Oil prices soaring after a drone attack

Hi Everyone,

Market sentiment has taken a turn to dovish last week with a number of key interest rates decisively moving higher across a number of developed economies. Outflow of capital from risk assets have pushed risk assets lower with Nasdaq-100 slipping -1.9%, S&P 500 losing -0.8% and Russell 2000 sliding -0.4%. US dollar, measured as DXY, has gained a whooping 1.2% while gold slid -1.8%. Oil was up 7.7% last week.

Oil price soared after an attack on the world’s largest terminal in Saudi Arabia on Sunday. Oil futures are up +1.25% as of March 8th, touching

U$ 67.9 level. The Ras Tanura storage tank, with capacity to process 6.5 million barrels a day, was targeted on Sunday by drone from the sea. The output appears to be unaffected, as per the Kingdom’s spokesperson. Oil’s rally accelerated 7.7% last week after a surprise announcement from OPEC and its allies to keep production steady for April, with only Russia and Kazakhstan allowed to increase production. Oil price jumped 4.8% after the announcement, breaking resistance level near U$ 63.3. West Texas Intermediate has now recovered to U$ 66.9, wiping off 2020 losses. Oil has benefitted from a plethora of catalysts last year, from the Blue Wave in the U.S., to a rapid vaccination rollout in a number of developed countries. Oil price, measured as USOIL, has been in an upward trend since November when momentum indicators turned bullish on the daily chart. Price has found support at 8-day and 21-day moving average levels, signaling a strong upward momentum. We see an area of interest near U$ 73.5 to 74.5 offering strong resistance.

Oil, like other commodities, have benefitted from re-opening and vaccination rollouts as investors are banking on rapid economic recovery. CRB, or Commodities Research Bureau Index consisting of mostly energy and agriculture contracts, has recovered to U$ 193.4, level last seen in October 2018. Increase in commodity prices are expected to put a pressure on consumer and manufacturing companies that spend more than 40% of their revenues on raw materials. With the current gap in the labor market as 9.5 million people are unemployed in the States and another 10 million on extended benefits, there is little room to pass on the increased costs to consumers. Historical data confirms that – only 20% of price increase in the CRB index has been passed through to CPI. Increase in commodities prices, however, has deepened the narrative of higher inflation. A key interest rate, U.S. Treasury 10-year yield, has spiked to 1.6% – level last seen in February 2020. Also, the yield spread between 2-year and 10-year Treasury notes has stretched to 1.5% which is the highest since November 2015. Higher spread is interpreted as the market’s expectation of faster recovery, and potentially higher interest rates on the short end. Higher 10-year UST yield, also commonly used as a benchmark for risk-free return, has bolstered the US dollar. USD, measured as DXY, has broken a number of key resistance levels and is currently near U$ 92.2. Technical indicators support USD’s march higher, with resistance levels near and U$ 92.3 and U$ 93.0.

Have a great trading week ahead!

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In The Spotlight

DateCurrencyEventPrevious Consensus 
MondayGBPBoE Governor Bailey speech
MondayJPYGDP (QoQ) – Q43.0%3.0%
TuesdayEURGDP (QoQ) – Q4-0.6%-0.6%
TuesdayAUDRBA’s Governor Lowe Speech
WednesdayCNYCPI (YoY) – February-0.3%-0.4%
WednesdayUSDCPI (YoY) – February1.4%1.4%
ThursdayEURECB Interest Rate Decision and Monetary Policy Statement
FridayEURGerman Harmonized CPI1.6%1.6%
FridayUSDMichigan Consumer Sentiment Index – March76.878.0

*In USD millions

• Euro Area and Japanese Gross Domestic Product growth
GDP data shows the monetary value of all the goods and services produced in the respective country. A negative number indicates a contraction of economic activity while a positive number shows an expansion. A better than expected GDP growth is generally positive for currency, whilst a print below expectations tends to be negative.

• Chinese, U.S. and German Consumer Price Index
Inflation measures the rise in consumer prices in an economy over a certain period of time. Higher inflation means that consumer
prices have grown compared to the previous period. Higher than expected rate may be both positive or negative for currency as the
market does not like inflation expectations too far off from consensus. Generally, both high and negative inflation are bearish for currency, while positive and low inflation, in line with expectations, is bullish.

Market Sentiment

EURUSD pair continues to trend lower with the price breaking lower Bollinger Band support level for 2 consecutive days. Short-term momentum indicators have turned bearish as 8-day exponential moving average (EMA) has crossed below 21-day, 34-day and 50-day EMA. RSI is neutral at 31.9 levels but Slow Stochastic near 11.9 indicates the pair is oversold and a potential recovery to 21-day EMA of 1.20000 may be due. ADX at 18.9 level does not give a quality signal but DMI- of 34.9 dominates DMI+ of 14.9, signaling bearish momentum. Resistance levels have formed near 1.19325 and 1.19610, while support levels are near 1.18750 and 1.18115. The latter marks 200-day simple moving average level.

Resistance: 1.19325
Support: 1.18750

The pair has fallen below 8-day and 21-day EMA, currently testing 34-day EMA support level. Bullish short-term and long-term momentum is still intact as moving averages are stacked (8 > 21 > 34 > 50 > 100 > 200). RSI and Stochastic are both neutral but Stochastic of 21.6 is close to being oversold. ADX and DMI indicators do not offer a quality signal about the strength of the trend, or the direction, potentially indicating that sideways price action may be expected. Resistance levels are have formed near 1.38455 and 1.38660, while support is near 1.38000 and 1.37830.

Resistance: 1.38310

Support: 1.38000

NZDUSD pair has retreated from swing highs and has fallen below a number of moving average support levels. 8-day EMA has crossed below 21-day and 34-day EMA, signaling bearish short-term momentum. Long-term bullish momentum is intact as 200-day moving average is near 0.68130. RSI of 41.3 is neutral but Stochastic of 18.8 is indicating oversold territory. DMI- of 26.1 dominating DMI+ of 16.7 signals bearish momentum. Resistance levels are near 0.71935 and 0.72100, while support levels are near 0.71310 and 0.71110.

Resistance: 0.71935

Support: 0.71310

XAUUSD continues on its path lower. Short- and long-term momentum indicators are signaling bearish momentum, while price trades below 8-day EMA, signaling a strong downward trend. RSI and Stochastic are both oversold near 27.8 and 8.9, potentially signaling that price might recover at the near term. ADX of 38.9 signals strong trend, while DMI- of 30.8 signals bearish momentum. Resistance levels have formed near 1,714.59 and 1,724.52, while support is near 1,689.05 and 1,679.83.

Resistance: 1,714.59
Support: 1,689.05

Kaia Parv, CFA, is an experienced Portfolio and Investment Manager with exposure to both public and private markets. Before joining FXPRIMUS, Kaia was a Senior Investment Associate at EFA Group and a Vice President in Bank of America Merrill Lynch.

Any opinions, news, research, analyses, prices or other information contained here are provided as general market commentary and do not constitute investment advice. FXPRIMUS does not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information.

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