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MTrading Team • 2024-07-03

Crude Oil recovers on inventory draw, downbeat US Dollar ahead of key data

Crude Oil recovers on inventory draw, downbeat US Dollar ahead of key data

Market sentiment remains unclear early Wednesday even as the optimists cheer Fed Chair Jerome Powell’s acknowledgment of disinflation and mostly upbeat data outside the US. It’s worth noting, however, that a slew of geopolitical headlines challenge the risk appetite amid the cautious mood ahead of the second-tier US data.

Against this backdrop, the US Dollar Index (DXY) snaps a four-day losing streak while bouncing off the weekly low. However, the Antipodeans and commodities lack momentum due to mixed news and anxiety before data/events.

That said, EURUSD reverses the previous day’s run-up with mild losses as the European Central Bank (ECB) officials almost confirm more rate cuts even as Eurozone inflation numbers came in mixed. On the same line, GBPUSD prints the first daily negative in five as traders await the UK/US PMIs, Britain’s national elections, and the US ADP Employment Change.

USDJPY, however, rises to the fresh high in 38 years on downbeat Japan Services PMI and traders’ preparations for the Bank of Japan (BoJ) rate hike in July or August.

AUDUSD ignores the US Dollar’s rebound amid firmer Aussie data whereas NZDUSD fades bounce off a seven-week low marked the previous day on downbeat China Caixin Services PMI and risk-negative news. Further, USDCAD licks its wounds after falling the most in five weeks as strong Crude oil prices jostle with doubts about the Bank of Canada’s (BoC) ability to defend the higher rates for longer.

Crude Oil picks up bids to reverse the previous day’s retreat from a nine-week high amid a surprise draw in inventories and fresh geopolitical woes suggesting supply crunch. Meanwhile, Gold price recovers within a weekly trading range while cheering sluggish yields and cautious mood.

BTCUSD and ETHUSD dropped nearly 1.5% each, down for the second consecutive day, as traders prepared for the spot ETH ETF launch while ignoring the multi-week high daily active address for Bitcoin.

Following are the latest moves of the key assets:

  • WTI Crude oil prints minor gains around $83.20 by the press time while reversing the previous day’s retreat from a nine-week high.
  • Gold rises 0.33% intraday to $2,337 at the latest while gaining upside momentum within a weekly trading range.
  • The USD Index snaps a four-day losing streak while posting mild gains near 105.80 as we write.
  • Wall Street closed with mild gains while the Asia-Pacific shares edged lower. That said, equities in Britain and Europe posted mild gains during the initial trading hour.
  • BTCUSD and ETHUSD both drop nearly 1.5% each to $60,900 and $3,365 respectively at the latest.
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Fed’s Powel failed to defend US Dollar bulls…

Fed Chairman Jerome Powell’s acceptance of disinflation in the US superseded his praise for tighter employment conditions and readiness to keep the rates higher for longer the previous day. Not only Fed Chair Powell’s remarks about job conditions and rate bias but upbeat prints of the US JOLTS Job Openings for May also failed to inspire the US Dollar bulls on Tuesday. With this, the US Dollar Index (DXY), a gauge of the Greenback versus six major currencies, marked the biggest daily fall in a week during the four-day losing streak. However, the market’s cautious mood ahead of today’s US ISM Services PMI for June and the ADP Employment Change for the said month allows the DXY to lick its wounds.

While the Fed Chair failed to inspire the DXY bulls, EURUSD closed on the positive side amid mostly upbeat Eurozone inflation data for June. However, the ECB policymakers’ clear signals favoring future rate cuts challenge the Euro buyers. It’s worth noting that the receding shop prices in the UK and the anxiety ahead of the British national elections challenge the GBPUSD buyers after a four-day uptrend.

Alternatively, USDJPY rises to a fresh high since 1986 as bulls approach the 162.00 threshold. In doing so, the Yen pair justifies softer Japan Jibun Bank Services PMI for June and the market’s preparations for BoJ’s future rate hikes, as well as bond market actions.

AUDUSD bucks the trend and rises for the second consecutive day after upbeat prints of Aussie Retail Sales and Building Permits whereas NZDUSD reverses the previous day’s gains amid fears about China. That said, China’s close ties with Russia and alleged provision of weapons to fight against Ukraine join fears about the Dragon Nation’s economic recovery to challenge the commodities and Antipodeans. On the same line are the news suggesting China’s seizing of Taiwan's fishing boat and trade wars with the Western economies.

Meanwhile, USDCAD prints minor gains after posting the biggest daily loss in more than a week as the US Dollar’s rebound jostles with recovery in prices of Canada’s main export item, namely Crude Oil.

It should be noted that Crude Oil reverses the previous day’s pullback from a two-month high after the Industry report showed a huge draw in the weekly inventories. Also underpinning the black gold’s run-up could be the headlines suggesting fresh tensions in the Middle East challenging the oil supplies. However, a deterioration in global crude oil shipments and easing fears about Hurricane Beryl seem challenging the energy benchmark of late.

Gold remains tight-lipped as traders failed to gain major clues from Fed Chair Jerome Powell and are waiting for today’s ISM Services PMI, as well as Friday’s US jobs report, to confirm the US central bank’s interest rate moves for 2024. Also, sluggish yields and the mixed headlines about China add filters to the XAUUSD momentum of late.

  • Strong buy: USDCAD, USDJPY, US Dollar, Silver
  • Strong sell: AUDUSD, NZDUSD, GBPUSD
  • Buy: BTCUSD, ETHUSD, Nasdaq, Gold, DJI30, USDCNH
  • Sell: DAX, FTSE 100, EURUSD, Crude Oil

PMIs, employment clues, and central bankers eyed for intraday directions…

Final readings of June PMIs for the Eurozone, the UK, and the US will join the US ISM Services PMI for the said month, as well as the US ADP Employment Change, to entertain intraday traders. Also important to watch will be a speech from ECB President Christine Lagarde and a few second-tier Fed officials. Additionally, Canada's trade numbers and the US weekly oil inventories are extra catalysts to watch for a clear guide.

Given the market’s lack of conviction in the Fed’s hawkish bias, due to the softening inflation clues, the US Dollar may reverse the latest recovery should the scheduled US data print downbeat prints. The same could allow the other major currencies and commodities to edge higher. However, the upside bias for the EURUSD and the GBPUSD appears limited amid geopolitical tensions in the Eurozone and the UK. That said, the USDJPY may defend the latest run-up whereas Antipodeans could lack upside momentum amid China's woes.

May the trading luck be with you!