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The global equity rally continues to be bolstered by optimism that the trade war could finally see a framework agreement.  The US also avoided a second government shutdown as President Trump accepted the deal lawmakers worked on, only to declare a national emergency to secure additional funds for his border wall funding.

The S&P 500 rose to a 10-week high as trade talks continued to make constructive progress this week and US consumer sentiment showed signs of stabilizing.  The main driver for equities remains the trade story and while global growth concerns are the other key risk, the current backdrop of accommodative stances with the Fed, PBOC, and ECB, may make it difficult to derail the bullish argument.

 

The US dollar continues to whipsaw on risk-off flows from softer US economic data and risk-on moves from continued progress on the trade front.  The Fed has clearly signaled interest rates are not going up anytime soon and we could finally learn more in the coming weeks on when the Fed will end quantitative tightening.  On Thursday, Fed’s Brainard noted that balance sheet normalization could come to an end this year.  Next week, the markets will dissect the Fed’s Minutes on Wednesday and the Fed’s Monetary Policy Report on Friday, along from hearing from Fed members (Williams, Clarida, Bullard and Quarles).

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The US dollar is lower against major pairs on Friday. US-China trade talks wrapped up in Beijing with little details, but official comments continue to be positive and a possible memorandum of understanding between the two nations calmed investors. Negotiations are headed back to Washington ahead of the March 1 deadline, but with a possible extension in the works. Markets rose as good news on the trade front came from Presidents Trump and Xi.

There was international progress, while domestically uncertainty rose as President Trump declared a state of national emergency to fund the border wall. Softer economic data released this week depreciated the US dollar as safe haven flows dried up with China and the US closer to a trade deal.

OIL – Soft Dollar and Supply Disruptions Push Crude Higher
STOCKS – Trade Talks Boost Global Stocks
GOLD – Trade Optimism and Trump Emergency Calls Push Gold Higher
GBP – Pound Bounces Back on Friday on Strong Retail Sales

OIL – Soft Dollar and Supply Disruptions Push Crude Higher

Oil prices surged on Friday after positive comments from the US-China talks. US President Trump was optimistic about a deal with China. The trade war between the two largest economies had put downward pressure on crude as global energy demand fell. As a deal appears to be close as negotiations move to Washington it gave oil a double boost as it also softened the US dollar as it reduced its appeal as a safe haven.



OPEC and major producer compliance with the production limit agreement have kept crude prices stable. Venezuelan and Saudi supply disruptions combined with a weakening dollar to push West Texas Intermediate above $55. US sanctions against Venezuelan energy exports and the reduced capacity at Saudi Arabia’s oil field sparked a rise in crude prices with Brent rising 2.23 percent on Friday.

GOLD – Trade Optimism and Trump Emergency Calls Push Gold Higher

Gold rose on Friday as political uncertainty in the US drove investors to the safety of the metal. Progress in the US-China trade talks depreciated the greenback as risker assets were more attractive, while President Trump’s impending showdown with Democrats on the border wall funding accelerated the sell-off of dollars.



Trade war concerns eased, but are not fully out of the picture as more details are needed as the March 1 deadline is near. Brexit news could lead to more investors flocking to gold for safety as the gap between the expectations fo the UK and the EU continues to be sizeable with a fast approaching deadline.

GBP – Pound Bounces Back on Friday on Strong Retail Sales

The drop in the US dollar gave some breathing room to G10 currencies with sterling the biggest winner with a 0.70 percent rise. A stronger than expected retail sales data point in the UK put Brexit concerns in the sidelines as the currency pair trades at 1.2891. British Prime Minister Theresa May suffered another massive defeat in her efforts to pass a Brexit amendment through the house of commons. The EU remains unmoved by the struggles and has offered no flexibility, despite British parliament pushing back on the agreement on hand.



The pound was under pressure all week as a no-deal exit reinserts itself in the possible scenarios. Despite the 1 day surge, cable remains in the red with a 0.36 percent fall at the end of the week. The March 29 deadline will not be enough as there are still too many factions forcing their views and without reaching a consensus the only viable option is for the EU to extend the deadline, but that would only be a short term solution as the issues under discussion appear hard to reconcile at the moment.

