Crude oil drops sharply as trade tensions rise
Sterling continued to decline as Theresa May’s final gamble on parliament to pass her Brexit deal faced increased opposition. In a speech yesterday, the prime minister made a number of concessions in a bid to win some Labor MPs. She stated that she would present the option of another Brexit referendum, a move that was rejected by Jeremy Corbyn and conservatives. The currency decreased further after data showed that inflation was easing. In April, the headline CPI rose by 2.1%, which was below the expected 2.2%. On a MoM basis, the CPI increased by 0.6%, lower than the previous 0.7%. The core CPI rose by 1.8%, lower than the expected 1.9%.
The Japanese yen stabilized slightly after a series of mixed economic data. Earlier in the day, the country reported that the core machinery orders decreased by -0.7% in March. This was better than the expected decline of -3.4%. On a MoM basis, machinery orders increased by 3.8%, which was higher than the expected decline of -0.7%. The country’s trade deficit eased to Y0.11 trillion, which was better than the expected Y0.12 trillion. This was led by the 6.4% increase in imports and the -2.4% decrease in exports. Meanwhile, in China, industrial production rose by 5.4% in April while retail sales increased by 7.2%. The two were below the expected 6.5% and 8.6% respectively.
The price of crude oil dropped sharply as investors continued to worry about the ongoing trade war. Today, reports said that the US was considering adding other Chinese companies on its blacklist. HK Vision, which manufactures surveillance products will likely be on that list. The other four companies have not been revealed yet. In addition, a number of companies like Vodafone, ARM and Qualcomm continued to separate themselves from Huawei. In a speech, China’s Xi Jinping asked his country to prepare for a new ‘long march’. Later today, traders will receive the inventory data from the EIA.
The EUR/GBP has been on a major rally since May 3. Since then, the pair has risen from a low of 0.8490 to a high of 0.8830. As shown on the four-hour chart, the pair is along the upper line of the Bollinger Bands while the RSI has remained above the overbought level of 70. The histogram and the signal line of the MACD continues to rise while the price remains above all the major moving averages. While the pair could remain moving higher, there is a likelihood that the price will decline slightly.
The EUR/USD pair increased ahead of the FOMC minutes. The pair rose to a high of 1.1180. This was higher than yesterday’s low of 1.1140. On the hourly chart, the pair has formed an inverted head and shoulder pattern. The price is above the 25-day and 50-day moving averages while the RSI has moved to almost the overbought level of 70. The pair will therefore likely continue to move upwards although this could change after the Fed releases the minutes.
The price of Brent crude oil has been declining this week, after forming a double top as shown on the chart below. Today, the pair continued declining, reaching a low of 70.50. On the hourly chart below, the price is below the 50-day and 25-day moving average. The price is also along the lower line of the Bollinger Bands while the signal line of the Relative Vigor Index (RVI) has dropped below the neutral line. The pair is likely to continue declining although this could change depending on the inventory numbers.