Oil, USD/JPY Forecast: Two Trades to Watch

Oil extraction
Fiona Cincotta
By :  ,  Senior Market Analyst

Oil rises above $90 after upbeat Chinese data & more stimulus

  • China retail sales & industrial output beat forecasts
  • China sees record refining rates
  • Oil is still deeply overbought

Oil prices are on the rise, pushing above $90 a barrel overnight for the first time in 2023. Oil prices are set to book a weekly gain of around 3%, marking the third straight week of gains. Oil prices have risen just shy of 15% since the August 24 low and have risen 25% since the end of July. The latest leg higher comes following a round of stronger-than-expected data from China and reports of record oil consumption, and refining rates, supporting the view that oil demand in the world's second-largest economy will continue to rise.

China posted stronger-than-expected industrial output, and retail sales grew at the fastest rate since April adding to evidence that China's economy is stabilizing after a period of slower growth.

Data from the National Bureau showed the oil refinery process rose to a record 64.69 million tonnes, up almost 20% a year earlier.

Record China refining rates come as supply in the oil markets remains tight. Both Russia and Saudi Arabia extending voluntary supply cuts until the end of the year means that the oil market is likely to remain tight across the coming quarters.

Looking ahead, attention will be on the Baker Hughes rig count data as well as US consumer confidence.

The US dollar hovering around a 6-month high could limit the upside for oil, as it makes oil more expensive for buyers with other currencies.

Oil forecast – technical analysis

Oil has risen above $90 for the first time since November 2022 and trades above a steep rising trendline. However, the RSI is deep in overbought territory and has been overbought for much of September. Buyers should be wary of a pullback.

Should the price struggle to push much beyond 90.00, a pullback towards 85.00 could be on the cards.

Meanwhile, buyers will keep their eyes on resistance at 93.20, the November high.



USD/JPY rises ahead of US consumer confidence

  • JPY slips in risk-on trade
  • US consumer confidence is expected to ease to 69.1 from 69.5
  • USD/JPY tests 2023 ceiling

USD/JPY Is rising for a fourth straight day, heading toward the 2023 high and recouping losses from Monday.

The boost to the yen at the start of the week after BoJ’s Governor Kazuo Ueda hinted towards the end of negative rates has worn off, and the yen has weakened back to a 10-month low. The risk on mood after upbeat Chinese data is keeping the safe haven yen out of favour.

The US dollar index is falling, but the US dollar is rising versus the yen as investors look ahead to U.S. consumer confidence data. A strong reading could be a positive signal for the US economic outlook and fuel expectations of higher consumer spending.

The data comes after US retail sales rose by more than expected in August, increasing by 0.6% MoM, and after producer prices (PPI) rose by the most since June 2022. However, core PPI was in line with estimates at 0.2%.

Recent upbeat data from the US has highlighted the resilience of the economy. The data didn't lift Federal Reserve rate hike expectations. However, it does support the Fed's view of high rates for longer.

Looking ahead to next week both the Federal Reserve and the BoJ are due to release interest rate decisions. Neither are expected to hike rates. However, any comments surrounding the future path of interest rates will be watched closely.

USD/JPY forecast -technical analysis

USD/JPY continues to trade in its ascending channel, guided higher by the 20 sma. The price continues to test resistance at 147.80. The RSI supports further gains.

Buyers will look for a rise above 147.80 to extend gains to 148.00 round number and 148.80 the November high.

Failure to rise above 147.80 could see the price fall to the 20 sma at 146.65 before testing the weekly low at 145.90. A break below here brings145.00 the June high back into play.

usd/usd forecast chart


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