STOCKS – Trade Talks Boost Global Stocks

International politics eclipsed local issues as the stock market advanced despite President Trump calling for a national emergency on Friday. The US avoided a government shutdown with the signing of the spending bill that was agreed between Republicans and Democrats, but in an attempt to bypass congress Trump could face legal challenges to achieve his objective of 8 billion dollars.



The U.S. Federal Reserve has pumped the breaks on its tightening of monetary policy and economic data released this week validates their decision. US retail sales and industrial output missed the mark by falling more than forecasted.

Trade talk progress and the certainty of avoiding a government shutdown pushed markets higher as deadlines loomed, border war funding emergency or no, will be a longer drawn out affair with less clear market impact.

OANDA Market Beat: Optimism Rises on Trade Deal - SoundCloud
(229 secs long, 35 plays)Play in SoundCloud

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(Reuters) – Wall Street’s main indexes were set on Friday to post their biggest weekly gain in nearly a month, as investors were optimistic about the ongoing trade talks to resolve a bruising tariff dispute between the United States and China.

President Donald Trump said talks with China “are going extremely well”, and the U.S. is closer than ever to having a “real” trade deal with Beijing. Discussions between the world’s largest economies will continue next week in Washington.

“Today’s sentiment is mainly based on trade progress and the fact that we will see Chinese representatives in D.C., it seems like the talks are going to deliver results sooner-than-expected,” said Edward Moya, market analyst at forex brokerage Oanda in New York.

Hopes of a trade deal ahead of a March 1 deadline has helped the trade-sensitive industrials gain nearly 17 percent so far this year, making it the best performing S&P sector.

The group rose 1.13 percent boosted by bellwethers Boeing Co and Caterpillar Inc.

The markets shrugged off Trump declaring a national emergency in a bid to fund his promised wall at the U.S.-Mexico border without congressional approval, an action Democrats vowed to challenge as a violation of the U.S. Constitution.

“Right now the implications of the emergency is being overlooked, because of the legal battle,” Moya said.

Despite the threat of a national emergency, all 11 major S&P sectors were trading higher with financials up 1.89 percent, leading the gains.

The banking sector rose 2.62 percent boosted by big U.S. lenders. JPMorgan Chase & Co, Bank of America Corp and Wells Fargo & Co rose between 1.7 percent and 3.0 percent after Warren Buffett’s Berkshire Hathaway Inc increased its stake in the companies.

At 12:55 p.m. ET the Dow Jones Industrial Average was up 345.97 points, or 1.36 percent, at 25,785.36. The S&P 500 was up 22.52 points, or 0.82 percent, at 2,768.25 and the Nasdaq Composite was up 28.54 points, or 0.38 percent, at 7,455.49.

The S&P has rallied more than 10 percent so far this year, driven by progress on trade, a dovish Federal Reserve and a largely upbeat fourth-quarter earnings reports. The benchmark index is now set to end above its 200-day moving average, a proxy for long-term momentum, for a fourth straight session.

In the last leg of earnings, analysts now see profit growth of 16.2 percent for the quarter, according to IBES data from Refinitiv. However, first-quarter estimates are less favorable, showing a 0.5 percent year-on-year decline.

PepsiCo Inc rose 3.1 percent after the soda maker said increased investments in advertising and products will boost sales growth.

Nvidia Corp rose 2.5 percent and helped push the technology sector 0.42 percent higher, after the chipmaker forecast a demand rebound by the end of the year.

Newell Brands Inc plunged 20.4 percent after it forecast lower-than-expected full-year sales due to a strong dollar.

Advancing issues outnumbered decliners for a 3.55-to-1 ratio on the NYSE and a 3.31-to-1 ratio on the Nasdaq.

The S&P index recorded 40 new 52-week highs and no new low, while the Nasdaq recorded 73 new highs and 15 new lows.

Reuters

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OANDA Senior Market Analyst Craig Erlam previews the week’s business and market news with Jazz FM Business Breakfast presenter Jonny Hart. This week they discuss how markets are performing overall, the FOMC and ECB minutes, trade negotiations between the US and China and more.

