Hedge funds don't buy into OPEC cuts

FX:USOIL   CFDs on Crude Oil (WTI)
US Dollar

Greenback gradually turns into an offensive although a buildup of longs on US currency looks quite cautious showed a pullback during the Asian session. Futures for the dollar index are planning a march to the level of 93.50 thanks to the efforts of Republicans to pass the fiscal bill and slightly biased in the positive side US data. Macro figures shows steady pickup in US manufacturing sector and some subsidence of the consumer sector, but the first is more legible in tracking economic effects, demonstrating the sustainability of the country's economic growth.

Republicans of the Senate and the House of Representatives have to reconcile their versions of the tax reform and the market believes that it won’t be a problem. A large part of tax cuts intended for corporations is postponed until 2019, so investors are increasingly skeptical about stimulating effect of the reform. For example, Goldman Sachs considered that the continuation of global recovery next year will lead to capital flows into emerging markets with higher yields that will become a hard test for the dollar. To offset an appeal of foreign markets, the Fed will have to accelerate the rate of increase in borrowing costs, but inflation below the target level of two percent ties hands to the regulator. According to Trump's plan, the dollar should be cheaper to stimulate exports, making US products abroad cheaper. Therefore, in long-term rally of the dollar there is more and more doubt and investors are in no hurry to price into the dollar a more aggressive Fed next year.

US trade deficit in October was the highest in last nine months due to rising oil prices, as well as a failure in competitiveness with major trading partners - China and Mexico. And this is despite the fact that US exports to these two countries have reached a peak of three years. Donald Trump has more and more arguments to enforce his protectionist initiatives, which is a time bomb in US political relations with trading partners.

According to the report of US government, foreign trade accounted for 0.43 percentage points from the growth of 3.3 percent of GDP in the third quarter. According to the Trump administration, eliminating the skew in trade together with tax breaks can bring the rate of GDP growth to a stable trajectory of 3%.

British pound

The British currency has sharply lost a bullish aim, as news on progress of talks on the EU deal last week was again replaced by reports of sticky dissent. Moreover, on Wednesday the British TV channel reported that the police could prevent an attempt on Prime Minister Teresa May, which indicates that the course taken by the conservatives to find trade-off with the European Union can have a strong opposition. Bearish pressure led the GBPUSD pair to the level of 1.3370, and a breakdown at 1.3350 would likely signal a signal for further decline.

The oil market

Optimism after OPEC has come to naught and now investors are shifting focus to the dynamics of American production, which has already reached parity with Saudi Arabia and Russia. The emergence of a third major player in the market that does not contact OPEC creates depressing prospects for a global supply, so investors are trying to analyze the demand side for positioning. Brent and WTI lost more than half a percent on Wednesday and are likely to find support somewhat lower before investors consider long positions. The API report released on Tuesday showed mixed dynamics - crude oil stocks fell sharply, while reserves of gasoline and distillate rose, which indirectly speaks of saturation of the domestic market after a shortage due to natural disasters.

Arthur Idiatulin
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This analysis is provided as general market commentary and does not constitute investment advice.
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