OIL: Numerous Factors Drive Oil Sharply Higher Towards Bull Trigger
Oil prices surged on Wednesday driven by the lower-than-expected May US CPI, likely US-China trade deal, a large US crude drawdown and rising geopolitical tensions in the Middle East. The US has reduced its embassy staff in Baghdad and allowed military families to leave due to increased security worries but details have not been released. AFP reported that Iran has threatened to attack US bases if there is a regional conflict. Talks on its nuclear programme appear to have stalled.
- WTI rose 5.1% to $68.30, close to the intraday peak of $68.37, the highest since April 3 when US tariffs were announced. It is now up 12.4% in June. It has started today higher again at $68.75. The current bull cycle has extended with two resistance levels broken thus opening up key resistance at $71.10.
- Brent was up 5.9% to $70.78/bbl to be 12.7% higher this month. It broke through a number of resistance points on Wednesday opening up the bull trigger at $73.88.
- The UK Navy made an unusual warning to shipping in the Middle East related to a rise in tensions.
- Previously, there were reports that Israel was planning to strike Iran’s nuclear facilities. US President Trump told the New York Post that he’s “less confident” now about convincing Tehran to agree to contain its nuclear ambitions.
- EIA-reported US oil inventories fell 3.64mn barrels last week, the third consecutive decline. Products rose again with gasoline up 1.5mn and distillate 1.25mn as refining utilisation rose 0.9pp to 94.3% still below the same time last year.
- US Energy Secretary Wright said that he doesn’t believe US oil production will fall in 2026 after the EIA said it expects it to due to lower prices.
- There was a 237k barrel injection into the SPR last week. There have been additions in every week since March 10. Wright said that repairs to the SPR would be finished by year end and that it will take a number of years to refill it.
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JPY: USD/JPY Breaks Higher, Next Target 150/151
The overnight range was 145.73 - 148.65, Asia is currently trading around 148.40. USD/JPY gapped higher on the news of a US/China agreement to a significant reduction in tariffs for 90 days.
- “Nomura closed its short dollar-yen position as the currency pair surged on US-China trade talks, but maintained its medium-term outlook for a lower exchange rate. Mizuho recommends unwinding short positions on the view that US real rates will stay relatively higher in the months to come.”(BBG)
- The fact that the early Asian gap higher on Monday morning never looked like getting filled back in should have been the canary in the coal mine, as the trade announcement delivered something concrete.
- USD/JPY scythed through the 1.4700 area as shorts pared back some of their positioning.
- With stocks on a tear as momentum type funds are forced back into the market the USD will continue to benefit particularly against safe haven currencies like the JPY.
- This will now test the conviction of the USD bears short-term, but levels back towards 150/151 should offer good levels for those that want to express this view.
- "Nissan will double planned job cuts to about 20,000, NHK reported. The carmaker may close plants in Japan, Kyodo said."(BBG)
- CFTC data shows Asset managers pared back their already extensive JPY longs very slightly, and leveraged funds continue to build on their newly initiated shorts.
- MNI FX OPTIONS: Expiries for May13 NY cut 1000ET (Source DTCC): USD/JPY: Y143.00($1.5bln), Y146.75(E567mln), Y151.00($1.2bln)
- Data/Event : Apr Money Stock
Fig 1 : USD/JPY Spot Daily Chart
Source: MNI - Market News/Bloomberg
GOLD: Safe Haven Unwind Begins
- In response to the easing of tariffs between the US and China, safe haven assets like gold took a tumble overnight.
- Gold had it's second largest daily decline overnight, finishing the US session down -2.66%.
- Opening trading in Asia this morning gold is unchanged at US$3,236.27.
- From the high of $3,431.77 on May 06, gold is now down over 5%.
- Positioning from Hedge Funds is much more neutral with CFTC data showing that bullish bets have been scaled back to their lowest in more than a year.
- Gold is likely to return its attention back now to the FED and and the direction of interest rates as trade wars risks appear to have subsided, for now.
- Gold has now traded below the 20-day EMA of $3,276.22 with the next technical level the 50-day EMA at $3,163.90.
JGB TECHS: (M5) Off Highs, But Underlying Strength Persists
- RES 3: 147.74 - High Jan 15 and bull trigger (cont)
- RES 2: 146.53 - High Aug 6
- RES 1: 142.95 - High Apr 7
- PRICE: 139.35 @ 16:24 GMT May 12
- SUP 1: 139.28 - 1.0% 10-dma envelope
- SUP 2: 136.57 - 1.382 proj of the Jan 28 - Feb 20 - Feb 26 bear leg
- SUP 3: 134.89 - 2.000 proj of the Jan 28 - Feb 20 - Feb 26 bear leg
JGBs are holding the bulk of the recent strong bullish reversal from early April, rejecting any test of fresh cycle lows for the M5 contract. This defies the bearish momentum studies drawn on the longer-term chart, clearing moving-average resistance to print 142.40 at the new upper level. To the downside, sights are on 136.57, a Fibonacci projection. 144.48 is the medium-term target on any recovery.
