Daily Commodities: Expect Volatility In Gold And Natural Gas Markets

Key Insights

  • Natural gas markets will be volatile after the release of the EIA report. 
  • Oil continues its attempts to gain more upside momentum as risk appetite is growing.
  • Gold traders will focus on the U.S. PPI report, which will have a significant impact on gold markets. 

Natural Gas

Today, natural gas traders will focus on the EIA Weekly Natural Gas Storage Report. Analysts expect that working gas in storage will increase by 39 Bcf from the previous week.

The weather remains favorable for strong natural gas demand, and natural gas prices continue to rebound after the recent pullback.

The situation in the European natural gas markets is extremely tense. However, high prices in Europe can only provide psychological support to U.S. natural gas bulls as Freeport LNG is not operating.

Oil

WTI oil and Brent oil prices continue to rebound despite the resumption of oil flows through the “Druzhba” pipeline from Russia to EU.

It looks that the recent U.S. inflation report provided some support to oil markets as traders have started to price in a 50 bps hike at the next Fed meeting.

Most likely, oil markets will remain sensitive to general risk appetite. Recession worries have recently put significant pressure on the price of oil. In case general market sentiment improves, oil may gain additional upside momentum in the upcoming trading sessions.

Gold

Yesterday, gold made an attempt to settle above the $1800 level but pulled back after the release of U.S. inflation reports.

Today, traders will focus on U.S. PPI data, which will have a material impact on the U.S. dollar and Treasury yields. Weaker dollar and lower yields are bullish for gold, so a weaker-than-expected report may provide some support to gold prices.

However, traders should keep in mind that gold prices also depend on demand for safe-haven assets. If traders rush into riskier assets, gold may find itself under pressure even when dollar drops and Treasury yields decline.

From a big picture point of view, gold needs to settle above the $1800 level to continue its rebound. In case gold failes to settle above this important level, it may start to slide towards the $1750 level.

For a look at all of today’s economic events, check out our economic calendar.

Daily Forex: U.S. Dollar (DXY) Back In Focus As Traders Wait For PPI Data

Key Insights

  • Today, traders will focus on PPI data from the U.S., which may have a significant impact on currency dynamics. 
  • The tense situation in the European natural gas markets may put more pressure on the euro. 
  • USD/CAD has a good chance to test new lows if oil prices continue to rebound. 

Traders should expect more volatility today as markets will react to the new portion of the U.S. inflation data. Meanwhile, commodity-related currencies may have a chance to gain some ground as oil is trying to rebound from lows after the recent EIA report.

U.S.

The main event of the day for currency traders is the release of Producer Prices data from the U.S. Analysts expect that Producer Prices increased by 0.2% month-over-month in July. On a year-over-year basis, Producer Prices are projected to grow by 10.4%. Core Producer Prices are expected to increase by 0.4% month-over-month.

Yesterday, weaker-than-expected inflation data put significant pressure on the American currency. The FedWatch Tool indicates that there is a 56.5% probability of a 50 bps hike at the next Fed meeting. Before the inflation data was released, markets prepared for a 75 bps hike.

Today’s Producer Prices data will have a material impact on currency market dynamics. In case PPI is weaker than analysts expected, DXY will find itself under more pressure and may settle back below the 105 level.

Europe

EUR/USD has recently made an attempt to settle above the 1.0300 level but failed to gain sufficient upside momentum and pulled back.

There are no important economic reports scheduled to be released in the Euro Area today, so traders will be focused on general market sentiment and developments in the European natural gas market.

European countries have already started to implement energy-saving measures, but natural gas prices managed to gain upside momentum after a period of consolidation.

This is dangerous for the European economy as higher energy prices will force Europe to cut energy consumption, which will have a direct negative impact on GDP and hurt EUR/USD chances to rebound.

Canada

USD/CAD is trading near monthly lows. Traders must monitor the dynamics of oil prices, which may provide additional support to the Canadian currency in case the oil market continues to rebound from the recent lows.

For a look at all of today’s economic events, check out our economic calendar.

Oil Price Prediction – Oil Remains Under Pressure After EIA Report

Key Insights

  • Crude inventories increased by 5.5 million barrels, but gasoline inventories declined by 5 million barrels. 
  • Domestic oil production increased by 0.1 million bpd. 
  • Hungary paid transit fees to restart the flow of Russian oil through the “Druzhba” pipeline. 

Domestic Oil Production Grew To 12.2 Million Bpd

WTI oil is trading near daily lows after the release of the EIA Weekly Petroleum Status Report, which indicated that crude inventories increased by 5.5 million barrels from the previous week. Analysts expected that crude inventories would remain unchanged.

Gasoline inventories decreased by 5 million barrels, while distillate fuel inventories grew by 2.2 million barrels. The decline of gasoline inventories provided some support to oil prices, but it remains to be seen whether this support will be sustainable.

