OIL PRICES RECOVER AFTER VOLATILE WEEK; DOLLAR WAVERS AHEAD OF FOMC
Crude prices snapped back into positive territory on Monday, supporting commodity-sensitive currencies like the Canadian dollar, as traders set their sights on an upcoming Federal Reserve meeting.
Oil prices rose in overnight trading but remained vulnerable to selling pressure. On Friday, energy services provider Baker Hughes Inc. said the US oil rig count rose for the 21st straight period last week, the longest streak in at least 30 years. The number of active rigs operating on US soil shot up by eight to 741, the highest level since April 10, 2015.
The Canadian dollar, which often trades in the same direction as crude prices, rose against its US counterpart. The loonie will continue to take cues from the energy markets as the week progresses.
Meanwhile, the US dollar index traded 0.2% lower against a basket of global peers.
In economic data, Italian industrial production declined unexpectedly in April, raising caution about the Eurozone recovery. Industrial output fell 0.4% compared to March, following a 0.4% increase the previous month. Analysts in a median estimate forecast growth of 0.2%. In annualized terms, industrial output rose just 1%, well below the median estimate of 2.4%.
The euro took advantage of a weaker dollar on Monday to trade 0.2% higher.
The Federal Open Market Committee (FOMC) kicks off its two-day policy meeting on Tuesday, with an official rate decision due the following Wednesday. Markets are pricing in a nearly 100% probability of a rate hike, based on the 30-day Fed Fund futures prices, which are used to gauge traders’ sentiment about monetary policy.
The official rate statement will be accompanied by a revised summary of economic projections covering GDP, unemployment, and inflation.
Despite the gains, the euro remains subdued at the start of the week amid a lack of fundamental catalysts. After bottoming out at 1.1165 on Friday, the EUR/USD exchange rate has found support near 1.1200. On the upside, traders should eye a breakout above 1.1240 for confirmation of a continuing uptrend.
The USD/CAD opened lower on Monday as rebounding oil prices lifted the loonie. Any recovery attempt will face fierce resistance at the 1.35 level. Above this psychological level, technical resistance is seen at 1.3535. On the opposite side of the spectrum, immediate support is located at 1.3420. A break below that level exposes the 25 May low of 1.3385.
Oil prices traded higher at the start of the week, but remain vulnerable to considerable downside risks on signs of oversupply in the global market. Nymex WTI crude is trading well north of $46.00 a barrel, having reached a session high of $45.66. At a technical level, the contract is trading below the 61.8% Fibonacci retracement, which could expose it to a bigger drop back toward the May swing low.