Oil Flirts With Resistance as US Output Falls, OPEC Looks at All Options

Talking Points:

— Crude Oil Prices Flirt With Resistance as U.S. Production Narrows, OPEC Endorses ‘All Options.’

— USD/JPY Gaps Higher Following Japan Election; Outlook Mired by 2017 Range.

— Sign Up & Join DailyFX Currency Analyst David Song to Discuss Key FX Themes & Potential Trade Setups.

Crude remains bid as recent updates coming out of the U.S. Energy Information Administration (EIA) showed a marked decline in field outputs, while the Organization of Petroleum Exporting Countries (OPEC) and its allies keep the door open to further rebalance the energy market.

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With U.S. crude field production narrowing to its lowest level since the week ending May 30,2014, the slowdown may continue to foster a bullish outlook for oil prices especially as OPEC and Non-OPEC members warn ‘all options are left open to ensure that every effort is made to rebalance the market for the benefit of all.’ In turn, broader outlook for crude remains constructive ahead of the group’s next meeting on November 30, but the rebound from the monthly-low ($49.13) appears to be losing momentum ahead of the September-high ($52.83) as the Relative Strength Index (RSI) flat lines ahead of overbought territory.

USOIL Daily Chart

  • Longer-term outlook for USOIL remains constructive as both price and the Relative Strength Index (RSI) preserve the bullish formations from earlier this year, but another failed attempt to close above the Fibonacci overlap around $52.00 (50% expansion) to $52.10 (23.6% retracement) raises the risk for a near-term correction.
  • With that said, first region of interest comes in around $50.20 (38.2% retracement) followed by the overlap around $48.60 (38.2% retracement) to $49.30 (23.6% retracement), which largely coincides with the monthly-low ($49.13).

USD/JPY gaps to a fresh monthly high of 114.10 following the general election in Japan, with the Yen at risk of facing further losses as Prime Minister Shinzo Abe’s coalition retains two-thirds majority in the lower house.

The results should keep the Bank of Japan (BoJ) on course to further expand its balance sheet as Governor Haruhiko Kuroda and Co. struggle to achieve the 2% target for inflation, and the central bank may continue to carry out the Quantitative/Qualitative Easing (QQE) Program with Yield-Curve Control in 2018 as officials argue ‘the Bank should continue with the current monetary policy with the aim of persistently encouraging the virtuous cycle to take hold and completely overcoming deflation.’ With that said, the deviating paths for monetary policy instills a long-term bullish outlook for USD/JPY, but like U.S. Treasury Yields, the pair may continue to track the range-bound price action from earlier this year as Federal Reserve officials start to project a more shallow path for the benchmark interest rate.

USD/JPY Daily Chart

Chart — Created Using Trading View

  • USD/JPY is quickly coming up against the July-high (114.50), but another failed attempt to break/close above the Fibonacci overlap around 113.80 (23.6% expansion) to 114.30 (23.6% retracement) may highlight a near-term exhaustion especially as the Relative Strength Index (RSI) struggles to clear the bearish formation carried over from May.
  • In turn, USD/JPY may fill the gap from earlier this week, with the first downside region of interest coming in around 112.30 (61.8% retracement) to 112.80 (38.2% expansion) followed by the key pivot around 111.10 (61.8% expansion) to 111.30 (50% retracement).

Retail Sentiment

Track Retail Sentiment with the New Gauge Developed by DailyFX Based on Trader Positioning

  • Retail trader data shows 48.7% of traders are net-long Oil — US Crudewith the ratio of traders short to long at 1.05 to 1. The number of traders net-long is 10.9% higher than yesterday and 10.5% lower from last week, while the number of traders net-short is 4.6% higher than yesterday and 5.2% higher from last week.
  • Retail trader data shows 49.7% of traders are net-long USD/JPY with the ratio of traders short to long at 1.01 to 1. The number of traders net-long is 16.7% higher than yesterday and 3.9% higher from last week, while the number of traders net-short is 0.5% higher than yesterday and 12.9% lower from last week.

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