Importantly, domestic oil production increased from 12.1 million bpd to 12.2 million bpd. EIA noted that this week’s domestic crude oil production estimate incorporated a re-benchmarking that affected estimated volumes by less than 50,000 bpd. Anyway, the increase in domestic oil production is a bearish catalyst for the oil market.

Hungary Pays For Transit Of Russian Oil

Yesterday, Russia’s Transneft said that the transit of Russian oil to EU was halted as Ukraine did not get transit payments due to sanctions. Traders wondered whether it was a temporary problem or a new way to put more financial pressure on Russia.

Today, Hungary’s MOL paid the transit fee to Ukraine. The payment will allow oil to flow for the month of August. At this point, it looks that the problem is solved for the near-term. In the longer term, Russia and its customers will likely work for a solution to pay transit fees without extraordinary measures.

This is a bearish development for the oil market, which shows that Hungary will do everything to get Russian oil and will not allow trade to be disrupted. Not surprisingly, yesterday’s optimism quickly evaporated.

Interestingly, the weak dollar failed to provide any support to oil markets, which means that traders remain worried about the strength of the oil demand in the second half of this year.

From a big picture point of view, oil remains in a downside trend and has a good chance to settle below the $90 level.

For a look at all of today’s economic events, check out our economic calendar.

U.S. Dollar Forecast: DXY Retreats As Inflation Rate Drops To 8.5%

Key Insights

  • Traders rushed to sell the American currency as Inflation Rate declined to the 8.5% level. 
  • Riskier assets like stocks and cryptos enjoyed strong support. 
  • DXY has a good chance to settle below the 105 level, which will be bullish for riskier assets.

Traders Sell U.S. Dollar After Inflation Reports

U.S. dollar found itself under strong pressure after the U.S. released inflation reports. Inflation Rate declined from 9.1% in June to 8.5% in July, compared to analyst consensus of 8.7%. Core Inflation Rate remained unchanged at 5.9%, while analysts expected that it would grow to 6.1%.

While the American currency has been moving lower since the start of the week, markets were not prepared to see a strong decline in inflation. As a result, traders rushed to sell the U.S. dollar.

Currently, the U.S. Dollar Index, which measures the strength of the U.S. dollar against a broad basket of currencies, is down by more than 1%. Not surprisingly, Treasury yields have also moved lower.

Riskier Assets And Gold Benefit From Weaker Dollar

Weak dollar and lower Treasury yields provided material support to gold, which managed to get back above the $1800 level. Silver is also moving higher.

The rally in the U.S. stock market is set to continue as S&P 500 futures are up by about 1.5% in premarket trading. Stock traders bet that the Fed will not raise the rate by 75 bps at the next meeting and will limit itself with a 50 bps hike.

Tech stocks, who have delivered strong earnings reports, like Trade Desk, are moving higher in premarket trading. Big tech names like Apple and Microsoft are also gaining ground. The risk-sensitive cryptocurrencies like Bitcoin or Ethereum enjoy strong support.

Stocks, cryptos, and gold may get even more support in the upcoming hours in case the U.S. Dollar Index manages to settle below the 105 level. The first reaction to U.S. inflation reports indicates that many traders were unprepared for softer inflation numbers, so the current sell-off has a decent chance to continue.

For a look at all of today’s economic events, check out our economic calendar.

Commodities: Key Things To Watch On August 10

Key Insights

  • Oil traders will focus on fresh EIA data and developments around the “Druzhba” pipeline. 
  • For gold and silver traders, inflation data from the U.S. will be the key driver. 
  • Copper traders should monitor risk sentiment as copper markets are at risk of a pullback.

Oil

It’s a busy day for oil traders as the EIA will release its Weekly Petroleum Status Report. The report is expected to show that crude inventories remained mostly unchanged after growing by 4.47 million barrels in the previous week.

As usual, traders will also pay attention to the dynamics of the domestic oil production. WTI oil prices have recently settled near the $90 level, and it remains to be seen whether producers are ready to maintain the current production of 12.1 million bpd at these levels.

In addition, traders will monitor the fate of the Russian oil transit through Ukraine. Yesterday, Russia’s Transneft indicated that oil was not flowing through the “Druzhba” pipeline due to payment problems.

In the near term, the problems with Russian oil exports will likely have a bigger impact on Brent oil. If the solution is not found in the upcoming weeks, the situation will serve as a bullish catalyst for global oil markets.

Precious Metals

Today, gold and silver traders will wait for the release of the U.S. inflation data. Inflation reports will have a material impact on traders’ expectations regarding the next Fed’s move. Currently, the market expects that the Fed will raise the rate by 75 bps at the next meeting.

Treasury yields have pulled back from the highs that were reached back in June, providing some support to precious metals. However, it remains to be seen whether traders are ready to increase purchases of gold as a safe-haven asset.

In silver’s case, recession worries also play a role. The recent inflation data from China showed that pricing pressure has started to cool down due to weaker economic activity. This is bearish for silver.

