Today, the initial deadline given to Qatar to comply with a list of 13 demands expires. Nevertheless, Saudi Arabia, the UAE, Bahrain and Egypt agreed to extend that deadline by 48 hours.
If the Arab nations manage to reach an accord within 48 hours, sanctions imposed to Qatar earlier in June are likely to be lifted. It is not clear though what happens if Qatar continues to reject the demands. Saudi Arabia and the others may agree on further sanctions, although those are not clear yet.
UAE Foreign Minister played down the chances of an escalation by saying that ‘the alternative is not escalation, but parting ways’, suggesting that Qatar may be forced out of the Gulf Cooperation Council (GCC). However, in the unlikely event that the situation does escalate, investors’ risk appetite may be impacted, with safe haven assets likely to be the main beneficiaries. Oil prices could gain in the short-term as well, as the risk of supply disruptions would likely increase.
WTI traded higher on Friday after data showed that US crude production declined the week ended on June 23rd. The price emerged above the resistance (now turned into support) territory of 45.35 (S1) and now looks to be headed for a test near 46.70 (R1). Last Tuesday, the price broke above the downtrend line taken from the peak of the 29th of May, something that turned the short-term outlook positive in our view. Therefore, we would expect a decisive break above 46.70 (R1) to set the stage for extensions towards our next resistance territory of 48.50 (R2).
RBA to stand pat; could appear slightly more optimistic
During the Asian morning Tuesday, the RBA will announce its rate decision and the forecast is for the Bank to hold its policy unchanged. In recent gatherings, officials maintained a neutral tone overall, but appeared somewhat worried with regards to the labor market. However, the two latest employment reports from Australia have been stellar, which make us believe that policymakers are likely to tone down their concerns at this meeting. Having said that though, we don’t expect any dramatic shift in rhetoric, but rather a slightly more upbeat tone, as the RBA will probably want to examine more than a couple of months’ worth of data before making material changes to its bias. If indeed the Bank appears somewhat more sanguine than previously, the Aussie could come under renewed buying interest.
AUD/USD slid somewhat on Friday, after it hit resistance at 0.7710 (R1), slightly below the longer-term downside resistance line taken from the peak of the 21st of April 2016. Bearing in mind that the rate continues to trade above the short-term uptrend line taken from the low of the 2nd of June, we consider the near-term outlook to be positive. Nevertheless, a lot will depend on the RBA decision tonight. If the Bank adopts a more optimistic tone, the pair may rebound and aim for another test near 0.7710 (R1). A break above that barrier and the aforementioned longer-term downside resistance line could open the way for our next resistance of 0.7750 (R2), defined by the peak of the 21st of March. On the other hand, if Australian policymakers disappoint those who expect a somewhat more upbeat language, the pair could fall back below 0.7665 (S1), and may target the crossroad of the 0.7635 (S2) support and the uptrend line taken from the low of the 2nd of June.
As for today’s events:
From Eurozone, we get the final manufacturing PMIs from several European nations and the Eurozone as whole. The final figures are expected to confirm the preliminary estimates and as such, no major response is expected from the euro. We get the manufacturing PMI from the UK as well. The forecast is for the index to have slid, which could weigh on the pound as it could pour some cold water on market expectations regarding a BoE rate hike at one of the upcoming meetings. In the US, the ISM manufacturing PMI for June is expected to have ticked up. However, taking a look at the preliminary Markit manufacturing PMI for the month, we believe that the risks surrounding the ISM index are tilted to the downside. Markets will stay closed in Canada in Celebration of Canada Day, and will close early in the US ahead of Independence Day.
We have two important speakers on today’s agenda: BoE Governor Mark Carney and BoE MPC member Andy Haldane. Following their recent hawkish speeches, we will monitor their comments closely.
As for the rest of the week:
On Tuesday, besides the RBA, the Riksbank also decides on monetary policy. We expect this Bank to shift to a more optimistic tone as well. In fact, we would not rule out the prospect that the Riksbank follows in the recent footsteps of the Norges Bank and the ECB, by also removing its interest rate easing bias. On Wednesday, the Fed releases the minutes of its June policy gathering, where the Committee raised the Federal funds rate by 25bps. In our view, market participants will dig into the minutes for more details on the timing of the balance sheet normalization, as well as any discussion with regards to the timing of the next rate increase. We also have the new Qatar deadline. On Thursday, we get the ADP employment report for June, one day ahead of the official jobs data. Finally on Friday, all eyes will be on the US employment report for June. The report is expected to be robust, which could confirm the Fed’s view that the recent softness in economic data is transitory and could bring forth market expectations with regards to the next hike.
WTI
Support: 45.35 (S1), 44.65 (S2), 43.80 (S3)
Resistance: 46.70 (R1), 48.50 (R2), 49.30 (R3)
AUD/USD
Support: 0.7665 (S1), 0.7635 (S2), 0.7580 (S3)
Resistance: 0.7710 (R1), 0.7750 (R2), 0.7800 (R3)
