Crude oil trapped in tug of war
WTI Crude struggled to maintain gains on Tuesday, with prices eventually descending towards $47.50 as the lingering oversupply concerns weighed on sentiment.
This has certainly been an interesting period for oil markets, with the commodity trapped in a tough tug of war as conflicting news excites both the bulls and bears.
Although OPEC’s optimism over the production cut deal sparked speculative boosts in prices, reports of compliance faltering in July and output jumping to a 2017 high in the same month attracted bears.
This tug of war may be coming to an end with oil’s bearish price action, suggesting that investors are becoming increasingly skeptical of the cartel’s ability to rebalance the oil markets.
Sentiment towards oil remains bearish amid oversupply fears and the possible threat of OPEC’s supply cut deal falling apart, if oil prices fail to rebound, is likely to weigh on investor sentiment.
From a technical standpoint, WTI Crude has broken below $48 with $46.50 acting as the next level of interest.
Risk appetite flickers ahead of Jackson Hole
Investors in Asia and Europe swiftly discarded safe-haven assets on Tuesday, as risk appetite staged a modest recovery ahead of the upcoming Jackson Hole Symposium this week.
Most Asian shares were boosted by the mild improvement in risk sentiment during early trade, with European stocks venturing higher and subsequently breaking a three day losing streak.
The domino effect from Asian and European markets, coupled with rising commodity prices, is likely to support Wall Street on Tuesday.
Although world stocks may continue to trade cautiously higher this week, geopolitical risk and political uncertainty in Washington both have the ability to limit upside gains.
Dollar Index edges towards 93.50
The US Dollar appreciated against a basket of major currencies on Tuesday, as investors directed their attention to the upcoming meeting of financial heavyweights in Jackson Hole, from August 24 to 26.
The greenback has struggled for direction this month, with prices oscillating within a wide range as market players juggled with a multitude of themes.
Ongoing uncertainty over US President Donald Trump’s economic agenda continues to punish the currency, while concerns regarding low inflation in the US have weighed heavily on the prospects of higher interest rates.
Although the Dollar Index edged slightly higher on Tuesday, bulls are becoming increasingly exhausted and may rely on Federal Reserve Chairman Janet Yellens’ missive, for fresh inspiration to send prices higher.
Market players will be paying very close attention to Yellen’s speech at Jackson Hole this Friday and it will be closely scrutinized for any comments regarding monetary policy.
Fresh policy insight by Yellen, on when the central bank plans to unwind its balance sheet and raise US interest rates this year, should support the dollar.
From a technical standpoint, the Dollar Index still remains under pressure on the daily charts. There have been consistently lower lows and lower highs, while prices are trading below the daily 20 SMA. Sustained weakness below 94.00 should encourage a further depreciation towards 92.50.
Commodity spotlight: Gold
Gold was under noticeable pressure on Tuesday, with prices tumbling towards $1283 as the Dollar stabilized.
Regardless of the short term losses, the yellow metal remains heavily supported by geopolitical risk and political drama in Washington.
There is still a lingering air of caution ahead of the Jackson Hole conference later this week and this should empower Gold bulls.
From a technical standpoint, the yellow metal is bullish on the daily charts, as there have been consistently higher highs and higher lows.
Bulls still have some control above the $1,283 support, with a break above $1,293 opening a path towards $1,300. In an alternative scenario, sustained weakness below $1,283 should open a path back to $1,270.
(By Lukman Otunuga, Research Analyst, FXTM)