Oil rebounds, gold rises

Oil stages spectacular reversal higher

A disappointing outcome from the OPEC+ meeting (for consumer nations), saw oil’s selloff in Asia yesterday completely reversed plus interest. Markets were disappointed when OPEC+ only agreed to hike production to 650,000 bpd for the next two months, instead of more structural increases from OPEC to cover the Russian shortfall. Things got worse for oil bears later in the season when the US Crude Inventory data posted a surprise 5.0 million barrel drawdown.

Brent crude fell as low as USD 112.50 a barrel intraday, before staging a spectacular reversal higher which saw it close 1.93% higher at USD 118.05 a barrel. WTI fell to near USD 111.00 a barrel intraday, before it reversed sharply higher, finishing 2.40% higher at USD 117.55 a barrel. The US Crude Inventory number impacts WTI more and causing the Brent premium over WTI to narrow sharply. In Asia, the swathe of holidays has torpedoed volumes and liquidity. Brent crude and WTI have seen some short-term long-covering, pushing them slightly lower to USD 117.45 and USD 116.60 a barrel respectively.

Markets have passed judgment on the OPEC+ moves unequivocally and clearly believe they will have no meaningful impact on the global supply/demand imbalance. The ferocity of the rally overnight leaves little doubt that the upside is the path of least resistance. Brent crude has resistance at USD 118.40, USD 120.00, and USD 124.00, with support distance at USD 112.50 a barrel. WTI has resistance at USD 117.70 and then USD 120.00, with now distant support at USD 111.25 a barrel.

Gold rises sharply on falling US dollar

It is a measure of how powerful the risk-on rally was overnight, and how desperate markets are to price in less Fed tightening, that gold leapt 1.20% higher to USD 1868.50 an ounce as the US dollar was crushed. Having probed USD 1874.00 in early Asian trading, it has retreated back to its starting point at USD 1868.50 as the morning progressed, volumes impacted by holidays in Greater China.

The chart picture shows gold is now eroding resistance at USD 1870.00, with the 100-DMA at USD 1886.00 as its next target, followed by USD 1900.00. There, I suspect, it will encounter heavy option-related selling initially. Support is at USD 1844.00, USD 1830.00, and then USD 1780.00 an ounce. I do not discount a disorderly retreat if the latter fails.

A weaker than expected US Non-Farm Payrolls number tonight should keep the less-Fed-tightening, risk-seeking party going. In that case, a test of USD 1900.00 is out of the question, followed by a gap higher if it breaks. However, gold bugs will know how quickly joy can turn to disappointment with gold, and a firm data print could well see the overnight gains unwound with interest. Be careful out there.

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Jeffrey Halley

Jeffrey Halley

Senior Market Analyst, Asia Pacific, from 2016 to August 2022
With more than 30 years of FX experience – from spot/margin trading and NDFs through to currency options and futures – Jeffrey Halley was OANDA’s Senior Market Analyst for Asia Pacific, responsible for providing timely and relevant macro analysis covering a wide range of asset classes. He has previously worked with leading institutions such as Saxo Capital Markets, DynexCorp Currency Portfolio Management, IG, IFX, Fimat Internationale Banque, HSBC and Barclays. A highly sought-after analyst, Jeffrey has appeared on a wide range of global news channels including Bloomberg, BBC, Reuters, CNBC, MSN, Sky TV and Channel News Asia as well as in leading print publications such as The New York Times and The Wall Street Journal, among others. He was born in New Zealand and holds an MBA from the Cass Business School.
Jeffrey Halley
Jeffrey Halley

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