In light of advanced data for GBP futures from CME Group, open interest dropped by nearly 1.9K contracts on Thursday from Wednesday’s 177,208 contracts. On the other hand, volume ticked higher by more than 10K contracts.

GBP/USD likely to move into consolidation

Cable seems to have found support in the 1.40 neighbourhood for the time being, looking to stabilize amidst choppy activity in both open interest and volume, leaving the door open for further consolidation at least in the short term horizon.

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In its lending report for the month of March, the People’s Bank of China (PBOC) confirmed that they raised the rates on Standard Lending Facility (SLF) short-term loans by 5bps on March, 22nd, the day they raised another key rate.

Key Details:

Overnight loans were raised to 3.4%, 7-day to 3.55% and 1 month to 3.9%.

PBOC lent 32.24bln Yuan 1mth and 21.72bln Yuan 7 day period.

Outstanding SLF end-March 48.21bln Yuan vs 21.34bln end-Feb.

PBOC raised a total of 54.06bln Yuan via SLF.

 

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According to the statement from the Ministry of Finance, starting from April 2, 2018, China suspended tariff concessions on 128 items of US products including pork and fruits.

The 15% tariff will be held on 120 items of products imported from the United States including fruits and related products, and a tariff of 25% on eight items of imports including pork and related products from the country, China’s Customs Tariff Commission of the State Council has decided to impose according to a statement posted on website of the Ministry of Finance.

The statement said it was a countermeasure in response to a previous US move to slap tariffs on steel and aluminum imports.

Despite worldwide objections, the US administration decided to impose a 25% tariff on steel imports and a 10% tariff on aluminum, with tariffs on imports from countries including China.

Although it is widely considered a violation of trade rules based on World Trade Organisation (WTO), the US measure went into effect on March 23, which has severely undermined China’s interests, according to the statement.

According to China’s Ministry of finance, China advocates and supports a multilateral trade system, noting that to suspend tariff concession on US imports is a just move to safeguard China’s interests using WTO rules.

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In opinion of FX Strategists at UOB Group, the outlook on the Aussie Dollar remains neutral and is expected to extend the consolidative theme in the near term.

Key Quotes

24-hour view: “Looking further back, AUD dipped to a low of 0.7643 last Thursday before recovering quickly to trade sideways on Friday. The movement is viewed as the early stages of a basing phase. From here, while a dip to 0.7665 is not ruled out, a move below 0.7640 seems unlikely. On the upside, only a move above 0.7710 would indicate the start of a sustained recovery”.

Next 1-3 weeks: “In the latest update on Wednesday last week (28 Mar, 0.7680), we highlighted that “a dip below the expected 0.7650/0.7820 consolidation range is not ruled out but at this stage, the prospect for a sustained decline towards the major 0.7600 support is rather low”. AUD subsequently dipped to a low of 0.7643 before rebounding quickly. The price action reinforces our current view and there is no change to our neutral stance. The recent downward bias is easing and but it is too early to expect a sustained recovery. To put it another way, we continue to expect AUD to trade sideways for now, albeit likely within a narrower and lower range of 0.7630/0.7770”.

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Will the renewed upside hold ahead of the US ISM data?
US rigs count data and weaker DXY underpin the sentiment.

WTI (oil futures on NYMEX) stalled its recovery mode from six-day troughs of $ 64.16, as the bulls entered a consolidative mode amid a lack of fresh catalysts and Easter holiday-induced light trading.

Over the last hour, the barrel of WTI is seen breaking higher from the tight range above the $ 65 mark, despite looming concerns over rising Russian output levels, as upbeat US rigs count data combined with broad-based US dollar weakness continue to offer the much-need support to the prices.

Baker & Hughes oilfields Services Company showed in its latest data released Friday, the drillers there cut seven oil rigs in the week to March 29, bringing the total count down to 797. It was the first time in three weeks that the rig-count fell, according to Reuters.

However, further upside looks doubtful, as the latest Reuters survey, citing that Saud Arabia is expected to cut crude oil prices to Asia, will weigh negatively on the investors’ sentiment while weekend’s news about Iraqi cabinet having approved raising crude oil output capacity could also keep the gains in check.

Focus now shifts towards the US weekly crude supplies data for fresh direction on the black gold.

