• WTI is under pressure, likely due to surprise US inventory buildup.
  • A close below Tuesday's low would confirm a short-term bearish reversal.

WTI oil prices are flashing red in the Asian session with buyers sitting on the fence, possibly due to the surprise inventory buildup in the US.

At press time, a barrel of WTI is changing hands at $58.90, representing a 0.50% drop on the day.

The American Petroleum Institute (API) on Tuesday estimated an inventory build-up of 1.41 million barrels for the week ended Dec.4 compared to expectations of a 2.763-million-barrel drop in inventory.

The inventory report, which applied brakes to the oil rally near $59.50 in the overnight trade, is likely keeping the black gold on the defensive at press time.

While the benchmark is currently reporting losses on the day, it is still up more than 6.5% on a month-to-date basis.

Oil prices are expected to remain bid in 2020, courtesy of the recent decision by the OPEC and Russia to deepen production cuts. Goldman Sachs has increased the WTI spot price outlook to $58.5 per barrel for 2020 from $55.5. The bank has also revised its Brent spot price forecast to $63 per barrel for 2020, up from a previous estimate of $60.

Technical levels

The short-term trend would turn bearish if prices close below $58.54 on Wednesday, validating Tuesday's spinning top candle.

  • USD/IDR recovers after registering a bullish candlestick formation.
  • 23.6% of Fibonacci retracement can restrict immediate upside.
  • July/September lows will be the key to watch during further declines.

USD/IDR takes the bids to 14,019 while extending the previous day’s recovery on early Wednesday.

Doji on the daily (D1) chart favors the pair’s further increase with 23.6% Fibonacci retracement of August-September declines, near 14,050, acting as immediate resistance.

It’s worth mentioning that 200-day Exponential Moving Average (EMA) and 38.2% Fibonacci retracement around 14,150/51 will grab major attention, a break of which could propel prices to mid-August levels surrounding 14,350.

Alternatively, pair’s failure to justify the bullish candlestick formation needs to flash a daily close below Tuesday’s low of 13,968 to extend falls to 13,890/80 region comprising lows marked in July and September.

USD/IDR daily chart

Trend: Recovery expected

The Asian Development Bank (ADB), said in its latest report released on Wednesday, it has downgraded its growth forecasts for developing Asia this year and the next, as a weaker outlook for China and India indicated softer economic activity elsewhere in the region.

Key Quotes:

“The bank trimmed its growth forecast for developing Asia to 5.2% in 2019 and 2020, the Manila-based lender said in an updated annual outlook report, from 5.4% and 5.5% previously.

It cut its growth estimates for China for this year and the next to 6.1% and 5.8%, respectively, from the 6.2% and 6.0% forecasts announced in September, on the U.S.-Sino trade tensions and as higher prices of pork cut into consumer spending.

The ADB also lowered its forecast for South Asia's largest economy India for fiscal years 2019 and 2020 to 5.1% and 6.5%, from its September estimates of 6.5% and 7.2%, due to liquidity strains on its non-banking finance companies and slow job growth.

Developing Asia faces rising food costs, with 2019 and 2020 inflation seen at 2.8% in 2019 and 3.1% in 2020, up from the lender's previous estimate of 2.7% for both the years.”

Markets continue to trade on a cautious footing amid US tariffs uncertainty and ahead of the key FOMC decision. S&P 500 futures are down -0.12% while USD/JPY trades flat around 108.75.

  • Gold fails to benefit from UK election polls and doubts over the US-China trade deal.
  • Traders turn cautious ahead of the FOMC.
  • US CPI adds burden to market watchers, British election, trade headlines will dominate the Fed.

Gold prices register a mild loss of -0.05% while taking rounds to $1,463 during early Wednesday. The yellow metal seems to have lacked buying ahead of the key monetary policy meeting by the US Federal Reserve (Fed).

The Bullion struggles to justify worrisome polls concerning the United Kingdom’s (UK) election on December 12. The YouGov MRP poll now shows a close call of a hung parliament versus a clear majority for the ruling Conservatives Party during its previous release on November 27.

Also raising doubts on the metal’s pullback is looming uncertainty over the phase-one deal between the United States (US) and China. The recent comments from White House Adviser Peter Navarro mention that it's up to the Chinese as to whether to get a deal. The same follows White House Economic Adviser Larry Kudlow’s comments that the tariffs are still on the table.

Furthermore, the Asian Development Bank (ADB) recently cuts its growth view for China and other developing economies of Asia amid trade war fears. Though, Moody’s analysts say Sovereign credit quality in Australia, New Zealand, Korea, Singapore and Japan will remain strong in 2020.

The clues for the safe-haven’s recent declines can be traced to the US dollar’s (USD) recovery. The greenback seems to prepare for the final Federal Open Market Committee (FOMC) meeting of the year.

Even so, the risk tone stays sluggish with the US 10-year treasury yields being mostly unchanged near 1.83% whereas S&P 500 dropping 0.14% to 3,131 by the press time.

The market will now gear up for the key US Fed meeting with no expectations of another change announcement. However, economic forecasts and Chairman Jerome Powell’s press conference will be important to watch.

