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Latest signs from oil & British Pound Ahead of Yellen Speech

by Ashraf Laidi

Our scepticism over the recent recovery in the US dollar seems to be vindicated as the shaky euro recovers on a combination of robust PMI index figures from France and Germany as well as the release of the minutes of the Fed’s April meeting. Now markets turn to into Fed Chair Yellen’s important Friday speech.

Oil struggles to save 2-month trendine

The rallying US dollar had complicated matters for US crude oil to hold its two-month trendline support despite figures of bigger than expected draws in US crude inventories oil.

Tuesday’s release of inventory data from the American Petroleum Institute showed US oil stocks dipping by 5 mln barrels last week, well above expectations of a 1mn drop. Today’s release of the Energy Information Administration crude oil inventories also showed a greater than expected decline last week, with 2.7 mln barrels drawn following the prior week’s build of 5.0 mln barrels. Markets had been expecting a draw of merely 730,000 barrels.

Oil’s Tuesday losses also accelerated ahead of Tuesday's expiry in crude's front-month contract, as traders exited the June contract to enter the new front-month contract (July) on Wednesday. The combination of resurging USD rally and data showing both of the US and Saudi Arabia pumping more oil than was demanded also weighed on oil.

The varying technical picture for US crude and brent oil suggests upcoming support emerging at $58.50 and $62.50 respectively. Further upside is seen from here.

Bank of England Minutes and UK retail sales extend GBP recovery

GBP extends recovery above $1.5600 stronger than expected April retail sales follow a hawkish minutes from the May Bank of England decision. Sales increased 1.2%, the biggest rise since April 2011, well above expectations for a 0.4% rise. The report dampens concerns that consumers were delaying purchases due to expectations that prices will remain low, following the release of the first contraction in inflation since 1960.

On to Yellen’s Crucial Friday speech

Wednesday’s release of the minutes from the April 28-29 Federal Reserve decision reminded that the central bank highlighted its data dependence guidance and qualified each subsequent meeting as potentially live event for rate liftoff.

USD fell across the board after the Fed noted a June rate hike was not likely. USD optimists will want to see a more protracted return to data upside in the US, namely, Friday’s April inflation release and Fed Chair Yellen’s speech on Friday. Yellen’s assessment with regards to recent data disappointments and yield tightening will be crucial.

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