Large speculators reduce exposure to crude oil futures – Rabobank

Eren Sengezer FXStreet

Commenting on the sharp drop witnessed in crude oil prices, "oil markets were hit by waves of selling pressure this week as short-term systematic funds pivoted from liquidating “long” oil futures positions to building outright “short” positions," noted Rabobank analysts.

Key quotes

"Medium-term momentum signals are also at risk of flipping from "long" to "short" over the coming days should prices continue to weaken, which could bring another wave of aggressive systematic selling to the oil market before the pressure subsides. As such, we are attributing a large portion of the recent fall in oil prices to the herd-like behavior of systematic funds rather than to any material shift in the fundamental outlook for oil markets."

"Large speculators and particularly systematic funds have dramatically reduced their “long” oil futures exposure in recent weeks. In fact, the combined net managed money position for ICE Brent and Nymex WTI is now looking quite low by most metrics, and especially in light of the still strong positive roll-yield currently implied by the forward curves."

"Looking forward, we see oil prices strengthening into year-end despite the recent washout of systematic traders. Further to that end, the reduction in oil exposure by large money managers is setting the stage for a potential “short” covering rally to ensue, especially given the news that Saudi Arabia could pause or slow the pace of the planned production increases into year-end."

Author

Eren Sengezer

FXStreet

As an economist at heart, Eren Sengezer specializes in the assessment of the short-term and long-term impacts of macroeconomic data, central bank policies and political developments on financial assets.

GBP/USD slides below 1.3250 after failing to break through 23.6% Fibo

The GBP/USD pair meets with a fresh supply during the Asian session on Wednesday and moves away from a nearly two-week high around the 1.3275 region, touched the previous day. Spot prices currently trade around the 1.3235 zone, down 0.20% for the day, as traders look to speeches from Bank of England Governor Andrew Bailey and Federal Reserve Chair Kevin Warsh for a fresh impetus.

EUR/USD tests daily lows near 1.1380; focus on ECB Forum

EUR/USD remains under pressure below 1.1400 on Wednesday amid extra gains in the US Dollar. In addition, softer-than-expected inflation data in Germany and the Euroland fuel expectations of a less aggressive ECB, contributing to the downside mood.

Gold clings to daily gains beyond $4,000 ahead of Warsh

Gold manages to regain composure and advance past the key $4,000 per troy ounce on Wednesday, reversing two daily drops in a row. The yellow metal’s decent bounce comes despite uncertainty surrounding Iran and growing expectations of a Fed rate hike continue to support the Greenback for now.

ISM Manufacturing PMI expected to signal continued expansion in the US

Attention shifts to Wednesday’s release of the June ISM Manufacturing Purchasing Managers Index, one of the most closely followed indicators of activity in the US manufacturing sector and an important barometer of the broader economy. Markets expect the headline index to remain unchanged at 54.

Kevin Warsh isn't expected to say much in Sintra: That's exactly why markets will listen

Financial markets could find an important catalyst in the enchanting, fairytale-like landscape of Sintra this week. The European Central Bank Forum will, as it does every year, gather the crème de la crème of central banks. The new boss at the Federal Reserve, who has clearly said that the Fed should stop explaining everything, will need to talk – and traders should listen.

Just like Fed, is BoJ’s independence under threat?

When talking about central bank independence, most of the focus has been on Donald Trump’s pressure on the Federal Reserve. But a similar story, a quieter one for now, seems to be happening on the other side of the Pacific: Japan’s government may be testing the Bank of Japan’s independence.