Copper

Copper markets have rebounded from the lows that were reached in mid-July. The key driver for this move was the increase in risk appetite, which was especially visible for stock traders who enjoyed a strong rally in recent weeks.

Now, this rebound will be put to test. The disappointing earnings report from Micron put pressure on stocks as traders focused on recession risks. If markets remain focused on recession risks in the upcoming trading sessions, copper will pull back from recent highs. Most likely, copper traders will be able to use the S&P 500 as a leading indicator.

For a look at all of today’s economic events, check out our economic calendar.

Forex: All Eyes On U.S. Inflation Data

Key Insights:

  • China’s inflation reports show that prices have started to cool down due to weaker economic activity. 
  • In Europe, traders will focus on inflation numbers from Germany, but it remains to be seen whether they will have a material impact on currency dynamics. 
  • The main event of the day is the release of the inflation data from the U.S. 

It will be a volatile day in currency markets as traders prepare for the release of the inflation reports from the U.S. However, the action is not limited to U.S. numbers, and traders have already had a chance to see inflation data from China.

China

China’s Inflation Rate grew by 0.5% month-over-month in July, in line with the analyst consensus. On a year-over-year basis, Inflation Rate was 2.7%, compared to the analyst consensus of 2.9%. Producer Prices increased by 4.2%.

USD/CNY was mostly unchanged after the release of the report. At this point, geopolitical issues and Covid news have more impact on the Chinese currency.  Inflation data from China is interesting for all currency traders as it shows that inflation may start to cool down due to reduced economic activity.

Europe

In Germany, traders will have a chance to take a look at the final reading of the inflation data for July. Inflation Rate is expected to increase by 0.9% month-over-month. On a year-over-year basis, Inflation Rate is projected to grow by 7.5%.

Typically, the final readings of inflation reports in the Euro Area meet analyst consensus, so the report may not have a material impact on EUR/USD dynamics. However, traders should note that the energy crisis in Europe develops at a robust pace, and it may put additional upward pressure on prices.

U.S.

The main event of the day is the release of inflation data from the U.S. Inflation Rate is expected to decline from 9.1% in June to 8.7% in July due to lower energy prices. Core Inflation Rate is expected to increase from 5.9% to 6.1%.

The report will have a major impact on currency markets. The FedWatch Tool indicates that there is a 69.5% probability of a 75 bps rate hike at the next meeting.

As we have seen in recent trading sessions, expectations of an aggressive rate hike failed to provide enough support to the American currency. However, any surprise in inflation numbers may quickly change the situation.

If prices are rising faster than expected, a major 100 bps rate hike may be on the table. At the same time, lower-than-expected inflation will likely put material pressure on the U.S. dollar. In this case, EUR/USD and GBP/USD, which have been recently consolidating, may rally to new highs.

For a look at all of today’s economic events, check out our economic calendar.

Oil Price Prediction – Ukraine Stops Russian Oil Transit Over Payment Problems

Key Insights

  • Russia’s Transneft cannot transit oil through Ukraine due to sanctions-related payment problems. 
  • Market’s reaction is limited as traders believe that payment problems are temporary. 
  • There is a big risk of a long-term halt of the oil transit through Ukraine, which is bullish for oil markets. 

No Oil Flowing Through The Pipeline Called “Friendship”

WTI oil and Brent oil moved higher after Russia’s Transneft stated that Ukraine halted oil exports to European countries. According to Transneft, Ukraine did not get transit payments from Russia due to sanctions.

The EU plans to ban most oil imports from Russia in December. G7 countries are discussing a potential price cap on Russian oil as an alternative option, but such measures can lead to a massive rally in the oil markets.

Not surprisingly, traders pushed oil to higher levels after problems with transit were made public. However, it should be noted that there was no panic in the market. At this point, the problems with transit payments are seen as temporary.

In addition, it looks that traders are once again worried about the slowdown of the economy. The weak quarterly report from Micron highlighted recession risks and put material pressure on S&P 500. Such developments cannot be ignored by oil traders even on a day when the transit from Russia to EU is halted.

What If This Is Not A Temporary Issue?

Oil flows through Ukraine to EU via a pipeline called “Druzhba” (Friendship). This oil goes to Hungary, Czech Republic, and Slovakia. The EU embargo on Russian oil excludes oil from the Druzhba pipeline.

Thus, if the “Druzhba” pipeline will not work due to sanctions-related issues, EU will implement a full embargo on Russian oil in December.

This is an important issue as excluding “Druzhba” oil from the embargo was a major diplomatic win for Hungary. Obviously, Ukraine wanted a full embargo. At this point, the details of the payment problems have not been made public. However, it looks that these problems may not be solved in the near term as Ukraine wants to put more financial pressure on Russia.

The market’s reaction is limited, but these developments are bullish for oil prices. In case traders realize that problems at “Druzhba” are not temporary, oil will get more support.

For a look at all of today’s economic events, check out our economic calendar.

