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Over the last two trading sessions, WTI crude oil has once again displayed a notable bearish bias, with prices falling nearly 6%. Part of this renewed selling pressure has been driven by recent developments in the Middle East, which have helped temporarily ease the geopolitical tensions that had supported the oil risk premium in previous weeks.
Crude oil prices continue to press higher amid the ongoing standoff between the US and Iran. While the softness in US and Chinese data of late does point to some moderation in demand, oil prices remain predominately supply-driven.
Crude oil and bond markets are flashing warning signs for risk assets. Yet, investors seem remarkably relaxed. However, if the current situation doesn’t improve markedly, we could see stock markets stage a bit of a correction and in the FX space risk-sensitive currency pairs could take a dip.
Volatility across financial markets continues to subside, with investors appearing surprisingly comfortable with rising oil prices and the prospect of the Fed either holding rates steady or tightening policy in September.
The US dollar rebounded this morning and that caused the EUR/USD and the price of gold and silver to ease back from their earlier highs following yesterday’s big precious metals rally.
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Gold tests major support at 4,000 as Middle East tensions, crude oil and a stronger US dollar leave bulls searching for a catalyst.
The US dollar eyes 102 as soaring crude oil prices, geopolitical tensions and hawkish Fed bets combine to strengthen the bullish case.
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Escalating tensions between the US and Iran have once again pushed crude oil prices higher, providing further support for the US dollar. The greenback has performed particularly well against lower-yielding currencies, such as the Swiss franc, as investors seek both safety and higher returns while reassessing the inflation outlook. Although the euro has held up better than some of its peers, thanks to expectations that the European Central Bank may have to tighten its policy further, the balance of risks remain for the downside.
Energy prices are once again setting the tone for currency markets, with the renewed tensions in the Middle East reinforcing the dollar’s appeal while weighing on low-yielding and energy-importing currencies. As oil and natural gas prices climb, investors are becoming increasingly reluctant to price out further Fed tightening, providing the greenback with another tailwind.
Gold is starting to face difficult trading sessions. Over the last 2 trading sessions, XAU/USD has shown a renewed weakness bias, with a decline of just over 3.00%.
The EUR/USD edged only slightly lower, showing surprising resilience for now while European equity markets took the brunt of the sell-off, as tensions in the Middle East made an unwelcome return with renewed intensity. A sharp rebound in crude oil prices has quickly become the dominant market theme again, overshadowing economic data and forcing investors back into defensive positions.
