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Analysis

OPEC cuts production, oil gaps up by 7.5%

BY Janne Muta

|April 3, 2023

USOIL gapped higher by 7.5% at the open on Monday’s trading as OPEC said Sunday they would cut production by over a million barrels per day. The output cuts are due to start in May. This comes on top of a reduction of 2 million barrels per the oil cartel agreed in October. All in all, the cuts equal about 3% of the global oil production over a seven-month period.

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Equities finished the month with a decent rally after a stormy period during which investors were scared about the banking crisis, the Fed, and high inflation. The Fed’s favourite inflation gauge, known as the core personal consumption expenditures price index (PCE), ticked lower in February. This strengthened hopes the Fed could slow its campaign to fight inflation sooner than originally expected. The S&P 500 rallied 1.39% while DJ closed up 1.42% and Nasdaq climbed 1.69%.

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DJ

Let's take a look at the big picture in DJ. The market has practically reached the march highs. It was not far from the current price, at the 33 530 level, that the market found support in February and then the same level provided acted as a resistance. Now it remains to be seen whether the DJ will push through the level this time.

In a two-hour chart, the nearest support is at 32 930. Should the market retrace (due to the March highs being so close nearby) I expect the 32 930 area to attract short covering. On the upside, the nearest key resistance level is the 33 530 level. Therefore, the upside could be getting limited, at least in the short term.

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NAS

NAS rallied to 13 200 and remains bullish above 12 960. Above this level look for a move to 13 360 but only if the momentum is on your side. Below the 12 960 level, the market could trade to 12 860.

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DAX

Dax rallied to March highs. The market could be vulnerable to profit-taking in general around the March peak. The market remains bullish above 15 500 and could at first trade to 15 830 and then to the 16 000 - 16 100 range on extension. Below 15 500 DAX could trade down to 15 400 or so.

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USOIL

Crude oil futures have retraced some of the sizeable gap the market created in reaction to OPEC's decision to cut production by million barrels per day. In the USOIL chart, there’s no visible gap but the underlying market price (CFDs track the futures market) gapped up strongly this morning.

The market is short-term bearish below 80 dollars and could move down to close the gap (in CFD chart at 75.71). If this happens look for signs of short-covering and speculative buying near the gap open level. If however, the bulls push the market decisively above 80 the technical change. Above the 80 level, the market is likely to trade to 80.55.

Production cuts are likely to lead to a longer-term rally in oil prices. Therefore potential weakness today is likely to be an intraday trading opportunity and swing traders should therefore prepare for opportunities on the long side if they see evidence to support the bull case.

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EURUSD

EURUSD created a double top in the 4h chart. As a result, the support at 1.0823 was violated. Now the market trades once again above the level but if the rally fails below 1.0892 further weakness is likely. If the market starts to create higher lows above 1.0823, look for a move to 1.0920 or so.

The Next Main Risk Events

  • USOIL OPEC-JMMC Meetings
  • USD ISM Manufacturing PMI
  • USD ISM Manufacturing Prices
  • CAD BOC Business Outlook Survey
  • AUD Cash Rate
  • AUD RBA Rate Statement
  • USD JOLTS Job Openings
  • NZD Official Cash Rate
  • NZD RBNZ Rate Statement
  • AUD RBA Gov Lowe Speaks
  • USD ADP Non-Farm Employment Change
  • USD ISM Services PMI
  • CAD Employment Change
  • CAD Unemployment Rate
  • USD Unemployment Claims
  • CAD Ivey PMI
  • USD Average Hourly Earnings m/m
  • USD Non-Farm Employment Change
  • USD Unemployment Rate

For more information and details see the TIOmarkets economic calendar.

Trade Safe!

Janne Muta
Chief Market Analyst
TIOmarkets.com

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Janne Muta

Janne Muta holds an M.Sc in finance and has over 20 years experience in analysing and trading the financial markets.

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