U.S. Dollar Continues To Slide Ahead Of Inflation Reports

Key Insights

  • The American currency is moving lower while traders make their final bets ahead of the release of inflation data on Wednesday. 
  • Analysts expect that inflation will start to cool down. 
  • The market believes that the Fed will raise the rate by 75 bps at the next meeting, but such expectations do not provide enough support to the U.S. dollar. 

U.S. Dollar Is Losing Ground

U.S. dollar remains under pressure while traders prepare for the release of the U.S. inflation data on Wednesday.

The U.S. Dollar Index, which measures the strength of the U.S. dollar against a broad basket of currencies, has managed to settle below the 20 EMA at 106.30 and is trying to get below the 106 level.

Treasury yields are moving higher, but this move does not provide enough support to the American currency. According to FedWatch Tool, there is a 69.5% probability of a 75 bps rate hike at the Fed next meeting in September. However, traders are not ready to rush into U.S. dollar longs ahead of the important inflation reports.

Inflation Rate Is Expected To Decline To 8.7%

Analysts expect that inflation will start to cool down after touching highs at 9.1% in June. Inflation Rate is expected to increase by just 0.2% month-over-month. On a year-over-year basis, Inflation Rate is expected to reach the 8.7% level. Core Inflation Rate is projected to increase from 5.9% in June to 6.1% in July.

While the markets believe that the Fed will raise the rate by 75 bps to fight inflation, analysts think that inflation will start to cool down. This is not surprising as the price of WTI oil has started to fall in June, and prices steadily declined in July.

It is not clear whether lower-than-expected inflation will have a major impact on market expectations regarding the pace of the rate hike. The current consensus is that the Fed will be aggressive as the situation in the job market remains healthy.

At the same time, lower-than expected inflation may still trigger a sell-off in the U.S. dollar. It should be noted that higher-than-expected inflation would be shocking as most analysts count on lower oil prices to transfer into lower inflation.

For a look at all of today’s economic events, check out our economic calendar.

A Price Cap On Russian Oil May Lead To A Massive Rally

Key Insights

  • G7 countries try to establish a mechanism that will reduce the price of Russia’s oil exports. 
  • Meanwhile, Russia is suffering from a strong ruble as imports decline, which means the country does not need too many dollars or euros.
  • Attempts to impose a price cap on Russian oil may lead to a cut in supplies and push oil prices towards yearly highs. 

G7 countries have recently announced their plans to impose a price-capping mechanism on Russian oil to reduce Russia’s revenues. G7 plans to have a working tool by December 5. As a reminder, that’s when the EU plans to stop most imports of Russian oil.

When asked about the potential price cap, the head of the Russian Central Bank Elvira Nabiullina said that Russia would not sell oil to the countries that had imposed the price cap.

Oil markets ignore the issue and the potential supply problems that can arise from implementing the price cap. WTI oil failed to settle above the $120 level in June and has recently declined towards the $90 level.

However, the topic of the price cap on Russian oil will ultimately have more impact on oil price dynamics.

What Is The Idea Behind The Price Cap?

G7 countries plan to use their financial dominance to ban insurance, transportation and financing of Russian oil exports for countries that buy Russian oil above a specified price.

Some publications discussed a $40-60 price range that will keep Russia interested in producing oil.

To implement the price cap, G7 must create a “cartel of buyers”. If G7 countries are successful and the biggest consumers participate, Russia will face a tough choice. The country will have to either supply oil at a specified price or lose oil revenues, which are vital for its budget.

Russian Oil Exports

In June, Russia’s oil exports totaled 7.4 million bpd, compared to the average of 7.75 million bpd in January – June. Sanctions have made Russian oil “toxic”, and Russia’s Urals is sold at a material discount to Brent oil.

According to Neste, the current spread between Urals and Brent exceeds $30. As Brent is trading near the $95 level, Russia sells its oil for about $65 per barrel.

In this situation, a price cap set at the $60 level does not look like a big problem for Russia as it is already selling its oil close to this level.

Russian Ruble And Sanctions

USD/RUB touched highs near the 120 level in March when foreign investors rushed out of the country while Russian citizens bought foreign currency in fear of a total financial collapse.

In response, the Russian Central Bank imposed currency controls. Meanwhile, Russia’s imports dropped due to sanctions. A combination of currency controls and declining imports strengthened the ruble. USD/RUB touched lows at the 50 level in late June before rebounding to 60. The strong ruble is a headache for Russian exporters, while importers cannot benefit from the situation as many potential suppliers cannot sell goods to them due to sanctions.

Russia’s current problem is the excessive flow of foreign currency. Even worse, the “virtual” money, dollars or euros, can turn to nothing at any time if the sanction war escalates. The Western countries have already frozen the assets of the Russian Central Bank, which is now working hard to minimize the use of dollars and euros inside Russia.

Put simply, Russia does not want too much foreign currency that can be frozen at any time, and that cannot be used to buy goods and services. This is important to understand when we consider the potential reaction to the oil price cap mechanism.

