WTI crude oil headed for $90? Yields perk up: European open – 5/9/2023

Asian Indices:

• Australia's ASX 200 index fell by -23.1 points (-0.32%) and currently trades at 7,295.70
• Japan's Nikkei 225 index has risen by 228.56 points (0.7%) and currently trades at 32,939.18
• Hong Kong's Hang Seng index has fallen by -284.24 points (-1.51%) and currently trades at 18,559.92
• China's A50 Index has fallen by -90.1 points (-0.7%) and currently trades at 12,839.68

UK and Europe:

• UK's FTSE 100 futures are currently down -19.5 points (-0.26%), the cash market is currently estimated to open at 7,433.26
• Euro STOXX 50 futures are currently down -6 points (-0.14%), the cash market is currently estimated to open at 4,273.87
• Germany's DAX futures are currently down -26 points (-0.16%), the cash market is currently estimated to open at 15,798.85

US Futures:

• DJI futures are currently down -60 points (-0.17%)
• S&P 500 futures are currently down -7 points (-0.15%)
• Nasdaq 100 futures are currently down -14.25 points (-0.09%)

• US bond yields continued to move higher on Monday, helping support the USD which was the strongest forex major during Asian trade
• China’s services sector expanded at a much slower pace than expected, hitting a YTD low of 51.8 compared with 53.6% estimated and 54.1 prior
• This means that both the private Caixin and ‘official’ NBS surveys are continuing to slow, although weak news from China is not a new concept so questionable as to how much if a surprise it really is. On the flip side, this is also deflationary for the rest of the world, at least to a degree.
• It was still enough to weigh on the Australian dollar ahead of the RBA meeting, making AUD/USD the weakest forex major of the Asian session.
• Australia’s current account surplus narrowed to lower export prices, although strong trade volumes are still expected to support Wednesday’s GDP report, with net export contributions rising to 0.8% (-0.2% prior)

Events in focus (GMT+1):

• 08:00 – ECB President Lagarde speaks
• 09:00 – Eurozone composite, services PMIs
• 09:30 – UK composite, services PMIs
• 10:00 – Eurozone PPI
• 13:30 - ECB's Schnabel Speaks
• 15:00 – US durable orders

WTI crude oil technical analysis (daily chart):

WTI crude oil futures prices gapped higher after the 3-day weekend in the US. The gap has been filled and prices are now considering a break to new highs, although the sceptic within me always prefer to seek dips over chasing a move higher. But when you consider that oil prices have rallied despite a stronger US dollar over the last few days, then it is a real testament to demand for oil prices at present.

The daily chart shows a strong impulse move higher, which is seemingly within wave 5 which began with a bounce from the 50 and 200-day EMAs. The 61.8% Fibonacci projections from wave 1 and 2 to wave 3 sit either side of $90, which is a level the market is seemingly aiming for at present. That leaves the question as to whether the market will simply rip higher, or produce a pullback. If it moves higher, I would prefer to move to intraday timeframes and seek continuation pattern. If prices retrace, bullish could look for evidence of a swing low above the Jan/April highs or the $584 handle.

US 10-year yield technical analysis (daily chart):

The US yield curve continued to strengthen today, despite the market’s renewed conviction that the Fed will hold rates this month and they are done with tightening. I’ve noticed an interesting pattern on the US10-year yield which could also point to further gains. Since April, bullish engulfing candles which formed after a pullback or period of consolidation are yet to have their lows test, and they have marked textbook swing lows. Admittedly there are one or two among then that do not fit the full definition of a true engulfing candle (as an open or close is a few ticks the wrong side) but I’m happy to relax the rule, as these candles show clear range expansion in the direction of the underlying trend. That aside, take note that Friday’s candle was a true bullish engulfing day, so if the pattern holds bulls may want to seek dips above Friday’s low and assume a run for (and potential break above) the cycle highs.

-- Written by Matt Simpson

Follow Matt on Twitter @cLeverEdge