Brent crude pushed above key psychological level to trade above $50 for the first time since November 2015. The 85% rally since Brent hit a 12-years low in Jan was supported by multiple factors, mainly oil disruption from major exporters and production cut back by U.S. shale. Meanwhile the double than expected drop in U.S. inventories supported bulls to keep holding their long positions. According to Wednesdays U.S. Energy Information Administration report, inventories dropped by 4.23 million barrels last week, versus expectations of 2.5 million decrease only.
Whether the bullish trend still has legs or an imminent correction is due remains a wild guess, as speculators over exaggerate on the upside as they did recently on the downside. However, OPEC’s meeting on June 2 remains to be the key risk factor on the short run as markets are eager to know whether an agreement on potential oil freeze will see the light.
In FX markets the Yen outperformed its major peers despite the rally seen in Tokyo’s stock exchange which usually moves in opposite direction to the currency. Yen strength came on conflicting messages from Japans policy makers on whether a tax hike will be delayed, but the upside potential will likely be limited as traders await Chair Janet Yellen on Friday to provide more clues on the path of tightening monetary policy and whether she supports earlier calls from her colleagues signaling for imminent rate hike.
The Pound continued to rock early Thursday, trading at 3 weeks high against the dollar and 3.5 month high against the Euro as Brexit worries continued to ease. GBPUSD which has rallied by more than 6% since late February has been clearly driven by voting polls, reducing the Brexit risk premium priced earlier in the year. This suggests that a bounce in GBP should be limited if UK voted to stay in the EU, and fundamentals which has been ignored most recently will be back in play. UK’s second GDP reading is due to release at 8:30 GMT, and expected to remain unchanged at 0.4%, so expect little impact on the pound.
Commodity currencies moved in different directions today. While Canadian dollar received a boost from the less dovish than expected statement from BoC and higher oil prices, the Kiwi slid to a two-month low against the dollar as Fonterra, the world’s biggest dairy exporter forecast a lower than expected payout to its farmers.
On the US data front, durable goods orders and pending home sales will provide further indications on the speed of the U.S. economic recovery. Investments weighed heavily on Q1 GDP as businesses reduced their purchases, and today’s figures will provide an indication on whether businesses investments will rebound, thus a higher than expected figures could lend additional support for USD bulls.
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