FX and Energy Market Overview: Dollar's Reaction to Treasury Yields, Bearish Euro, Oil's Timid Rebound
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The US dollar jumped to its 50-DMA as a response to a rapid surge in the US Treasury yields. The EURUSD sank below the 1.07 level. From a technical perspective, the early week rally remained capped below a major Fibonacci level, the 38.2% retracement on summer to October selloff near the 1.0760. The EURUSD remains in a bearish trend after the failure to clear an important technical resistance. Unideal political news from Spain and Portugal, and a morose economic outlook for the Eurozone will likely keep the euro in retreat against the US dollar. Even though the European Central Bank (ECB) officials cry out loud that the rates will stay high for long in the Eurozone as well, it sounds much less credible when economic data doesn't give sufficient support.
In the UK, the Bank of England (BoE) wants to look tough and convince investors that it's too early to talk about rate cuts. But Cable's latest surge remained capped below the 200-DMA, and the pair is back to 1.22. The medium-term outlook for Cable remains neutral to bearish. Another surge in the dollar appetite will easily send the pair to 1.20 psychological level.
The dollar-yen is back to misery, above 151. Traders want to buy the USDJPY, but they also know that the Japanese authorities are tempted to intervene to prevent the Japanese yen from getting shattered just because the Bank of Japan (BoJ) can't keep up with the rest of the major global central bank policies. Japanese are happy to see inflation emerge after decades of deflation. Perhaps, the view of China – and Chinese deflation – doesn't make them want to move any faster.
In energy, the oil bulls come in timidly near the $75pb psychological support. The oil selloff probably went too far and it's time for – at least – a minor positive correction. A move toward the $78/80 range would be reasonable. This area includes the 200-DMA and the minor 23.6% Fibonacci retracement on September to November selloff.
Today is Friday. Fears of escalating geopolitical tensions could help strengthen the $75 support in US crude. But regarding that topic, the biggest fear of oil traders in Gaza was the implication of Iran in the war, which would then lead to another embargo on the Iranian oil, decrease the global supply and send prices higher. Now, the new market narrative is that, even if the Iranian oil gets banned, it doesn't matter because first, the Iranian shipments have been falling due to weaker Asian demand and two, 90% of the Iranian shipments go to China anyway, and China doesn't care about the Iranian oil ban, they will continue buying it. And oh, there is also the fact that the US shale production hit a record high of 13.2mbpd. Together with the rising worries of slower global demand, the above-stated factors should ensure that a potential rebound in oil prices doesn't extend easily above the $78/80 range.
