Russia and Saudi Arabia agreed to rise oil output

Daily Analysis - 04/10/2018

U.S. Russia and Saudi Arabia struck a private deal

Donald Trump, the U.S. President accused the Organization of the Petroleum Exporting Countries of flying crude prices and called on it to increase production in order to lower fuel expenses before the U.S. congressional elections that are going to take place in November. The agreement marks how Saudi Arabia and Russia are frequently choosing oil output policies bilaterally, without discussing them with the rest of OPEC. According to Reuters sources the Russian Alexander Novak and Saudi Energy Minister Khalid al-Falih agreed on a set of meetings to raise the production from September through December as crude went near the $80 a barrel. It is now over $85. According to Reuters one source said, “The Russians and the Saudis agreed to add barrels to the market quietly with a view not to look like they are acting on Trump’s order to pump more,” and another source said, “The Saudi minister told (U.S. Energy Secretary Rick) Perry that Saudi Arabia will raise output if its customers asked for more oil.”

Dollar lifted by yield surge

Higher U.S. yields are not good for emerging markets because they lead to outside funds to move away while pressing local currencies. Bond prices dropped over Asia and long-term Japanese yields touched an area not hit since early 2016 a market toughening not warranted by local economic conditions. HSBC economist Kevin Logan said “A simple dynamic is playing out in the global economy right now - the U.S. is booming, while most of the rest of the world slows or even stagnates,” “A Federal Reserve that is raising rates to prevent the U.S. economy from overheating is constraining the policy options of countries where financial conditions are tightening and trade tensions intensifying.”

Now Nikkei eased 0.2 %, as rising yields offset the boost to exporters from a weaker yen.

Sterling could fall to $1.15 if May resigns

An analyst advised on Wednesday that GBP could fall to as deep as $1.15 as political divisions deepen.

Theresa May, the British Prime Minister's power is under serious inspection from a number of dissatisfied members of her own party and among them is the former Foreign Secretary Boris Johnson.

The chairman of the investment committee at Alvine Capital Stephen Isaacs said that the British pound could drop to $1.15, which reflects a drop of more than 10% from current levels by the beginning of 2019 if U.K. legislators on both sides suppress May's Brexit deal.

EUR/USD consolidates

This Thursday popular pair EUR/USD restored its six-week lows near 1.1456 in Asia and began a stage of consolidation around the 1.1470 area, as we advance towards the European opening day.

After Wednesday's extensive rally the USD buyers demanded a breather, supported by stronger US fundamentals and the Fed's commitment for a quicker step of tightening. From a technical view, overnight drop established a near-term bearish break under the 1.1525 strong level of support and add confidence to the near-term negative expectation.