FxWirePro: The victims of oil-driven currencies on streaks of tumbling prices

The global crude prices improved mildly on today morning, after falling to their lowest level in around ten months a day earlier amid lingering concerns over strong shale output growth in the U.S.

The price dips in oil prices likely to prolong, with US WTI prices touching USD 42/bbl at one point yesterday, and Brent at USD 44.3 this morning. The CRB index overall is keeping up with the oil move. Furthermore, as soft commodities remain under pressure. Cocoa prices are testing 10year lows and if the recent trend in sugar prices continues, they’ll get to multi-year lows before long too.

If 10year real yields have a base at 30bp and a descending resistance line currently at 50bp, USDJPY looks as though it has major support at 108 but resistance currently around 112. If 10yr nominal US yields fall in the coming days tor e-test the year’s low at 2.12%, we may well see USDJPY re-test that 108 support before it can once again move up towards the top end of its range.

One possible positive for yen bears is that bond and equity outflows from Japan are resuming. In the last three months, net outflows have been running at an annualized rate of almost Y5trn.

As per Societe Generale, the victims in FX-land of the falling oil price have been the RUB, down 4% since the end of last week against the dollar and even managing to fall further than the ISK; the COP and MXN are both suffering from weaker oil, though not quite as much.

In G10, NOK and CAD have been more resilient, though both have lost 0.8% and while we think that resilience reflects a stronger long-term story, they will track further falls in oil prices if that’s what comes their way.

Well, as per this week’s report, the bullish view was lingering for global crude and gasoline but bearish for distillates. Overall, commercial crude and products (combined) drew by a modest 1.9 Mb to 1351.3 Mb. Crude stocks drew 2.5 Mb, driven by high crude runs. Despite last week's downtick, runs have been sustained above 17.10 Mb/d for the past 6 weeks. The IEA explained in their latest oil market report that runs could be sustained at recent elevated levels if US refiners continue to process more domestic light crude; these crudes put less stress on the secondary units that tend to break down more easily.