Suez Canal blockage pushing oil higher

Hi Everyone,

Another legendary meme was created last week when Egyptian authorities released an image of the 400-meter container ship blocking the Suez Canal and being dug out by what seemed to be a miniature excavator. The humongous vessel has been stuck since Tuesday, blocking one of the most important waterways in the world, with around 10% of global trade transported through the Suez annually.

Oil prices experienced volatility not seen since October 2020 due to a blockage at the Suez Canal. A 400-meter container ship, taller than the Eiffel tower, got stuck sideways during a dust and sandstorm. The Egyptian authorities have been working since Tuesday, engaging with elite rescue teams, attempting to re-float the boat. The huge vessel ‘Ever Given’ has shifted by today around 80 meters, and the hope is that normal traffic would resume in the Suez today. The blockage is costing around US $ 9.4 billion in trade daily and currently around 350 vessels, carrying everything from cattle, oil, LNG and consumer goods, have been forced to wait. Blockage is adding additional stress to logistics infrastructure, already under strain due to coronavirus related disruptions, but also owing to a spike in e-commerce and inventory replenishment. A number of vessels have taken the longer route around the southern tip of Africa, adding around a week to the trip. The estimates for the Canal to re-open range from a few days to weeks. The effect on oil price is likely to be short-term from this event as long-term catalysts, such as the Chinese Manufacturing PMI published this week and European lockdowns, are more likely to start a new trend.

Oil futures jumped nearly 6% to US $ 61.2 on Wednesday, when the news broke. Oil volatility, measured as OVX, jumped 33.5% on the day. Price continued to trade between US $ 58.4 and 60.9 throughout the week but eventually closed -0.76% down for the week. Price has lost 2.36% today after the vessel was refloated. Strong U.S. dollar has been adding pressures to oil and other commodities. Oil futures have retreated -8.5% from swing highs of US $ 67.98 early in March, whilst the USD, measured as DXY, is up almost 90 basis points for the same period. Momentum indicators are still bullish for oil futures on the daily chart, although short-term momentum has weakened with 8-day exponential moving average (EMA) crossing below 21-day EMA. Stochastic of 24 signals that price is currently near the lower range. Resistance levels are near 61.50 and 62.08, while support is near 58.43 and 57.37. Weekly chart confirms the bullish trend short-term, albeit 200-week simple moving average (SMA) is still above 50-week SMA.

The other big story is the dollar regaining its strength. The Greenback, measured as DXY, has now recovered to a 4-month high of 92.77. Price pierced through 200-day SMA on Thursday, supported by strong momentum, but looks now extended based on the stochastic. Resistance levels are near 92.81 and 92.91, while support is near 200-day SMA 92.56 and 92.38. Weekly chart confirms bullish short-term momentum, but long-term moving averages are still well above the price. USD upward trend is expected to continue as fundamentals and relative growth expectations are tilted towards the U.S. 2021 GDP is expected to grow 7% as per the latest projections, vs around 4% in the U.K. and the EU. The EU projection was released before the latest wave of lockdowns in major European economies. USD strength weighs heavily on commodities and risk assets with oil (-0.59), copper (-0.54) and EM equities (-0.47) having the highest negative correlation, as reported by Bloomberg. Nikkei 225 (+0.14), Stoxx600 (+0.14) and long bond strategy (+0.13) have the highest positive correlation with the dollar.

S&P 500 closed up 1.57% at an all-the-high of 3,974.55, the Nasdaq 100 rose -0.87%. Russell 2000 slid -2.89%. DXY was up 0.92%, putting pressure on oil (-0.76%) and gold (-0.70%).

Have a great trading week ahead!

Trading on margin products involves a high level of risk

In The Spotlight

DateCurrencyEventPrevious Consensus 
TuesdayEURGerman Harmonized CPI Preliminary (YoY) – Mar1.6%2.0%
WednesdayCNYNon-Manufacturing PMI – Mar51.452.6
WednesdayCNYNBS Manufacturing PMI – Mar50.651.0
WednesdayGBPGDP (QoQ) – Q4 20201.0%1.0%
WednesdayEUREuro Area Core CPI Preliminary (YoY) – Mar1.1%1.1%
WednesdayUSDPresident Biden Speech1.4%1.4%
WednesdayUSDADP Employment Change – Mar0.117 *0.550 *
WednesdayJPYTankan Large Manufacturing Indec – Q1-10.00.0
ThursdayAUDTrade Balance (MoM) – Feb10142 *9500 *
ThursdayUSDISM Manufacturing PMI – Mar60.861.2
FridayUSDNon-Fam Payrolls – Mar0.379 *0.655 *

*In USD millions

• German and Euro Area Consumer Price Index
CPI, or 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 CNY 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.

• Chinese and U.S. Manufacturing Purchasing Managers Index
Purchasing Managers’ Index measures the sentiment for business activity. This is survey based and considered as a leading indicator. Additionally, preliminary reading offers visibility on the economic activity for the ongoing month. Higher than expected print is generally bullish for the currency, while lower than expected is bearish.

Market Sentiment

EURUSD pierced the 200-day SMA support last week and fell to 4-month lows of 1.17620. Price has been moving sideways for the last three trading sessions but momentum indicators are now all bearish both short-and long-term. RSI is neutral at 35 but Stochastic of 5 signals oversold territory with a potential recovery due soon. ADX of 27 signals moderate energy in the trend while DMI- of 27 indicates that bearish momentum dominates. Resistance levels have formed near 1.17930 and 1.18020, while support levels are near 1.17630 and 1.17440.

Resistance: 1.17930
Support: 1.17630

GBPUSD fell below lower Bollinger Band support level last week but has not partially recovered to 1.37755, testing 8-day EMA resistance. Momentum indicators are bearish short-term, albeit with little air between them. Long-term trend is bullish with 200-day SMA currently near 1.32560. RSI is neutral but Stochastic of 17 signals oversold levels. ADX and DMI-s do not give a quality signal. Resistance levels have formed 1.38000 and 1.38145. while support is near 1.37540 and 1.37320.

Resistance: 1.38000
Support: 1.37540

NZDUSD pair is moving sideways near 0.69780 after shedding 2.3% last Tuesday. Price briefly broke lower Bollinger Band resistance. Moving averages signal bearish trend short-term but long-term bullish momentum is intact with 200-day SMA near 0.68660. RSI is neutral but Stochastic of 5 signals oversold levels. DMI- of 27 indicates that bearish momentum dominates. Resistance levels are near 0.69960 and 0.70100 while support is near 0.69720 and 0.69440.

Resistance: 0.69960
Support: 0.69720

XAUUSD has been rangebound last week with resistance near 1,733.09 and support near 1,726.26. Momentum indicators signal bearish trend both short- and long-term. RSI of 43 and Stochastic of 65 are neutral. ADX signals strong momentum while DMIs do not give a quality signal. Resistance levels are near 1,733.09 and 1,745.95, while support is near 1,726.26 and 1,721.04

Resistance: 1,733.09
Support: 1,726.26

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.

Risk Warning: Trading on margin products involves a high level of risk , which may result in the loss of all invested capital. Show Less

risk Show More

Get Started

Risk Warning: Trading on margin products involves a high level of risk , which may result in the loss of all invested capital.

Get Started