OIL: Crude Holds Gains As Nervously Watches Middle East Developments, Fed Later
Oil prices have held onto Tuesday’s +5% gains during today’s APAC session. Risks that an escalation in the Israel-Iran conflict impacting Middle Eastern oil exports have risen. While, Israel attacked oil and gas infrastructure, Iran’s major export facilities are so far untouched. Markets are also waiting for the Fed decision later.
- WTI is down slightly to $74.80/bbl after falling to $74.72, while Brent is flat at $76.46/bbl recovering from $76.25. Both benchmarks remain below the highs following Israel’s initial strikes. The USD index is down 0.1%.
- Israel has said that the US is helping it with defence but speculation is growing that it will become directly involved in the conflict. President Trump has demanded that Iran surrender and that his patience with Iran is “wearing thin”.
- In its June report, the IEA revised up its 2025 supply forecast by 1.8mbd to 104.9mbd while demand is expected to be 103.8mbd. It has been signalling excess supply for some time and sustained higher prices would likely boost production. US EIA inventories are released later today but industry-based data showed a sharp 10.1mn barrel drawdown last week.
- The Fed is widely expected to leave rates unchanged but the dot plot will be monitored closely (see MNI Fed Preview). Inflation and jobs data have yet to show an impact from tariffs but some activity/survey data have slowed. The Fed is likely to want more time to evaluate the impact and now oil prices are up over 20% this month, it will also monitor its impact on inflation if sustained.
- There are also a number of ECB speakers including de Guindos, Elderson, Lane, Machado and Donnery and BoC’s Macklem appears. In terms of data, US May housing starts/permits, jobless claims, euro area May CPI and UK May CPI are released.
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GBPUSD TECHS: Trend Outlook Remains Bullish
- RES 4: 1.3550 High Feb 24 ‘22
- RES 3: 1.3510 1.236 proj of the Feb 28 - Apr 3 - 7 price swing
- RES 2: 1.3402/3444 High May 6 / High Apr 28 / 29 and the bull trigger
- RES 1: 1.3360 High May 14
- PRICE: 1.3305 @ 06:11 BST May 19
- SUP 1: 1.3140 Low May 12
- SUP 2: 1.3110 50-day EMA
- SUP 3: 1.3041 Low Apr 14
- SUP 4: 1.2968 Low Apr 11
Recent weakness in GBPUSD appears corrective. The May 13 bounce highlights a possible reversal pattern - a bullish engulfing candle. The pattern remains valid and if correct, signals the end of the recent corrective cycle and a resumption of the uptrend. Key support to watch is 1.3117, the 50-day EMA. A continuation higher would refocus attention on the key resistance and a bull trigger, at 1.3444, the Apr 28 / 29 high.
BOBL TECHS: (M5) Recovers From Recent Lows
- RES 4: 119.960 High Apr 7 and the bull trigger
- RES 3: 119.780 High Apr 22
- RES 2: 119.600 High May 7
- RES 1: 118.858/118.950 20-day EMA / High May 12
- PRICE: 118.620 @ 05:52 BST May 19
- SUP 1: 118.060 Low May 14 and 15 and the bear trigger
- SUP 2: 117.680 Low Apr 9 and a key support
- SUP 3: 117.600 Low Mar 28
- SUP 4: 117.410 Low Mar 27
A bearish corrective phase in Bobl futures remains intact, however, the recovery from last week’s low does signal a possible reversal and the end of the corrective cycle. A continuation higher would open 118.950, the May 12 high. Clearance of this level would strengthen a bullish theme. On the downside, a resumption of weakness would expose 117.680, the Apr 9 low and a key support. The bear trigger is 118.060, the May 14 / 15 low.
AUSSIE BONDS: Cheaper Ahead Of RBA Policy Decision Tomorrow
ACGBs (YM -4.0 & XM -6.0) are cheaper on a data-light Sydney session.
- Cash US tsys have twist-steepened in today's Asia-Pac session, with yields 1bp lower to 4bps higher, as the market continued to digest late Friday news that Moody's Ratings downgraded the US credit score.
- (Bloomberg) -- “Goldman Sachs interest-rate strategists raise their year-end Treasury yield forecasts following a larger-than-expected reduction in US-China tariffs.”
- “US House panel approves Trump tax cut bill, setting up a possible vote on passage this week” - [RTRS]
- Cash ACGBs are 4-6bps cheaper with the AU-US 10-year yield differential at flat.
- The bills strip has bear-steepened, with pricing -2 to -6.
- Tomorrow, the local calendar will see the RBA Policy Decision, with the market expecting a 25bp cut to 3.85%.
- RBA-dated OIS pricing is flat to 4bps firmer across meetings today. A 25bp rate cut in May is given a 95% probability, with a cumulative 75bps of easing priced by year-end. Notably, today’s moves leave meetings pricing 4-44bps firmer than levels before the release of Q1 CPI data on April 30.
- The AOFM plans to sell A$1200mn of the 4.25% 21 December 2035 bond on Wednesday and A$800mn of the 2.75% 21 November 2028 bond on Friday.
