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XTB TRADEBEAT

Brent hits $70 a barrel; USD gets hit on unexpected PPI drop

Summary:

  • Brent Oil extends its recent gains to trade above $70 - highest since 2014
  • USD falls back after surprise drop in PPI
  • Tomorrow’s CPI data now a possible last stand for the Buck
  • Euro rises following hawkish shift in ECB minutes
  • Bitcoin recovers after falling on South Korean ban talk

 Following a rare lower close on Wednesday - despite yet another drawdown in the DOE report - Oil bears may have thought the time had come to call a top in the market. However, today’s trade has seen another surge higher with price not only taking out the weekly high of 69.36 but also breaking above the May 2015 peak of 69.61. The benchmark actually managed to briefly trade above the $70 a barrel handle in the late afternoon and whilst there are a couple warning signs flashing against this rally, for now price continues to gain. 

Today’s PPI release showed an unexpected M/M decline of 0.1% which was something of a shock against a prior reading of +0.4% and marks the first drop since last August’s release. There were only 2 deflationary prints in all of 2017 releases and today’s data relating to December will do little to dispel the notion that a lack of price pressure in the US could cause the Fed to adopt a slower pace of tightening.   

The US dollar is really fighting an uphill battle. Just when it looked as if it was on a tear, it was hit by rumour on China considering limiting its exposure to the US bonds. It’s a broad and complicated topic that in our view will have more long than short term ramifications. In the short term USD bulls clearly need an impulse and after today’s disappointing PPI reading they will be looking for the tomorrow’s more widely viewed CPI number to hopefully provide some respite.

Gold is arguably even more sensitive to the inflation data than the USD and a technical overview for the precious metal can be found here

The single currency got a quick boost following the account from the latest ECB meeting taking place in the past month. At the same time the German bunds declined suddenly pushing the 10Y yield back to 0.55%.  The moves largely stem from a hawkish remark pertaining to a possible shift in forward guidance which cold take place as soon as the beginning of 2018.

It’s been a typically volatile day’s trade n Bitcoin with the cryptocurrency seeing a range of more than $2000. The price took a tumble early on with more reports of a clampdown in South Korea coming not long after some negative comments from Warren Buffet. However, the market has recovered as the day wore on and whilst it remains lower on the day by around 2% on the European close there looks to be another long wick forming underneath the D1 candle - suggesting that many traders are stepping in to buy the dip.  

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