Politics Trumps Economics

The year 2022 is full of examples when countries implemented actions and measures that would hurt them economically if they believed that it was politically important to do so.

There is little reason to think that Russia would look at the oil price cap mechanism as an economic exercise. Most likely, the decision will be purely political.

As we have discussed above, Russia does not need foreign currency that cannot be used to buy goods. As a result, Russia may want to cut exports to countries that participate in the price cap mechanism and sell oil to willing buyers.

In 2021, Russia exported 2.4 million barrels to the EU. Assuming that Russian exports decline by about 4 million barrels in 2023 (extreme scenario), the price of oil may easily settle in the $100 – $150 range or even higher.

Interestingly, the revenue (in rubles, which is important for the Russian budget) that Russia will get by selling 7.4 million bpd at $60 per barrel with USD/RUB at 60 is almost equal to the revenue that Russia will receive by selling 3.4 million bpd at $100 per barrel with USD/RUB at 80. Before February, USD/RUB fluctuated near the 75 level, and the country could afford USD/RUB in the 70 – 90 range without triggering severe inflation.

All in all, it remains to be seen whether the price cap on Russian oil will be successful. To have a real chance for success, G7 will need China to join the deal. Politically, this scenario looks increasingly unlikely after Pelosi’s visit to Taiwan. China will still get Russian oil at a discount and get a competitive advantage over U.S. and EU if oil rallies towards the $150 level.

From a trading point of view, the attempt to implement the price cap mechanism may lead to a total cut of supplies to participating countries and lead to a massive rally in the oil market. However, traders will have to wait until October – November before markets will start to price in such scenarios.

For a look at all of today’s economic events, check out our economic calendar.

Oil Price Prediction – Oil Tries To Settle Above The $90 Level

Key Insights

  • WTI oil rebounds at the start of the week. 
  • Risk appetite is strong, and traders ignore recession fears.  
  • Weak dollar provides additional support to oil prices. 

WTI Oil Starts The Week On A Strong Note

WTI oil is moving higher at the start of the week as traders bet on a rebound after the recent sell-off. The appetite for risk is growing, which is bullish for oil markets. Meanwhile, the U.S. dollar found itself under pressure, which served as an additional positive catalyst for WTI oil.

Geopolitical factors had little impact on oil today. China continues its military drills near Taiwan, but markets do not expect that these drills will lead to a real conflict.

At this point, traders are more sensitive to economic news rather than geopolitical news. Recession fears pushed oil towards the $90 level, but the recent rally in U.S. stock markets indicates that many traders believe that the economy is strong enough to support solid demand for energy.

What’s Next For WTI Oil?

WTI oil is down by more than 25% from the highs that were reached back in June. Most likely, the major pullback will attract some speculative traders who are willing to bet on a rebound towards the $100 level.

Recession fears, Fed tightening, and sales from the strategic reserve have contributed to the recent pullback. In the upcoming months, the price of oil will remain in political crosshairs as it is a major contributor to inflation.

The key question is whether lower oil prices will lead to higher demand despite recession fears. In case these fears are overblown, we will see signs of stronger demand in the upcoming oil market reports from EIA. If traders realize that the situation in the economy is not bad, oil may quickly get to the test of the $100 level.

For a look at all of today’s economic events, check out our economic calendar.

U.S. Dollar Is Losing Ground While Traders Start To Prepare For Inflation Reports

Key Insights

  • U.S. dollar is moving lower as Treasury yields decline. 
  • Currency markets may be choppy until Wednesday, when the U.S. releases inflation reports. 
  • Until then, the U.S. Dollar Index may remain stuck in the 105.40 – 107 range. 

U.S. Dollar Is Under Pressure At The Start Of The Week

The U.S. dollar is losing ground against a basket of currencies at the start of the week as risk appetite continues to grow.

There are no important economic reports scheduled to be released today, so traders focus on the dynamics of Treasury markets. The yield of 10-year Treasuries has pulled back below the $2.80% level, which was bearish for the American currency.

Meanwhile, riskier assets like stocks were also in demand, which put additional pressure on the American currency.

At the same time, it’s too early to say that demand for safe-haven assets has collapsed. The price of gold is moving higher, while declining Treasury yields highlight the growing demand for the U.S. government bonds.

What’s Next For The U.S. Dollar?

This weeks, traders will be waiting for the important CPI and PPI reports from the U.S. These reports will have a major impact on the market’s evaluation of Fed’s next moves.

In this light, it remains to be seen whether the U.S. Dollar Index will be able to gain strong momentum on Monday or Tuesday. Currently, the U.S. Dollar Index is stuck between the resistance near the 107 level and the 50 EMA at 105.40. Most likely, it will need significant catalysts to move out of this range, and such catalysts may not be present until the U.S. releases inflation reports.

Meanwhile, traders will continue to monitor the dynamics of the U.S. government bond markets. From a big picture point of view, Treasury yields are trying to stabilize after the strong pullback in July. However, this stabilization may soon end as traders will react to U.S. inflation data.