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The greenback and US stocks are poised for another weekly gain as trade talk progress appears to be gaining momentum, with negotiations continuing next week in Washington.  Financial markets in the short-term are relieved the government will be funded, despite a legal dispute on emergency powers, and expectations are high we will not see an escalation in trade tariffs as China and the US appear close to reaching a memorandum of understanding.

USD – Dollar may have overreacted to retail sales miss

EUR – Spain elections, 3rd time in 4 years

Amazon – Recession fears spark on terrible sales data

GOLD – Remains stuck in key range   

OIL – Stronger economic data needed to push oil higher  

 

USD

Dollar traders may have overreacted after yesterday’s shocking headline of December retail sales falling the most since 2009.  The greenback sunk heavily as concerns rose that the US is not on sound footing.  Today’s economic data painted a mix picture as the Empire manufacturing reading rebounded better than expected but both industrial production and factory output decreased more than expected.  Economic data for the US is likely to remain volatile and mixed in the first quarter, but so far does not derail the base case for the US post near 2% economic growth in 2019.

EUR

The political situation in Spain remains dicey as we will see another election, the third in four years, with the potential outcome of seeing another minority government formed, leading one to believe Spain may not be able to implement strong initiatives going forward.  Prime Minister Sanchez called for snap elections on April 28th, just ahead of the European Parliament elections that will be held in late May.  In early polls, Sanchez’s Socialists appear to have a slight lead over the conservative People’s Party.  The market reaction is somewhat limited to the Spanish elections as stronger economic success from Madrid has kept yields stable on Spanish bonds, the 10-year yield remains near 2-year lows.

Stocks

Amazon remained the key story on Wall Street as the decision to cancel plans to build a second headquarter in Long Island City, NY sparked a political debate that will likely become a key campaign issue for 2020.  Amazon decided that the $3 billion in subsidies might not be enough to outweigh the rising concerns from state and local politicians.  Local leaders felt Amazon got too much in subsidies, feared the rising cost of living and strains to the infrastructure system was to do more damage to the existing community.  The loss of 25,000 Amazon jobs, 1,300 construction jobs and several thousand in direct and indirect jobs will be missed, but not nearly as much as the $27 billion in tax revenue NY would have seen in over the next couple of decades.

Amazon stock did not have a major reaction, but the decision could eventually be positive for the stock.  Amazon was set on reinvesting this year and while they will miss out on a key objective of establishing a major east coast office, they will likely be able redirect the funds set aside for the NY headquarters on acquisitions, build their existing offices and continue recruiting top talent.

GOLD

Gold’s refusal to break below $1,300 despite significant progress and optimism signals that the market may be focused on the slowdown that is developing in the US.  A softer US economy could further cement a dovish Fed, which could help the yellow metal resume its’ recent rebound.  Economic data from the US continues to remain soft, Empire Manufacturing beat expectations, but is well off the levels it enjoyed in 2018 and Industrial Production and Factory output continued to show weakness.  Momentum traders may be on the sidelines and waiting to see if gold is eventually able to take out the 2019 high of $1,331.

OIL

Crude prices benefited from positive developments on the trade front.  For most of the week oil’s gains were capped as OPEC’s reduction efforts appear to be running out of steam.  The supply side argument has dominated headlines, with US production likely to be the dominant theme for years, but if we see a significant memorandum of understanding in the China-US trade war that includes progress on technology transfer, IP protection, non-tariff barriers, and better trade terms, we could see oil remain bid on improving demand as global growth concerns would ease rapidly.

 

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USD/CAD is showing little movement in the Friday session. Currently, the pair is trading at 1.3282, down 0.08% on the day. On the release front, Canadian foreign securities purchases are expected to drop to C$7.6 billion. In the U.S., the Empire State Manufacturing Index is expected to rise to 7.1 and UoM consumer sentiment is projected to climb to 93.3 points.

Recent Canadian numbers have been mixed. The economy created 66.8 thousand jobs in January, crushing the forecast of 6.5 thousand. However, manufacturing sales has recorded declines of 1.3% in December and 1.4% in November. The manufacturing sector has sputtered, as the global trade war has lessened the demand for Canadian exports. As well, low oil prices are weighing on the economy and on the Canadian dollar. The currency has slipped 1.2% in February. The Bank of Canada is unlikely to raise rates at the March 6 meeting, but there is room for rate hikes later in the year if economic growth improves.

