Euro Demand Remains at 5-year High but Technical Picture Calls for Caution

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The European currency posted record-high appeal among speculators for several years, showed the latest CFTC report. Net long speculative position rose to a 5-year high in the week ending Aug 4:

Extreme speculative bias calls for caution in assessing prospects of further Euro rise and played itself as a corrective factor:

Classic “double top” in the pair significantly slowed down the upward trend from a technical point of view, however, failed breakthrough of the trend line at 1.1710 level prevented early transfer of control to the sellers’ hands. Thus, the pair confirmed plans to remain in consolidation, probably until the terms of a new fiscal deal in the US are announced.

Expectations related to new round fiscal stimulus in the US offer solid support to the oil market. The European benchmark Brent rose 1.3% to nearly $ 45 per barrel. Drilling activity data from Baker Hughes released last Friday showed that rig count declined by 4 to 176 units, down nearly 75% from mid-March, hitting the lowest level since 2005.

This week we will have a lot of reports related to the oil market. These are API and EIA reports that are released on a weekly basis and are expected to show a decline by another 3.7 million barrels in commercial inventories. Today, the release of a short-term energy outlook by the EIA is expected, which will contain updated forecasts for growth of US oil output in 2020 and 2021. OPEC is to release its monthly report for July on Wednesday that will shed light on what was the cartel’s output in July and what dynamics of demand they expect in the coming months. On Thursday, monthly bulletin from the IEA is expected, in which the agency will assess the potential for market rebalancing in light of OPEC’s gradual lifting of production curbs.

An outcome of the US-China talks on Saturday, during which the parties will take stock of implementation of the first phase of the trade deal, may also have a positive effect on the markets. Despite a number of reports and measures pointing to escalating tensions between the two countries, the latest US export data indicated an increase in agricultural exports to China. In the week ending August 6, corn exports to China increased to 264 kt. There is a positive trend in the export of soybeans to China. USDA data showed that the share of quality crops in the United States increased compared to last year (from ~ 54% to ~ 70%). This is one of the market factors that China referred to when describing which suppliers would be preferred, which indicates a high likelihood of a positive outcome for the market from Saturday negotiations.

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