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WTI sends yields lower, risk aversion in early trading

Posted on: June 21, 2017

Markets are on the defensive after WTI’s transition into bear market territory, and concerns that the global supply cut will persist is ever present. Libya, which is exempt from OPEC production cuts, is pumping the most in four years while oil storage has reached a new high this month. Global equity indices are taking a step back while gold and yen ‘safe havens’ are witnessing mild gains.

Oil volatility remains a real story, with WTI recovering from a 1% drop this morning to gain some ground on yesterday’s settle. Oil inventories this morning will be watched closely with the market expecting a small draw, another miss could send USDCAD back through 1.3300 in the near term. In the medium-to-long term, the most prevalent risk for CAD remains the renegotiation of NAFTA. Experts representing the three nations have stated that there is little difference in the dialogue outlined in the agreement; however, President Trump’s “USA first” demeanor still brings uncertainty. Technically speaking, 1.3310/20 on the topside is still initial resistance, with support around 1.3210/20. Yesterday, Fed President of Boston Rosengren presented on the topic of financial stability. In particular, Rosengren noted that the low interest rate environment poses a secular problem in that: population trends are declining, productivity growth is declining and global inflation targets are low. Rosengren urges central banks to factor these into policy making, and that yield curves will be more sensitive to policy actions – given less traditional monetary policy tools.

Elsewhere, GBP is bouncing back from yesterday’s losses as the BoE’s Andrew Haldane announced he favored withdrawing some stimulus. This conflicts Mark Carney’s dovish statement that now is not the time for a rate hike given political and inflation uncertainty. One thing that is certain is that yield considerations remain negative for the UK currency. Going forward, the focus shifts to see whether the Tories and DUP can negotiate to work together.

  • Yesterday’s NA Range: 1.3250 -1.3285
  • Asia Overnight Range: 1.3265 - 1.3283
  • London Overnight Range: 1.3273 -1.3310

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