For a look at all of today’s economic events, check out our economic calendar.

U.S. Dollar Tests Weekly Highs As Traders Prepare For Hawkish Fed

Key Insights

  • U.S. dollar rallies after the stronger-than-expected Non Farm Payrolls report. 
  • The markets have started to price in an aggressive rate hike at the next meeting. 
  • Rising tensions between U.S. and China may provide more support to the American currency ahead of the weekend. 

Strong Non Farm Payrolls Report Pushes U.S. Dollar Index Towards The 107 Level

U.S. dollar is moving higher against a broad basket of currencies as traders react to a stronger-than-expected Non Farm Payrolls report.

The FedWatch Tool indicates that the probability of a 75 bps hike at the next Fed meeting has increased to 65.5%. Not surprisingly, Treasury yields are moving higher as traders have started to price in an increased probability of an aggressive rate hike. As a result, the yield of 10-year Treasuries has recently made an attempt to settle above 2.85%. Rising Treasury yields are bullish for the U.S. dollar.

Interestingly, S&P 500 managed to rebound after the sell-off at the start of the trading session, which indicated that risk appetite remained strong despite rising expectations of a 75 bps hike. The risk-sensitive WTI oil has also rebounded from multi-month lows.

What’s Next For The U.S. Dollar?

Traders will remain focused on the dynamics of Treasury yields. In case the current rebound continues, the U.S. Dollar Index will have a good chance to settle above the 107 level.

The dynamics of riskier assets like stocks or oil are also worth monitoring. In case risk appetite stays strong despite hawkish Fed, the U.S. dollar may find itself under pressure.

It remains to be seen whether risk appetite will remain strong ahead of the weekend due to rising tensions between U.S. and China after Pelosi visit to Taiwan. In case the situation escalates further and China takes more economic steps against Taiwan, the safe-have U.S. dollar may get more support.

For a look at all of today’s economic events, check out our economic calendar.

USD/CAD Price Prediction – Job Reports Push Canadian Dollar To New Lows

Key Insights

  • The U.S. Dollar Index is up by about 1% after the release of strong job market data. 
  • In Canada, job market reports were disappointing. 
  • WTI oil is trading at multi-month lows, which puts additional pressure on the Canadian currency.

Dollar Rallies As Non Farm Payrolls Report Exceeds Expectations

USD/CAD gained strong upside momentum after the U.S. and Canada released employment reports for July.

In Canada, the Employment Change report indicated that the economy lost 30,600 jobs in July, compared to analyst consensus, which called for a gain of 20,000 jobs. Unemployment Rate remained unchanged at 4.9% as Participation Rate declined.

The real shock for the market came from the U.S. Non Farm Payrolls report indicated that the U.S. economy added 528,000 jobs in July, compared to analyst consensus of 250,000. The previous reading was revised from 372,000 to 398,000. Unemployment Rate declined from 3.6% to 3.5%. Put simply, the job market remains in a good shape.

Traders have immediately reacted to the news. The probability of a 75 bps hike at the next Fed meeting increased to 63.5%. Not surprisingly, expectations of a hawkish Fed provided strong support to the U.S. dollar, which rallied against a broad basket of currencies.

WTI Oil Tests New Lows

The difference between the U.S. employment reports and Canada’s employment reports is bullish for USD/CAD. In addition, recession fears continue to put pressure on the oil market.

WTI oil managed to settle below the $90 level and is testing multi-month lows. Strong dollar may put additional pressure on commodity markets and push WTI oil to new lows.

In case WTI oil gains additional downside momentum and heads towards the $95 level, Canadian dollar and other commodity-related currencies will find themselves under more pressure. A combination of strong dollar and weak oil may push USD/CAD above the 1.3000 level in the upcoming trading sessions.

For a look at all of today’s economic events, check out our economic calendar.

Natural Gas Price Prediction – Support At $8.00 Stays Strong

Key Insights

  • Natural gas received support near $8.00 and bounced back after the release of the EIA report. 
  • Working gas in storage increased by 41 Bcf from the previous week. 
  • A move above $8.35 will push natural gas back to the $8.50 level. 

Natural Gas Price Attempts To Rebound After Touching Lows Near The $8.00 Level

Natural gas prices are trying to rebound after the release of the EIA Weekly Natural Gas Storage Report, which indicated that working gas in storage increased by 41 Bcf from the previous week. Analysts expected that working gas in storage would grow by 29 Bcf. At current levels, stocks are 337 Bcf below the five-year average for this time of the year.

The weather forecast remains favorable for strong natural gas demand. At the same time, problems at Freeport LNG continue to impact the domestic market, leading to a higher-than-expected build in stocks.

Meanwhile, the situation in Europe remains extremely tense, as Russia’s Gazprom has recently stated that delivery of the Nord Stream turbine is impossible due to sanctions. There is a serious risk of a full cut of supplies from Russia to Europe in case the situation escalates further.

