Oil and gold rise as US dollar dips

Oil stages an unimpressive rally

Oil prices recovered modestly overnight, but the rally looks artificial, prices moving higher in sympathy with equities and not because of improved oil fundamentals. Brent crude rose 2.20% to USD40.60 a barrel, and WTI rose 2.85% to USD37.80 a barrel.

Crucially for both contracts, they both traced out lows at their 100-DMA’s before recovering. Brent crude’s 100-DMA at USD39.70 a barrel, and WTI’s at USD36.80 a barrel, are now critical supports that must hold on a daily closing basis. Failure opens up deeper losses for both contracts as the future markets point to abundant near-term supplies and concerns over OPEC+ compliance persist.

Oil’s near-term fate is tied to equity markets, and as long as they continue moving higher, then oil will also follow. Tonight’s US crude inventories assume much greater importance though than recent times. With oil having fallen hard and fast, a rise in stockpiles by either crude or gasoline could spark another sell-off.

If Brent crude settles for an extended time under USD40.00 a barrel in the coming weeks, the ball will move into OPEC+’s court again, with pressure increasing to roll back the recent easing in production cut targets. Achieving robust compliance this time around may prove much harder than previously.

Gold buyers return as equities find support

Gold rose overnight, climbing 0.77% higher to USD1946.50 an ounce as the rally on Wall Street sparked US dollar weakness. Gold’s critical support zone between USD1900.00 and USD1920.00 an ounce has weathered the storm and remains solidly intact. Near-term resistance lies just above at USD1952.00 an ounce with trend-line resistance today at v1973.00 an ounce.

Gold’s rally overnight was as much about the return of confidence to equity markets as it was a pure gold story. Gold’s immediate direction will continue to be set by moves in equities and the US dollar, and as such, another sell-off on Wall Street will see gold’s support zone tested again. That said, investors seem happy to pick up gold on significant prices dips, and gold lacks any notable bearish momentum.

Gold is likely to range trade in a broad USD1910.00 to USD1970.00 band until the path of the equity markets becomes more evident.

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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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