WTI Technicals

Flavio Tosti, Analyst at FXStreet, noted: “Bulls’ initial target is $65.50, followed by the $66 handle; further up, $66.66 is the high of 2018. If the bulls can’t break above $65.50 supply zone in the next sessions, the pullback down may continue and $63.81 swing low becomes the support; if this level gets successfully broken, the next scaling point is seen at $62.30 previous demand zone. The long term-trend on oil is bullish but market participants will need to decide what happens after the double top made on March, 26.“

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CME Group’s preliminary figures for EUR futures markets showed investors trimmed their open interest positions by more than 12.6K contracts on Thursday vs. Wednesday’s final 503,635 contracts. Volume followed suit, down sharply by more than 42.5K contracts.

EUR/USD finds support below 1.2300

EUR/USD’s recent failure and subsequent decline from tops near 1.2480 has been on the back of declining open interest, which is a bearish sign and allows for further retracements at least until open interest stabilizes. The down move, however, appears to have found contention in sub-1.2300 levels. The drop in volume reinforces this last view.

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   •  Remains capped below 0.88 handle amid a goodish pickup in GBP demand.
   •  Holiday thinned liquidity conditions might help limit further downside.

After an initial uptick to 0.8785 level, the EUR/GBP cross came under some selling pressure and retreated back to Friday’s low.

The cross continued with its struggled to build on its recent recovery move from near 9-month lows, set on March 22 and remained capped below last week’s swing highs to the 0.8800 neighborhood. 

The cross has now snapped two-consecutive days of winning streak and in absence of any fresh fundamental trigger, the retracement slide at the start of a new week could be solely attributed to some goodish pickup in the GBP demand. 

With the European markets closed in observance of Easter Monday, holiday-thinned liquidity conditions might help limit further downside. It would now be interesting to see if the cross is able to catch any fresh bids at lower levels or the downfall marks the end of its recent recovery move from the lowest level since June 2017.

Technical levels to watch

Immediate support is pegged near 0.8760 level, below which the cross seems to head back towards testing 0.8725-20 intermediate support before eventually dropping back to the 0.87 handle.

On the flip side, any meaningful upside might continue to confront some fresh supply near the 0.8800 handle, which if cleared might trigger a short-covering bounce towards 100-day SMA hurdle near the 0.8835-40 region.
 

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According to a Reuters survey of six refiners and traders, the Organization of the Petroleum Exporting Countries (OPEC)’s top oil producer, Saudi Arabia, is seen cutting prices for all crude grades it sells to Asia in May.

The reason behind the discount in prices is to reflect weaker prices for its Middle East benchmark Dubai crude, the respondents noted.

Key Findings:

“The official selling price (OSP) for flagship Arab Light crude could fall by 50-70 cents, to the lowest in six months.

“We expect cuts of 50-60 cents across all grades,” one of the respondents said, in line with market changes last month.

The price spread between the first and third month Dubai spot prices widened by 55 cents a barrel in contango in March versus February.

Most of the respondents expect similar price cuts across all grades in May, although one person said he expects a smaller cut for Arab Extra Light’s OSP on support from firm naphtha margins.

He also expects a bigger price cut for Arab Heavy because of widening losses in producing fuel oil.”

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In view of FX Strategists at UOB Group, Cable’s potential test of the 1.4280 region seems to have lost some traction now.

Key Quotes

24-hour view: “GBP dipped to a low of 1.4011 last Friday before rebounding. A short-term bottom is like in place and the current recovery appears to have scope to extend higher to 1.4070. At this stage, clear break above this level seems unlikely (next resistance is at 1.4100). On the downside, 1.4000 is acting as a solid support and would not be easy to break”.

Next 1-3 weeks: “While the pull-back from last Tuesday (27 Mar) 1.4244 peak is deeper and more resilient than expected, we continue to detect a positive undertone and still see chance for GBP to move higher and test the major 1.4280 resistance. Only a clear break below 1.4000 would indicate that the current mild upward pressure has eased. However, a break of 1.4000 would not shift the current neutral phase to bearish but would indicate that GBP has moved into a lower consolidation range. All that said, GBP has to move and stay above 1.4100 within these few days or the odds for a move towards 1.4280 would diminish further”.

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