Oil market heads higher ahead of NFP’s big day

Since February 24 2016, US economic releases have been increasingly outperforming relative to economists’ expectations. –Citi.

– Top/worst performers in Commodities yesterday: XAGUSD 1.5%, Copper 0.9%. NGAS -0.7%, USOil -0.2%. – Top/worst performers in majors vs USD today: NZD 0.5%, AUD 0.2%, EUR -0.1%. JPY -0.2%, GBP -0.2%, CAD -0.1%.

-Markets are pricing in a 28% chance of a 25bps rate cut from RBNZ March 9th meeting and 41bps of easing over the next 12 months.

-Japan bond yields: 2 YR (-0.218%); 3 YR (-0.222%); 5 YR (-0.195%); 7 YR (-0.188%); 10 YR (-0.044); 30 YR (0.713%) .

-BoJ’s Kuroda: Will monitor carefully how negative rate affects real economy. QQE has not reached limit, Likely to reach 2% inflation in first half of FY2017.

-PBOC’s Lu proposes to include financial stability in macro policy – Sina.

– US crude stocks last week rose to a record high for a third straight week as distillate inventories increased unexpectedly and imports grew, data from the Energy Information Administration showed on Wednesday. The International Energy Agency’s oil division head, Neil Atkinson, said on Tuesday oil prices had “bottomed out” and were set to rise throughout this and next year. “This has created huge inflows, buying from hedge funds”, said Oystein Berentsen, MD of crude at Strong Petroleum in Singapore. Saudi Arabian Oil Minister Ali al-Naimi said last week a supply cut was not on the cards although adding that the production freeze was only the first step to balance the market after prices fell to their lowest since 2003.Oil prices lost some ground Wednesday during European trading, while remaining close to the highest since January, investors are showing cautious before the latest figures on USA crude inventories expected to rise by several estimates. Oil has slipped about 9 percent this year and averaged less than $32 a barrel during the past two months, the longest stretch below that level in more than 12 years. With API data nearly three times higher than the expected, market participants should brace for volatility around the release of the official data, according to Michael Poulsen, oil analyst at Global Risk Management. Brent crude has slid more than 50 per cent since Saudi Arabia led a 2014 decision by the Organization of Petroleum Exporting Countries not to cut output amid a global oversupply in order to defend market share and drive out higher-cost producers. Oil markets rallied to a 2-month peak on Tuesday as traders zoomed in on the chances of an output deal among big oil and crude producers. Iranian sources say the country would be prepared to discuss a production pact once output reaches pre-sanctions levels. Opec leader Saudi Arabia has been negotiating with non-Opec Russia in historic talks. Eurostat, the statistics office for the European Union, reported inflation turned negative in February after a gain of 0.3 percent the previous month. While U.S. shale producers have demonstrated surprising resiliency by drilling at near maximum efficiency, falling rig counts typically provide lagging signals of imminent declines in output. Iran has reiterated that it won’t join and will continue to pump until production returns to about 4 million barrels a day.

– EUR/USD: Change to Neutral: Bearish phase ended quickly. Bullish only if daily close above 1.1005/10. When we turned bearish on Monday (29 Feb), we had a ‘modest’ downside target of 1.0810. The low has been 1.0823 and the subsequent strong rebound from the low took out the stop-loss at 1.0965. The outlook is neutral for now but upward momentum is building up and a daily closing above 1.1005/10 would be a strong indication that we are going to see a higher EUR in the coming weeks. In the meanwhile, this pair is expected to be underpinned with support 1.0900 followed by the solid level of 1.0810. GBP/USD: Neutral: Corrective rebound has scope to extend higher to 1.4230.The outlook for GBP just turned neutral yesterday and the current movement is viewed as a corrective rebound that has scope to extend higher to 1.4230. The high has been 1.4194 yesterday and strong short-term momentum continues to suggest a higher GBP in the next few days (though may not be sustained).Support is at 1.4080 but only move back below 1.4000 would indicate that a short-term top is in place. On the upside, the next resistance above 1.4230 is at 1.4300. NZD/USD: Neutral: 0.6600/0.6775 range for now. While the undertone for this pair is positive, we prefer to wait for a clear break above the 0.6775 high seen last week before turning bullish. This appears to be a likely scenario unless NZD moves back below 0.6630 in the next 1 to 2 days. 0.6675 is already a strong support. AUD/USD: Bullish: Clear break above key 0.7385 resistance is expected to lead to acceleration higher. AUD just entered a bullish phase yesterday and the rally is quickly approaching the very key level of 0.7385. A clear break above this level is expected to lead to acceleration higher towards 0.7440 and beyond in the days ahead. Strong support is at 0.7290 but only a move back below 0.7220 would indicate that a short-term top is in place. USD/JPY: Neutral: In a broad 112.50/114.55 range now. There is not much to add as USD moved briefly above the top end of our expected 111.00/114.50 range yesterday (high of 114.55). We remain neutral for now but from here, a clear break out of an expected 112.50/114.50 sideway trading range would indicate the start of a directional move.