In the U.S., consumer data has been dismal in January. Retail sales and core retail sales showed sharp contraction, and these numbers came on the heels of soft inflation indicators. Inflation remains low, despite a solid U.S. economy and strong labor market. CPI showed no change in January, and has failed to post a gain since November. Core CPI has recorded weak gains of 0.2% for four successive months. On an annualized basis, CPI gained 1.6% in January, the weakest year-over-year gain since mid-2017. The soft inflation numbers were a result of low energy prices, which fell 3.1% in January as oil prices remain under pressure.

Trade talks continue as Trump vows to build the wall

Investors shrug off May’s “humiliating” defeat

USD/CAD Fundamentals

Friday (February 15)

  • 8:30 Canadian Foreign Securities Purchases. Estimate 7.6B
  • 8:30 US Empire State Manufacturing Index. Estimate 7.1
  • 10:00 US Preliminary UoM Consumer Sentiment. Estimate 93.3

*All release times are EST

*Key events are in bold

USD/CAD for Friday, February 15, 2019

USD/CAD, February 15 at 8:22 EST

Open: 1.3296 High: 1.3313 Low: 1.3278 Close: 1.3284

USD/CAD Technical

S3 S2 S1 R1 R2 R3
1.3049 1.3125 1.3200 1.3290 1.3383 1.3445

USD/CAD posted small gains in the Asian session but retracted in European trade

  • 1.3200 is providing support
  • 1.3290 was tested earlier in resistance. It is a weak line
  • Current range: 1.3200 to 1.3290

Further levels in both directions:

  • Below: 1.3200, 1.3125 and 1.3049
  • Above: 1.3290, 1.3383, 1.3445 and 1.3547
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Futures recover after weak spending figures

US futures are looking a little soft ahead of the open on Wall Street, although they are recovering as we approach the open, with sentiment appearing to have taken a small hit from the surprisingly weak retail sales data on Thursday.

I always find it a little strange when traders overreact to single economic releases and think that there’s likely more behind the move, even if this appears to be the catalyst. The markets have been on a very good run this year and I think it’s natural that we’re maybe seeing some profit taking.

We’re still around 5% off the highs prior to the sell-off in the fourth quarter but compared to where we were around Christmas, that’s a positive not a negative. We’re seeing progress in trade talks between the US and China, another shutdown has been averted and the Fed has become considerably less hawkish. I don’t see reason to panic over one piece of bad data. Of course, people will now be more vigilant though, looking for further signs that all is not well on main street and it appears on Wall Street.

USD stalls and gold capitalises on weakness

The data on Thursday has clearly taken some of the spark out of the US dollar rally, a rally that prior to Thursday had suffered only one losing day in 10. Today the dollar is back trading in the green but only marginally. The dollar faces numerous headwinds now, including extra scrutiny of the data, a more dovish Fed and, of course, the trade talks between Washington and Beijing.

Gold Daily Chart

OANDA fxTrade Advanced Charting Platform

As we’ve seen on numerous occasions recently, gold was not so much dragged lower by the dollar rally but it did consolidate. As soon as the dollar displayed some weakness though, the yellow metal was on the rise again, finding itself back at the top end of the $1,300/$1,320 range. Gold bulls must feel very encouraged by this response having failed to see a real test of $1,300 throughout a challenging 10-day period.

DAX jumps as investors remain hopeful on US-China trade rift

Oil bulls getting excited?

Gold isn’t the only commodity that capitalised on the weaker dollar, with oil also seizing the opportunity to drive towards previous peaks and an area that could once again offer strong resistance. WTI crude is facing significant potential resistance around $55, a break of which could be the catalyst for a substantial move higher.

There’s a very mixed picture for oil on the fundamentals side, with record US output, slower global growth expectations and question marks around Russian compliance with the output cut acting as a major barrier to the upside for prices. The flipside of that though is the falling US oil rig numbers, commitment by OPEC+ to cut – which has been successful in the past – and Saudi Arabia’s commitment to go further and cut an extra 500,000 barrels. On top of that, risk appetite has been on the mend, which is supportive for prices. I guess we’ll see shortly which side the broader market is on.

