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MTrading Team • 2024-01-08

Crude Oil drops amid demand-supply concerns, firmer US Dollar

Crude Oil drops amid demand-supply concerns, firmer US Dollar

The global market sentiment roils early Monday amid the receding calls for an imminent Fed rate cut and China woes. Also adding strength to the sour sentiment is Friday’s upbeat US jobs report and the market’s cautious mood ahead of this week’s US inflation data. Even so, the US Dollar struggles to defend the first weekly gains in four as Japan’s holiday restricts bond market moves in Asia.

Amid these plays, EURUSD and GBPUSD remain dicey but the USDJPY justifies Friday’s Doji candlestick to fall the most among the G10 currency pairs. Further, AUDUSD and NZDUSD stay pressured due to their links with China while USDCAD edges higher.

Gold Price pokes a three-month-old rising support line after positing the first weekly loss in four while Crude Oil drops heavily as the demand-supply matrix appears to favor sellers.

BTCUSD and ETHUSD print a four-day losing streak as the optimism among crypto traders dwindles amid the US SEC’s actions about the spot ETF approvals.

Following are the latest moves of the key assets:

  • Brent oil drops to $78.00 while printing more than 1.0% gains by the press time.
  • Gold price prints 0.80% intraday losses to around $2,030 at the latest.
  • USD Index struggles around 102.50 as it seeks more clues to defend last week’s gains as we write.
  • Wall Street closed with minor gains but the Asia-Pacific stocks edged lower. However, equities in the UK and Europe remain dicey during the initial hour.
  • BTCUSD and ETHUSD remain pressured around $43,600 and $2,230 respectively.
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Oil drops amid sluggish markets…

Crude oil gained the market’s attention by falling nearly 1.5% as Saudi Arabia’s Aramco mentioned cutting prices for all regions. The same joins Angola’s exit from OPEC and economic fears surrounding China to weigh on the black gold prices.

Additionally, the US employment details for December came in better than expected and allowed the US Dollar to snap a three-week-old losing streak, which in turn helped the Oil bears. That said, the headline Nonfarm Payrolls (NFP) rose to 216K from 173K (revised), versus 170K expected, whereas the Unemployment Rate and the Average Hourly Earnings reprinted 3.7% and 0.4% marks in that order compared to the market forecasts of 3.8% and 0.3% respectively. Further, the US Factory Orders for November also improved to 2.6% versus the analysts’ estimations of 2.1% and prior release of -3.4% MoM. It should be noted, however, that the US ISM Services PMI for December dropped to a seven-month low of 50.6, from prior release of 52.7 and 52.6 expected, and limited the US Dollar’s run-up afterward.

Following the upbeat data, the odds of witnessing the Fed’s first rate cut in January slumped, which in turn allowed a slew of Federal Reserve (Fed) officials to push back the dovish expectations from the US central bank and help the US Dollar.

Among the Fed speakers, Dallas Federal Reserve President Lorie Logan appeared too hawkish while saying, “We shouldn't rule out rate hike given recent easing in financial conditions.” On a softer note, Richmond Fed President Thomas Barkin mentioned that (there prevails) no problem 'toggling' the rate to more normal levels as you build confidence inflation is falling. Further, US Treasury Secretary Janet Yellen also reiterated her previous comments describing the US soft landing and tried to please the US Dollar bulls.

Apart from the Fed talks, financial market jitters in China also weighed on the Oil price. That said, China’s key shadow-banking 'wealth manager' Zhongzhi went bankrupt and amplified concerns about the grim conditions of the nation’s property market.

On the contrary, the looming general elections in Taiwan flag geopolitical fears amid the US-China spat over the Asian nation. Also, the Chinese foreign ministry braces for sanctions on the five US military weapon suppliers as Washington sold weapons to Taiwan.

  • Strong buy: USDCAD, USDJPY
  • Strong sell: Crude Oil, US Dollar, GBPUSD
  • Buy: BTCUSD, ETHUSD, Nasdaq, Gold

A light calendar ahead…

Having witnessed a busy week, Monday has fewer details to watch and the inaction magnified in Asia due to Japan’s absence from trading. That said, the US Consumer Price Index (CPI) appears the key event of this week and can bolster the US Dollar strength in case of firmer readings. However, March’s Fed rate cut is almost given and can dent the Greenback should the US inflation soften.

May the trading luck be with you!