US markets finished on the back foot yesterday after oil prices slid sharply after a surprise build in inventories saw the recent rebound go into reverse gear.

With the latest OPEC data showing that Saudi Arabia posted record output in July it became clear that for all the chatter about a production freeze, and predictions of higher demand that any agreement would have to overcome significant hurdles from the main swing producers, which at this moment appears unlikely. Russia has already ruled out a move this week and given Saudi is pumping at a record rate it would seem unlikely that Iran would be prepared to step back from its ambition to get production back to its pre sanction levels of nearly 4m barrels a day.

It could well be that the recent narrative that provoked the recent rebound in prices was merely an attempt to try and put a floor under the price at $40, after the sharp drops in prices seen in July. That’s a narrative that could face a further test if yesterday’s slide gains additional momentum, and retests the recent lows near $40.

European markets look set to open mixed following on from these US declines after a rather mixed session yesterday, with the FTSE100 managing to finish the day higher, largely as a result of a weak pound, as the Bank of England put aside the failed gilt auction of Tuesday to cover fully their auction of yesterday.

Overnight in Asia the RBNZ became the latest central bank to ease monetary policy again, cutting interest rates to another record low of 2% from 2.25%, in the process sending the New Zealand dollar sharply higher, in pretty much the same fashion as the recent RBA rate cut sent the Australian dollar sharply higher.

It would appear that despite these attempts by the smaller central banks to weaken their currencies, the fact that investors remain convinced that the Federal Reserve will be reluctant to raise rates even if they want to, is outweighing their wish to have a lower currency. This week’s weak US productivity data, for the third quarter in succession, appears to have undermined the bullishness of last week’s bumper payrolls report.

On a light data day the main focus is set to be on the latest US weekly jobless claims which are expected to come in at 272k, while import prices for July are expected to decline 0.2% reinforcing the fact that price pressures remain subdued.

EURUSD – continues to range trade above the 1.1040 level but has run into resistance around the 1.1200 area. We remain stuck in the same broad 1.0950/1.1250 range. We need a move beyond 1.1250 to open up a retest of the June highs at 1.1400.

GBPUSD – despite rebounding towards 1.3100 the pound struggled to maintain any of the rebound, and barely managed to close above 1.3000, though we did manage to break the sequence of daily losses. A revisit of the lows continues to remain a risk. We need to see a recovery back through the 1.3060 area to stabilise and signal a move back towards 1.3200.

EURGBP – continues to close in on the 0.8610 area, a break of which could see a move towards 0.8705, 61.8% retracement of the 0.9805/0.6935 down move. Support now comes in at the 0.8490 area, with a fall below here arguing for a move back towards 0.8420.

USDJPY – having failed at the 102.70 earlier this week we could slip back towards the recent support at 100.60. As long as we stay above here then we could break higher towards 103.50. The risk remains for a move back towards the lows at 98.90 on a break below the July lows at 99.99.

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