Economic Calendar

For a look at all of today’s economic events, check out our economic calendar.

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The DAX has posted strong gains in the Friday session. Currently, the DAX is at 11,192, up 0.92% on the day. It’s a light day on the fundamental calendar, with no major releases. The eurozone trade surplus widened to EUR 15.6 billion, matching the estimate.

Economic growth in German and the eurozone has slowed, as underscored by disappointing GDP numbers this week. Nonetheless, investors remain optimistic, as the DAX has posted strong gains of 2.4% this week, erasing the losses from the previous week. German Preliminary GDP was flat at 0.0% in the fourth quarter, after a decline of 0.2% in the third quarter. The eurozone’s largest economy managed to avoid a technical recession, which is two consecutive declines in quarterly growth. Germany’s manufacturing industry is limping, with factory orders and industry production posting declines in December. Eurozone Flash GDP remained stuck at 0.2 in Q4%, shy of the forecast of 0.3%. On an annualized basis, fourth quarter growth was 0.9% in Germany and 1.2% in eurozone, both weaker than the third quarter numbers. If eurozone and German data remains soft in the first quarter, the DAX could lose ground.

The trade conflict between the U.S. and China has taken a toll on global growth and world stock markets, but investors are feeling more optimistic. A third round of talks ended in Beijing on Thursday, with Treasury Secretary Mnuchin calling them “productive”. Still, with no breakthrough in the offing, the big question is will President Trump suspend the March 1 deadline to impose new tariffs on China. The U.S. has threatened to raise tariffs on some $200 billion of Chinese goods from 10% to 25%, but Trump has said he could let the deadline pass if there is progress in the talks. On Thursday, China announced that exports had jumped 9.1% in January on an annualized basis, compared to the forecast of -3.2%. This was a strong rebound from December, when exports fell 4.4%.

Trade talks continue as Trump vows to build the wall

Investors shrug off May’s “humiliating” defeat

EUR/USD Fundamentals

Friday (February 15)

  • 5:00 Eurozone Trade Balance. Estimate 15.6B. Actual 15.6B

*All release times are DST

*Key events are in bold

DAX, Friday, February 15 at 6:25 EST

Previous Close: 11,089 Open: 11,041 Low: 11,017 High: 11,196 Close: 11,192

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

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EUR/USD has posted small losses in the Friday session. Currently, the pair is trading at 1.1273, down 0.19% on the day. On the release front, the eurozone trade surplus widened to EUR 15.6 billion, matching the estimate. In the U.S., the Empire State Manufacturing Index is expected to rise to 7.1 and UoM consumer sentiment is projected to climb to 93.3 points.

Economic activity in the eurozone remains weak, which has weighed on the euro. EUR/USD dipped to 1.1249 on Thursday, its lowest level since mid-November. On Thursday, Germany and the eurozone released fourth quarter GDP data, and the numbers were a disappointment. German Preliminary GDP was flat at 0.0%, after a decline of 0.2% in the third quarter. The eurozone’s largest economy managed to avoid a technical recession, which is two consecutive declines in quarterly growth. Germany’s manufacturing industry is limping, with factory orders and industry production posting declines in December. Eurozone Flash GDP remained stuck at 0.2%, shy of the forecast of 0.3%. On an annualized basis, fourth quarter growth was 0.9% in Germany and 1.2% in eurozone, both weaker than the third quarter numbers. If eurozone and German data continues to sag, traders can expect the euro to lose ground in the near term.

In the U.S., consumer data has been dismal in January. Retail sales and core retail sales showed sharp contraction, and these numbers came on the heels of soft inflation indicators. Inflation remains low, despite a solid U.S. economy and strong labor market. CPI showed no change in January, and has failed to post a gain since November. Core CPI has recorded weak gains of 0.2% for four successive months. On an annualized basis, CPI gained 1.6% in January, the weakest year-over-year gain since mid-2017. The soft inflation numbers were a result of low energy prices, which fell 3.1% in January as oil prices remain under pressure.

