Oil prices have continue to oscillate back and forth as concerns about oversupply get offset by economic data that on the face of it still remains more on the good side than bad, while jawboning from Russia about its willingness to talk about some form of deal with other oil producers about output reductions, continues to keep traders off balance, and has sent oil surging in the last 24 hours. The latest US inventory data didn’t contain any surprises, only reinforcing the narrative of an oversupplied market as stockpiles hit their highest levels since 1930 at 500m barrels, yet interestingly oil prices managed to finish the day sharply higher, due to a sharp slide in the US dollar. The size of yesterday’s record inventory numbers also raises an interesting question, in that if an inventory build of that nature can’t send oil lower then what will, raising the possibility that we may already have seen a short term base. If that turns out to be the case then we could well see a lot of hasty revisions to oil price targets, if we manage to break through the peaks we saw last week. Yesterday’s services PMI numbers from China and Europe more broadly point to a story of steady but slowing unspectacular levels of expansion, set against a back drop of central bankers who appear intent on pressing the pedal to the metal in terms of further monetary expansion. Bank of Japan governor Kuroda followed in the footsteps of ECB President Mario Draghi by stating that there were no limits to the steps the central bank could take to meet its inflation target, as this central bank game of pass the monetary stimulus parcel keeps on going. Yesterday’s comments from William Dudley of the New York Fed coming on the back of earlier comments from deputy Fed Chairman Stanley Fischer earlier in the week point to an increase in anxiety on the FOMC about a tightening of monetary conditions, the effect of a strong US dollar, and the slowdown in global growth prospects, which could keep the Fed on the side-lines in the short and medium term. It would appear that these comments provided the catalyst for yesterday’s slide in the US dollar and rebound in oil prices, which in turn helped provide the catalyst for last night’s rebound in US stock markets. It is this rebound late yesterday that looks set to help European markets open sharply higher this morning, and could also provide a catalyst for energy stocks as well. One of the overarching themes from this latest reporting season, apart from some high profile losses, has been one of job losses from not only oil and gas producers, but also banks and some retailers, which rather begs the question as to when these reductions in staffing levels start translating into the headline unemployment numbers, and whether there is an offset in other sectors, where employment prospects are increasing. It is these questions that appear to be concentrating minds as we look ahead to tomorrow’s US employment report at a time when both January ISM survey’s showed sharp slowdowns in the employment components for both the manufacturing and services sector. Today’s Bank of England meeting and quarterly inflation report is expected to reinforce this low interest rate narrative with downgrades to both inflation and growth forecasts expected in light of the sharp declines seen in oil prices since the November bulletin, however one should guard against a too dovish narrative given how far market expectations are for when interest rate rises are expected to rise. These are currently set out into 2017 with even some talk of a potential rate cut, which given recent data seems way too pessimistic. Given that and the fairly robust economic data it would not be surprising to see these risks played down, particularly given how short of sterling some market participants currently are. EURUSD – the euro broke out yesterday hauling itself above the 200 day MA with the potential to move towards 1.1200, and on to 1.1400. We need to stay above the 100 day MA at 1.0970 to keep the upward momentum intact. GBPUSD – continues to make progress above the 1.4350 area on the way to a potential retest of the 1.4800 area. Having seemingly found a short term floor at the 1.4220/30 area we also have support at 1.4350. EURGBP – continue to remain stuck in a range either side of the 0.7600 level, with support at 0.7520 and resistance at 0 7660. As long as we hold above 0.7480 the risk remains for a return to the 200 week MA at the 0.7900 level. USDJPY – having unexpectedly fallen back below the 118.20 level we now look set for a retest of the 116.00 lows after the failure at the 200 day MA at 121.60 CMC Markets is an execution only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. 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