Crude prices are lower as the short-term demand outlook continues to get downgraded as many European countries seem nowhere near to easing restrictions. The Suez Canal blockage is now entering its third day and yesterday’s optimism that this will be resolved shortly is quickly fading. With roughly 12% of global trade using this key canal, the impact will be significant for both China and Europe. The blockage has impacted over 20 oil tankers and the longer this lasts, it should drive oil prices higher.
WTI crude is in correction territory and consolidating below the USD60 level, but another significant selloff seems unlikely unless a few more European countries announce tighter restrictions. Europe is slowly getting their vaccine rollout in order and that should trigger energy traders to price in an improved crude demand outlook by the summer.
Gold prices went on a rollercoaster ride following better-than-expected US economic data and upbeat comments from Fed Chair Powell, Clarida, and Barkin. Gold’s gyrations are an indication of how divided this market is as to what will be the next big move. Despite steadying Treasury yields, gold has not mustered much of a rally. Today’s double main event of the seven-year Treasury auction and President Biden’s first formal press conference could be the catalyst needed for gold to break out.
After months of reiterating that Fed is not ready to start talk about tapering, an early morning NPR interview delivered a candid comment led everyone to think we are a few months away from hearing how the Fed will gradually change policy. Powell also said that he is generally satisfied with the Fed’s concerted response to the Covid pandemic. The timing of Powell’s comments and better-than-expected jobless claims data and fourth-quarter GDP painted a picture that the economy is about to see substantial progress with employment and pricing pressures.
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