There is no immediate impact on the U.S. domestic market. However, it is clear that once Freeport LNG is back online, every ounce of natural gas that can be exported to Europe or Asia will be exported due to the high spread between domestic U.S. prices and international LNG prices. In this light, the rally in Europe’s natural gas market provides psychological support to the U.S. natural gas market.

Natural Gas Stays In The $8.00 – $8.50 Range

natural gas august 4 2022

Natural gas received support near $8.00 and is currently trying to settle back above $8.35. In case this attempt is successful, it will move towards the next resistance, which is located near the recent highs at $8.50. This resistance level has been tested several times and proved its strength.

A move above $8.50 will push natural gas towards the resistance at $8.75. If natural gas climbs above this level, it will head towards the resistance at $9.00.

On the support side, natural gas needs to stay below $8.35 to have a chance to gain downside momentum in the near term. The next support level is located at $8.15. If natural gas declines below this level, it will head towards the next support level at $8.00.

For a look at all of today’s economic events, check out our economic calendar.

USD/CAD Price Prediction – Canadian Dollar Is Under Pressure As Oil Tests New Lows

Key Insights

  • USD/CAD is gaining some ground as oil markets are moving lower.
  • If the sell-off continues, USD/CAD will get to the test of the 1.2900 level. 
  • Traders should note that tomorrow’s employment reports will have a significant impact on USD/CAD dynamics.

Traders Wait For Employment Data

USD/CAD is gaining some ground today while traders prepare for tomorrow’s employment reports from the U.S. and Canada.

In the U.S., Non Farm Payrolls report is expected to show that the economy added 250,000 jobs in July. Unemployment Rate is expected to remain unchanged at 3.6%.

The market will be extremely sensitive to the Non Farm Payrolls report. A strong report will signal that the Fed can make an aggressive rate hike. Currently, the FedWatch Tool indicates that there is a 59.5% probability of a 50 bps rate hike at the next Fed meeting. The probability of a 50 bps hike has recently increased, putting some pressure on the American currency.

In Canada, Employment Change report is projected to show that the economy added 20,000 jobs in July. Unemployment Rate is projected to increase from 4.9% in June to 5% in July.

Oil Price Dynamics May Impact USD/CAD Ahead Of Employment Reports

Today, the U.S. dollar is losing some ground against a broad basket of currencies as Treasury yields are moving lower. However, the American currency managed to move higher against the Canadian currency as WTI oil found itself under pressure amid reports about spare production capacity in OPEC. According to the reports, this spare production capacity can be used if the world faces supply crunch in winter.

If WTI oil settles below the $90 level, it will gain additional downside momentum and move towards the $85 level, which will be bearish for commodity-related currencies, including Canadian dollar. In case the sell-off in the oil market intensifies, USD/CAD will get to the test of the resistance at 1.2900.

However, traders should keep in mind that tomorrow’s employment data will likely have a bigger impact on USD/CAD compared to the dynamics of the oil market.

For a look at all of today’s economic events, check out our economic calendar.

Will Saudi Oil Save Consumers If Russian Exports Collapse In Winter?

Key Insights

  • Reports suggest that OPEC members may raise production by as much as 2.0 – 2.7 million bpd in case of energy shortage in winter. 
  • Historic data suggests that major production increases from Saudi Arabia and UAE are possible. 
  • However, it remains to be seen whether record production levels are sustainable, and it’s too early to tell whether OPEC members are ready to commit to a significant production boost. 

Saudi Arabia And UAE Are Reportedly Ready To Raise Production In Case Of Supply Problems In Winter

Yesterday, OPEC+ raised its production growth target by a mere 100,000 bpd, boosting fears that the group has no spare capacity to meet demand in case of additional supply disruptions.

However, a recent Reuters report suggests that Saudi Arabia and UAE are saving “oil firepower” to meet demand if the world faces a supply crisis this winter. According to the report, Saudi Arabia, UAE and some other OPEC members have 2.0 – 2.7 million bpd of spare capacity.

According to the most recent OPEC Monthly Oil Market report, Saudi Arabia produced 10.46 million bpd in Q2 2022, up from 10.16 million bpd in Q1 2022 (information based on secondary sources). UAE produced 3.05 million bpd, up from 2.95 million bpd in Q1 2022. Meanwhile, production declined in Gabon, Libya, and Nigeria as these countries faced various obstacles.

The Key Question Is Whether Record Production Levels Are Sustainable

Saudi Arabia reached record production in April 2020, when it pumped as much as 12 million bpd during a price war with Russia. It is not clear whether the country can maintain this level of production for more than a few months. UAE oil production topped near the 4 million bpd level during the same price war.

At first glance, the estimate of an additional capacity of 2.0 – 2.7 million bpd looks plausible. However, only practice can tell whether these levels are sustainable for Saudi Arabia and UAE. Traders should note that both countries have pumped oil at record levels for a very short period of time, so they may face significant challenges if they have to produce at such levels for 6 – 12 months.