Trade talks continue as Trump vows to build the wall

Investors shrug off May’s “humiliating” defeat

EUR/USD Fundamentals

Friday (February 15)

  • 4:00 Italian Trade Balance. Estimate 3.47B. Actual 3.66B
  • 5:00 Eurozone Trade Balance. Estimate 15.6B. Actual 15.6B
  • 8:30 US Empire State Manufacturing Index. Estimate 7.1
  • 8:30 US Import Prices. Estimate -0.1%
  • 9:15 US Capacity Utilization Rate. Estimate 78.8%
  • 9:15 US Industrial Production. Estimate 0.1%
  • 10:00 US Preliminary UoM Consumer Sentiment. Estimate 93.3
  • 10:00 US Preliminary UoM Inflation Expectations. Estimate 2.7%
  • Tentative – US Mortgage Delinquencies
  • 4:00 US TIC Long-Term Purchases. Estimate 34.5B

*All release times are EST

*Key events are in bold

EUR/USD for Friday, February 15, 2019

EUR/USD for February 14 at 6:00 EST

Open: 1.1295 High: 1.1297 Low: 1.1272 Close: 1.1273

EUR/USD Technical

S1 S2 S1 R1 R2 R3
1.1046 1.1120 1.1212 1.1300 1.1434 1.1553

EUR/USD was mostly flat in the Asian session. The pair has shown limited movement in European trade

  • 1.1212 is providing support
  • 1.1300 is a weak line
  • Current range: 1.1212 to 1.1300

Further levels in both directions:

  • Below: 1.1212, 1.1120 and 1.1046
  • Above: 1.1300, 1.1434, 1.1553 and 1.1685

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

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May’s defeat nothing more than posturing in Parliament

Softer sessions in the US and Asia overnight appear to be taking their toll on European markets ahead of the open, with indices expected to open a little lower on the final trading day of the week.

As much as Brexit may feel like the most important thing in the world right now to those of us sitting in the UK, I don’t think the wider community is quite so caught up in all the play-acting and faux drama. Theresa May’s so-called humiliating defeat in Parliament on Thursday was just the latest in a series of symbolic gestures designed to give the allusion of weakness of the PMs deal unless Brussels offers more substantial concessions. It is in no way indicative of how MPs will vote at a minute to midnight when it matters.

This kind of political posturing has been a regular feature of the negotiations over the last couple of years and has been significantly ramped up in recent months as MPs have been given the opportunity to express their views and make statements in Parliament. I’m not sure it will be too effective in negotiations with Brussels but perhaps we’ll find out the closer we get to the end of March. It’s clear that the EU does not take the threat of no deal very seriously and moves like this are deliberately designed to force them to. I’m not convinced it will.

No news means no risk appetite

Will Xi involvement be the catalyst for a truce extension

Negotiations in Beijing are likely to attract more of the attention of the investing community as President Xi joins the talks in an attempt to deliver the kind of progress that will ensure a 60 day extension to the truce. A deal after only 90 days of talks was always unlikely making this the more realistic target from day one, something that if achieved will reassure investors.

Gold remains in $1,300/$1,320 range despite weaker dollar

The risk aversion we saw on Thursday in response to the weaker US retail sales data gave gold a little kick higher, with its role as a safe haven seeing it favoured. This was of course helped by a weaker dollar in response to the figures but gold remained in the $1,300 to $1,320 range as neither bulls or bears managed again to significantly seize the upper hand.

Trade talks continue as Trump vows to build the wall

Oil strongly pushing major resistance

Oil has previously struggled during previous periods of risk aversion but, like its fellow commodities, is fond of a weaker dollar and is continuing to respond to favourable reports this week, including Saudi Arabia’s commitment to cutting output by an additional 500,000 barrels per day by March. Brent and WTI are both now seriously testing a major resistance zone, around $65 and $55, respectively, the break of which could be the catalyst for another rally.

Oil (WTI and Brent) Daily Chart

OANDA fxTrade Advanced Charting Platform Economic Calendar

For a look at all of today’s economic events, check out our economic calendar.

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