The following is based on research from Arnaud Masset, market analyst at Swissquote Bank and from Yann Quelenn, market analyst. More of Arnaud’s research can be seen at Swissquote’s website.
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Arnaud Masset, Swissquote
Oil prices collapsed on Monday after major oil producers failed on Sunday to agree to an output freeze. The West Texas Intermediate (WTI) fell 4.73% to $38.45 a barrel, while the international gauge, the Brent crude, collapsed 4.64% to $41.10 a barrel. Over the last few days, oil prices have been trading sideways as markets anticipated tough negotiations, with WTI tumbling on the $42-$43 resistance area. Even though the failure of the Doha negotiations highlighted the inability of the major oil producers to find a common ground and more specifically between Iran and Saudi Arabia, we do not believe that this could push crude oil prices further to the downside as nothing has really changed in the big picture.
The risk sentiment deteriorate on Monday after the news of no deal. Equities were sold off in Asia as investors fled to safe haven assets such as the Japanese yen and the Swiss franc, to a certain extend. IN Japan, the Nikkei and the Topix index slid 3.33% and 3.03% respectively, while in mainland China the CSI 300 tumbled 1.35%. Hong Kong’s Hang Seng fell 1.37% and Singapore’s STI slipped 0.70%. In Europe, equity futures were also blinking red across the screen, with the Footsie down -1.07%, the DAX -1.25% and the SMI -0.72%.
In Brazil, after three days of debate the lower house of congress voted on Sunday to impeach Dilma Rousseff. The Chamber of Deputies voted 367 versus 137 to move towards with the impeachment proceedings. The Senate will now have to vote to go ahead with a trial – a simple majority out of the 81 members is required. In the meantime, President Rousseff still appeal to the Supreme Court; however we believe that Brazil’s highest court will no act against the majority of Brazilian people who are asking to oust Rousseff. Brazilian assets will most likely react positively to the news but we expect the overall risk-off sentiment to cap the potential gains. The Brazilian real should also open higher with USD/BRL mostly likely opening below the 3.50 threshold. However, we do not expect the pair to move substantially lower as there is absolutely no guarantee that the new government – in the event of a successful impeachment – will be able to pass the austerity bills that investors have been asking for months.
In such an environment, the Japanese yen extended gains in overnight trading as USD/JPY gapped at open down to 108. The pair is now heading towards the next support that stands at 107.63 (low from April 11th). Further south another support can be found at 105.23 (low from October 15th last year).
Today’s economic calendar is light, traders will be watching total sight deposits from Switzerland; weekly trade balance from Brazil; Fed’s Dudley and Kashkari’s speech from the US.
For Swissquote Sqore Trade Ideas see https://en.swissquote.com/fx/news/sqore