WTI prices skyrocketed yesterday, amid a plethora of news from Saudi Arabia. Headlines began over the weekend, when the country arrested dozens of royal figures, ministers, former ministers, and businessmen, on allegations of corruption. This purge is seen as a move by the new Crown Prince, Mohammed bin Salman, to cement his power. Considering that the Crown Prince has previously voiced his support for a continuation of the current OPEC deal, any increase in his authority may have been interpreted as increasing the odds for OPEC to extend or even expand its current deal.
Perhaps even more importantly for oil prices, geopolitical tensions are rising in the region. Yesterday, Saudi Arabia said that Lebanon declared war against it, and also noted that a missile fired at its capital from Yemen over the weekend was an “act of war” by Iran, its arch-rival in the region. In our view, these heightened risks of supply disruptions could keep WTI supported for a while, ahead of the OPEC meeting towards the end of November. Moreover, any further escalation in this crisis, such as a higher likelihood of armed conflict, could push WTI prices even higher on speculation for reduced supply from the Middle East.
WTI skyrocketed yesterday, breaking above the resistance (now turned into support) of 56.45 (S1) to stop at 57.70 (R1). Given that on Friday, the bulls managed to overcome the 55.30 (S2) key obstacle, we believe that the outlook has now turned to positive. The 55.30 (S2) barrier acted as the upper bound of the important sideways range that capped any oil gains in the past. In our view, a decisive move above 57.70 (R1) could initially aim for our next resistance of 58.80 (R2), where another break is possible to open the way for the round figure of 60.00 (R3). Having said that though, bearing in mind that the latest rally appears overextended, we would stay careful of a possible corrective setback before the bulls decide to take charge again.
WTI
Support: 56.45 (S1), 55.30 (S2), 54.00 (S3)
Resistance: 57.70 (R1), 58.80 (R2), 60.00 (R3)
RBA: Nothing to see here, move along
Overnight, the RBA kept its policy unchanged, as was widely anticipated. In the statement accompanying the decision, policymakers retained their concerns regarding the strength of AUD, noting that the exchange rate is weighing on the outlook for growth and employment. The Bank also highlighted the weakness in consumption as a continuing source of uncertainty. On the labor market, policymakers appeared quite optimistic, indicating that it has continued to strengthen and that even though wage growth remains low, it is expected to see some lift over time.
Overall, the RBA maintained its broadly neutral stance, confirming our view that any rate hike in Australia is probably a long way off still. Moving forth, the next major market mover for the AUD will likely be the labour costs index for Q3 due out next week.Considering how much emphasis the RBA places on wages, this indicator could play a big role in determining whether the Bank will tilt hawkish soon and thereby, the near-term direction of the Aussie.
AUD/USD traded north yesterday ahead of the RBA rate decision and spiked a bit higher at the time of the release. Nevertheless, the recovery was halted by the 0.7690 (R1) resistance zone. The pair continues to trade within the downside channel that has been containing the price action since mid-September and therefore we still see a negative short-term picture. We expect sellers to take the reins again and perhaps aim once again for the 0.7635 (S1) support barrier. A clear dip below that level would confirm a forthcoming lower low on the 4-hour chart and could set the stage for extensions towards our next support level of 0.7570 (S2).
As for the bigger picture, following the completion of a double top on the daily chart, the pair tumbled notably. Nevertheless, the rate is still trading above the upside support line drawn from the lows of January. Therefore, as soon as the rate reaches that line, we will switch to flat, as there is the likelihood for a rebound from there.
AUD/USD
Support: 0.7635 (S1), 0.7570 (S2), 0.7535 (S3)
Resistance: 0.7690 (R1), 0.7730 (R2), 0.7770 (R3)
Today’s highlights
During the European morning, the economic calendar is relatively light. The only major indicator we get is eurozone retail sales for September.
In the US, the JOLTS job openings for the same month will be released.
We have four influential speakers on the agenda. From the ECB, President Mario Draghi and Executive Board member Sabine Lautenschlager will deliver remarks. Over in the US, we will hear from Fed Chair Janet Yellen while in Canada, BoC Governor Stephen Poloz will step up to the rostrum.
Original post: Econ Alerts and FXGiants