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MTrading Team • 2024-04-16

Crude oil ignores firmer US Dollar to recover amid geopolitical woes

Crude oil ignores firmer US Dollar to recover amid geopolitical woes

The risk complex remains downbeat early Tuesday, extending the week-start pessimism, amid fears emanating from the Middle East. Also challenging the sentiment are the hawkish concerns about the US Federal Reserve (Fed), backed by recently upbeat US data and upbeat Fed talks.

Amid these plays, the US Dollar Index (DXY) renews that yearly high while the Gold price also extends the previous day’s rebound toward the all-time peak. Further, EURUSD stays depressed at the lowest level since November 2023 while GBPUSD bears the burden of the downbeat UK employment data, as well as the US Dollar strength.

AUDUSD and NZDUSD drop for the third consecutive day to renew the yearly low whereas USDCAD refreshes a five-month high. In doing so, the Loonie pair ignores firmer crude oil prices.

That said, BTCUSD and ETHUSD remain depressed amid a broadly firmer US Dollar and the cautious mood ahead of April 20’s Bitcoin halving event. It should be noted that the optimism surrounding the spot ETF approvals in the US and China increased whales’ participation in the crypto market but struggles to propel the prices of Bitcoin and Ethereum of late.

Following are the latest moves of the key assets:

  • Brent oil edges higher past while defending the previous day’s recovery, mildly bid near $90.60 by the press time.
  • Gold price struggles to defend the previous day’s gains near $2,380 at the latest.
  • The USD Index has risen to a fresh high since November 2023, posting mild losses near 106.40 as we write.
  • Wall Street closed in the red and the Asia-Pacific stocks also drifted lower. Further, European and UK shares also print losses during the initial trading hour.
  • BTCUSD and ETHUSD both stay depressed with mild losses to around $63,200 and $3,085 at the latest.
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US Dollar, Gold stays firmer amid risk-off mood…

Monday’s strong US Retail Sales justify hawkish comments from the Federal Reserve (Fed) officials and also take clues from the geopolitical fears surrounding the Israel-Iran war to propel the US Dollar. With this, the US Dollar Index (DXY) has risen to a fresh high since November 2023 while printing a five-day uptrend.

US Retail Sales for March grew more than expected while the Retail Sales ex Autos crossed previous releases and market expectations. However, the NY Empire State Manufacturing Index for April dropped more than expected but improved versus the previous readouts and allowed the Greenback to remain firmer. Further, the Atlanta Fed’s GDPNow Model now estimates Q1 GDP growth at 2.8% versus 2.4% anticipated earlier. The same allowed San Francisco Fed President Mary Daly and New York Federal Reserve President John Williams to push back the chatters about sooner rate cuts.

Talking about the geopolitics, Iran showed readiness to escalate war with Israel if Jerusalem retaliates to Tehran’s weekend attacks. That said, the US rejects joining Israel if it attacks Iran while China conveyed its friendliness with Tehran and preparedness to fight Israel for its friend nation. Even so, Israel keeps suggesting imminent attacks and challenges the market sentiment, which in turn underpins demand for haven assets like the US Dollar and Gold.

EURUSD ignored hawkish comments from European Central Bank (ECB) Chief Economist Philip Lane and upbeat Eurozone Industrial Product figures to refresh a 5.5-month low. That said, ECB’s Lane mentioned that a deceleration in wage growth is necessary to get inflation to target while EU Industrial Production grew 0.8% MoM in February versus -3.0% prior.

GBPUSD, on the other hand, prod sellers at the monthly low before resuming the downtrend as Pound traders remain cautious ahead of Wednesday’s UK inflation data. It should be noted that the British employment numbers appear mostly downbeat with the higher Unemployment Rate, an increase in Claimant Count Change, and mixed Average Earnings.

Elsewhere, USDJPY also lacks upside momentum at the highest level since 1990 as Japan’s Chief Cabinet Secretary Hayashi showed readiness to take all measures to tame excessive Fx volatility.

Further, AUDUSD justifies its role as the risk barometer while falling to the lowest level since mid-November. Also exerting downside pressure on the Aussie pair, as well as commodities and other Antipodeans, are mixed updates from China. It’s worth recognizing that China’s Q1 GDP came in firmer but a slower growth of the monthly Retail Sales and Industrial Production joined S&P’s downgrading of another Chinese real-estate developer, as well as Beijing’s readiness to support Iran, to weigh on risk appetite and the Dollars of Australia, New Zealand as well as Canada.

Gold price defends the previous day’s rebound from the 10-day Exponential Moving Average (EMA) despite lacking upside momentum near $2,385 of late. While the US Dollar’s growth challenges the XAUUSD bulls, the yellow metal’s traditional haven status and concerns about lower rates from major central banks outside the US allow the bullion buyers to remain hopeful of witnessing a fresh record high.

Crude oil marks the biggest gain among the G10 currencies and major commodities early Tuesday as fears of growing geopolitical tensions between Iran and Israel join hopes of witnessing upbeat energy demand. Also underpinning the oil prices are OPEC+ concerns about extending the supply cut agreements.

It should be noted that the Wall Street benchmarks began the week on a negative foot, extending the previous weekly fall, and exerting downside pressure on the Asia-Pacific and European markets.

Talking about cryptos, BTCUSD and ETHUSD fade Sunday’s corrective bounce from monthly lows as geopolitical fears supersede optimism about spot ETF approvals and the Bitcoin halving event.

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

Central bankers, second-tier data in the spotlight…

While the risk headlines are likely to keep the traders busy on Tuesday, a slew of speeches from top-tier central bankers from the UK, Canada, and the US will be crucial to watch for clear directions. Also important are the ZEW sentiment data from Germany and the Eurozone, as well as Canadian inflation numbers. That said, Bank of England (BoE) Governor Andrew Bailey, Bank of Canada (BoC) Governor Tiff Macklem, and the Federal Reserve (Fed) Chairman Jerome Powell are all up for speaking late Tuesday. Although BoE’s Bailey and BoC’s Macklem could try to push back dovish bias about the respective central banks and challenge the GBPUSD sellers, as well as the USDCAD buyers, hawkish comments from Powell won’t hesitate to propel the US Dollar Index toward a fresh high of 2024, which in turn will weigh on the prices of major commodities and Antipodeans. Even so, the prices of Gold and crude oil are expected to remain firmer while EURUSD may pare the recent losses should the US Dollar hesitate to rise further and the local data flash upbeat marks.

May the trading luck be with you!