WTI Crude was vulnerable to losses on Monday with prices challenging $47 as Iraq’s ongoing quest to reclaiming market share dampened expectations over the possibility of September’s informal OPEC meeting concluding with a freeze deal. Oil’s weakness was complimented with Dollar’s resurgence from the renewed hopes over the Federal Reserve raising US interest rates in 2016. It is becoming increasingly clear that the explosive movements observed in oil were powered by sentiment rather than fundamentals which question the sustainability of the rally. Inflated expectations over OPEC securing a freeze deal enticed bullish investors to attack while oil price sensitivity intensified the speculative boosts in prices. Although the gains were undeniably impressive, WTI still remains fundamentally bearish with concerns over the excessive oversupply haunting investor attraction.

Saudi Arabia has already suggested that intervention in the markets may not be needed and such may have thrown a wrench into the clockworks. Although OPEC has skillfully exploited the oil price sensitivity to create explosive appreciations in oil this could come at a cost. The cartel remains notorious for holding meetings which conclude with investors left empty handed and if September follows the same pattern then WTI could be open to steep losses. From a technical standpoint, a strong breakdown below $46 could open a path towards $44.

The BoJ pressured to act

The Bank of Japan remains under pressure to act, as the combination of soft domestic data and a strengthening Yen amid risk aversion weigh heavily on the Japanese economy. Inflation continues to follow a negative path while global developments have exposed the nation to downside risks. Bank of Japan Governor Haruhiko Kuroda has pledged to boost monetary stimulus if needed, but with a history of under delivering monetary measures is the market listening?

The previous expectations of Helicopter money have been discounted with the central bank potentially funding infrastructure projects in a bid to jumpstart economic growth. With speculations still mounting over the BoJ easing monetary policy further in an attempt to regain economic stability, the Yen was open to losses on Monday. Overall, sentiment still remains bearish towards Japan with the Yen trapped in a fierce tug of war against risk aversion and optimism over the BoJ unleashing further monetary measures.

The USDJPY experienced a sharp incline last week with Dollar’s resurgence acting as a driving force. Prices are trading above the daily 20 SMA but the MACD still trades to the downside. A sharp breakout above 102.50 could encourage buyers to send the USDJPY towards 103.50.

Written by Lukman Otunuga from FXTM

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