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Oil falls to three-month lows

By Margaret Yang, CMC Markets 

A mixed opening on Monday set a cautious tone, as traders tend to take less risk ahead of BOJ and FOMC meetings, which take place at the end of this week. The market has put high expectations on the BOJ to carry out a massive stimulus package to boost the economy after Shinzo Abe’s victory in the Japanese elections early this month.

Expectations have been priced in and thus leave the market susceptible to any form of shock. The odds are that if the BOJ chooses to hold fire this time, expectations will unwind quickly, resulting in fast selling in equities and a surging yen.

Crude oil has extended its losses as the US dollar rises further. The WTI crude oil Sep contract fished at a three-month low of $43.05. The inventory remains high albeit that the peak of summer driving season has come to an end.

USD/JPY has fallen sharply to the 105.00 area, with immediate support and resistance levels at 103.50 and 107.60 respectively.

AUD/USD is trending downwards, as basic metal prices continue to fall. The market is also pricing in the possible effect of a rate cut by the RBA at the next meeting in early Aug.

USD/CNH rebounded for a third day to around the 6.6880 mark following the big plunge  last Wednesday, which was believed to be an intervention by the central bank to support renminbi. Immediate support and resistance levels for USD/CNH are at 6.6600 and 6.7100 respectively.

Singapore’s Straits Times Index ended the day 15 points, or 0.5% lower. 2Q earnings results have been mixed so far. Analysts were also concerned about banks’ profitability amid low oil prices and compressed net interest margin, due to lower interest rates. OCBC and UOB bank will report their earnings this Thursday, 28th July, DBS on 8th Aug.

Crude Oil West Texas Sep 2016

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Margaret Yang Yan, CFA, is a market analyst for CMC Markets Singapore.