Technical Analysis

A gradual recovery between the four-week-old rising trend line and 100-day Simple Moving Average (SMA), $1,456 and $1,489 respectively, keeps the buyers hopeful.

  • USD/INR has invalidated a five-month uptrend line.
  • The daily chart indicators are biased bearish.

USD/INR has breached a five-month uptrend line and could bring in deeper support levels into play with the daily chart indicators reporting bearish conditions.

The pair closed at 70.90 on Monday, violating the trendline connecting July 11 and Nov. 1 lows and dropped further to 70.77 on Tuesday, cementing the breakdown.

The 14-day relative strength index is hovering in bearish territory below 50 and the MACD histogram is printing deeper bars below the zero line – a sign of strengthening downside momentum.

The pair appears on track to test support at 70.31 (Nov. 1 low).

While corrective spikes cannot be ruled out in the event of strong oil price rise, the bearish technical outlook would be invalidated only if the pair closes above the descending 10-day average, currently at 71.26.

Daily chart

Trend: Bearish

Technical levels

  • AUD/USD struggles for clues after two consecutive days of declines.
  • Aussie Westpac Consumer Sentiment dropped well below forecasts.
  • November low on sellers’ radar while buyers will wait for the break of 61.8% Fibonacci retracement.

AUD/USD seesaws around 0.6815 amid the initial trading session on Wednesday. Even so, the pair’s trading below 200-bar Exponential Moving Average (EMA) keeps it on sellers’ watch-list.

On the fundamental side, recently released December month Westpac Consumer Sentiment data, -1.9% versus -0.7% forecast and +4.5% prior, coupled with uncertainty surrounding phase-one, seems to have played their roles.

23.6% Fibonacci retracement of October-end peak to late-November trough, near 0.6795, acts as immediate support ahead of the previous month low near 0.6755.

Alternatively, an upside clearance of 200-bar EMA level of 0.6818 needs to cross 61.8% Fibonacci retracement, at 0.6863, to recall buyers targeting 0.6900 mark.

AUD/USD four-hour chart

Trend: Bearish

The Reserve Bank of Australia (RBA) will start a quantitative easing (QE) program (government bond purchases) in early 2021, according to RBC analysts.

The central bank will expand its balance sheet by A$40 billion by buying A$1.5 to 2 billion government bonds each month.

Markets currently expect the central bank to cut rates by 25 basis points to a new record low of 0.5% in February. The central bank has reduced borrowing costs by 75 basis points in 2019.

  • Brexit/UK elections keep risk appetite at bay, while US CPI and FOMC come to the fore from here.
  • The risk of a bearish extension will increase on a break below 108.40.

USD/JPY has been as high as 108.85 prior to the open and sent down to a low of 108.66 in recent trade and then back to the 108.70s as the price attempts to stabilise. It has been a choppy start in Asia today ahead of what is likely to be a volatile rest fo the week into the close.

Firstly, Brexit remains a major factor for the FX space. The latest YouGov polls have the Conservatives losing grip of their victory margin as follows:

The latest YouGov results

UK Election: YouGov/Times MRP Model projects Conservative majority of 28 (Nov. 27: Majority Of 68)Con 339 (-20).

  • Lab 231 (+20).
  • Lib Dem 15 (+2).
  • SNP 41 (-2).
  • Plaid 4 (0).
  • Green 1 (0).
  • Other 1 (0).

This lead to speculative longs unwinding their positions in GBP and consequently, supported the yen on flows and risk-off trading.

Looking ahead, the next major factor for the pair lies in the Federal Reserve interest rate decision later today. We will also have the US November CPI which is expected to tick up to 2.0%year, 2.3%year ex-food & energy.

  • US Consumer Price Index November Preview: Inflation nostalgia

The Fed will release the policy decision, economic and rate Projection Materials at 19:00 GMT. 2:00 EST while the Fed Chairman Powell will read his statement and hold a news conference starting at 19:30 GMT, 2:30 EST. No change is expected with markets fully priced for a steady hand on the federal funds rate at 1.50-1.75%. However, the statement will be key as will the quarterly Summary of Economic Projections, especially the “dot plot” which will 'plot' the likely path of interest rates.

"In September, the median dot for end-2020 was 1.88% and higher again in 2021 but with a wide range of dots. Risks are for these to be lowered, despite the FOMC’s broadly upbeat outlook," analysts at Westpac explained.

"For the markets and the US dollar the key to this FOMC lies in the Projection Materials," Joseph Trevisani, Senior Analyst at FXStreet, explained.

Will the governors mark down their fed funds estimate for next year to take account of the current 1.75% rate or will they see a brighter future and raise their GDP and rate projections for 2020. This rather straightforward economic analysis will either propel or retard the dollar for the next several weeks.

USD/JPY levels

The advance in the USD/JPY pair fell short of changing the dominant bearish tone, as it would need to move at least beyond 109.30 to start attracting speculative buying. In the 4-hour chart, the pair has settled above a mild-bearish 20 SMA but remains below the larger ones. Technical indicators in the mentioned time frame, continue lacking directional strength, stuck around their midlines. The risk of a bearish extension will increase on a break below 108.40.

Valeria Bednarik, the Chief analyst at FXStreet explained.