will rise to 120mbd by 2050.
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NZD: NZD/USD - Likes The Positive Headlines
The NZD had a range Friday night of 0.5885 - 0.5921, Asia is opening around 0.5920. US Stocks and risk are opening on a real positive note as US-China officials are citing 'substantial progress' made from weekend trade talks held in Switzerland.
- This has seen the USD open up higher in Asia particularly against the EUR and the JPY. The AUD and NZD though are both benefitting from the positive statements and it will be interesting to see if Asia can build on what is just rhetoric at this stage.
- The NZD traded sideways for most of Friday as the market awaited the outcome of the weekend meeting. The NZD did find decent demand sub 0.5900 on its initial look down there.
- On the day there is potential for NZD to continue to outperform as the market digests an outcome that many thought not possible. How far can it move though without any real concrete evidence of a trade deal being shown.
- First support is right here around the 0.5900 area but more importantly the support around 0.5800 needs to hold to keep the bulls in the drivers seat.
- CFTC Data showed little movement, with Asset managers adding very slightly to their shorts and the leveraged community slightly reducing their own short.
Fig 1: NZD/USD Spot Daily Chart
Source: MNI - Market News/Bloomberg
AUSSIE 10-YEAR TECHS: (M5) Remains Toward Top End of Recent Range
- RES 3: 96.501 - 76.4% of the Mar 14 - Nov 1 ‘23 bear leg
- RES 2: 96.207 - 61.8% of the Mar 14 - Nov 1 ‘23 bear leg
- RES 1: 95.960 - High Apr 7
- PRICE: 95.730 @ 15:22 BST May 7
- SUP 1: 95.420/95.300 - Low Feb 13 / Low Jan 14
- SUP 2: 95.275 - Low Nov 14 (cont) and a key support
- SUP 3: 94.819 - 1.0% 10-dma envelope
Aussie 10-yr futures extended a recent strong bounce through to the Friday close, putting prices through the top end of the recent range. The confirmed breach of 95.851, the Dec 11 high on the continuation contract, reinstates a bull cycle and focuses attention on resistance at 96.207, a Fibonacci retracement point. A stronger bearish theme would expose 95.275, the Nov 14 low and a key support. Clearance of this level would strengthen a bearish condition.
US TSYS: Short End Yields End Higher
TYM5 reopens at 110-17, down 0-09 from closing levels in today’s Asia-Pac session. This on the back of US-China officials citing 'substantial progress' made from weekend trade talks held in Switzerland.
- Overnight US 10-year yields had a range of 4.3433% - 4.3961%, closing around 4.375%.
- Treasury yields ended mixed overnight, the short end moving higher resulting in the yield curve flattening.(2s10s -1.30 at 48.540).
- Dollar swap spreads widened for a third straight day, extending the move that began Wednesday after Treasury Secretary Bessent said SLR reform is a ‘high priority.(BBG)
- NY Fed President Williams said there was no hurry to cut rates, echoing a similar stance to Chairman Powell after Wednesday's FOMC announcement.
- The 10-year Yield range seems to be 4.10% - 4.5%, price has bounced nicely off the 4.25/30 support, target back towards the top end of the range 4.45/50%.
