Oil takes a tumble
Oil prices crumbled as the crude demand outlook looks like it could get slashed after the WHO advised governments to take steps to curb COVID-19 transmissions as the new wave makes its way across Europe and the US. Crude just can’t catch a break as all the headlines are turning bearish. Earlier weakness for oil stemmed from Heathrow Airport capping travel, growing European recession fears following collapsing German investor confidence, and rising fears that Shanghai will see a second lockdown.
The technical selling for WTI crude was strong from the break of the USD 100 level and that should end up being decent resistance over the short-term. Barring a major supply disruption, oil looks like it is going to trade sub-USD 100 for a while until the crude demand outlook improves. Right now, China looks like it might go back into lockdown mode, Europe is rushing its ways to slower crude demand as a recession looms, and the US economy is slowing down fairly quickly.
Oil ignored an OPEC report that shows demand quickly outgrowing supply. Eventually, when the short-term demand outlook stabilizes, energy traders will pay closer attention to the tight outlook for oil in 2023.
Oil will eventually find its way above the USD 100 level, but right now it looks like it found a home in the mid-USD 90s.
Gold prices are holding on to dear life as the dollar rally hits a major marker. A 20-year low for the euro against the greenback is massive news in FX as currency traders undoubtedly see a widening interest rate differential. The ECB will have a very short tightening cycle, while the Fed appears to be about halfway through theirs. Dollar dominance could last a little while longer, but some exhaustion is settling in after EUR/USD hit parity. A euro rebound towards 1.0150 may occur before we see fresh lows. This is looking like the classic FX move where everyone buys into the move and then once the key level is tested they close out positions. The euro could tumble another 200 pips against the dollar if recession fears intensify for Europe.
Gold will eventually see some safe-haven flows but that won’t happen until a firm dollar top is made. Gold is trying to hold onto the USD 1700 level and that will likely be tested with a very hot inflation report tomorrow.
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