It is not clear why Saudi Arabia should try to put pressure on oil prices at a time when the oil market is moving lower due to recession fears. WTI oil declined from June highs near the $125 level to the $90 level and continues to move lower.

At this point, it looks that it is premature to expect that Saudi Arabia or UAE will be ready to invest in raising oil production to record levels in winter at a time when the fate of Russian oil exports is not clear.

That said, the current trend in the oil market is bearish, and oil will certainly need additional positive catalysts to break the downside trend.

For a look at all of today’s economic events, check out our economic calendar.

AMTD Digital: Mysterious Stock Gets Bigger Than Disney

Key Insights

  • AMTD Digital touched highs at $2555 a few days after an IPO priced at $7.80.
  • There were no news to move the stock. 
  • In the longer-term, AMTD Digital will fall from current levels. 

Is Meme Stock Trading Back In Fashion?

While some traders have already forgotten about meme stocks, miracles still happen in the market. ADS (American Depositary Share) of AMTD Digital, a digital solutions platform from Hong Kong, soared from $7.80 to $2555 (!) after the IPO. The stock has already pulled back towards the $1000 level, but the rally is still enormous.

There were no news to trigger the huge rally. As a response to the abnormal price action, AMTD Digital published a “thank you note” to investors on its website. The company stated: “To our knowledge, there are no material circumstances, events nor other matters relating to our company’s business and operating activities since the IPO date.”

Even after the major pullback, AMTD Digital has a market cap of more than $203 billion. AMTD Digital is more expensive than Oracle, Nike, Disney, or McDonald’s!

What’s Next For AMTD Digital?

Not surprisingly, traders from social media forums like WallStreetBets have already noticed the stock. However, there were no active discussions at the start of the rally, so it is not clear what served as the key catalyst behind the move.

Traders should note that AMTD IDEA is a majority shareholder of AMTD Digital. Shares of AMDT IDEA soared on August 2, but quickly found themselves under pressure and started to pull back. Judging by the market action in AMTD IDEA, traders do not expect that the gains in AMTD Digital will hold, as the market capitalization of AMTD IDEA is just $1.93 billion.

This is not surprising as a little-known company with yearly revenue of less than $200 million has suddenly received a valuation that exceeds the market cap of huge global corporations.

Trading in AMTD Digital will remain highly volatile in the upcoming days. In the longer-term, the stock will move towards the IPO valuation. Traders who want to sit through all the volatility should note that they are risking losing most of their money.

For a look at all of today’s economic events, check out our economic calendar.

Oil Price Prediction – Oil Drops Towards New Lows

Key Insights

  • Crude inventories increased by 4.5 million barrels, driven by the strong increase in crude oil imports. 
  • Domestic oil production stays at 12.1 million bpd despite the recent pullback in oil markets. 
  • OPEC+ decided to increase its production target by 100,000 bpd, but the impact of this decision will be minimal. 

Crude Inventories Unexpectedly Increase

WTI oil found itself under pressure after the release of the EIA Weekly Petroleum Status Report, which indicated that crude inventories increased by 4.5 million barrels. Analysts expected that crude inventories would decline by 0.6 million barrels.

The increase was driven by crude oil imports, which averaged 7.3 million bpd, up by 1.2 million bpd from the previous week. Gasoline inventories grew by 0.2 million barrels, while distillate fuel inventories decreased by 2.4 million barrels.

Meanwhile, domestic oil production remained unchanged at 12.1 million bpd. This is not surprising as oil prices have settled below the $100 level in recent weeks, so there is less incentive to boost production to new highs.

OPEC+ Raises Production Growth Target By 100,000 Bpd

Today, OPEC+ decided to increase its production growth target by just 100,000 bpd despite pressure from the U.S. administration to put more oil into the market.

Importantly, this increase should be proportionally spread among group members. As some OPEC+ members are struggling to meet their current quotas due to production problems and previous underinvestment, the decision to increase production by an additional 100,000 bpd will not have any material impact on the oil market.

Meanwhile, it is clear that oil markets are worried by the slowdown of the world economy. Unlike the U.S. equity market, which has already rebounded towards June highs, oil market traders are worried that demand for oil may decline in the second half of this year. The U.S. sales from the strategic reserve put additional pressure on the market, although it should be noted that the spread between WTI oil and Brent oil has started to decrease.

Traders should watch whether the $90 level holds in the upcoming trading sessions. A move below this level may trigger a sell-off.

For a look at all of today’s economic events, check out our economic calendar.

U.S. Dollar Rallies After ISM Non-Manufacturing PMI Exceeds Expectations

Key Insights

  • Strong ISM Non-Manufacturing PMI and Factory Orders reports provide significant support to the U.S. dollar. 
  • Markets are starting to price in an aggressive rate hike at the next Fed meeting in September. 
  • The U.S. Dollar Index tries to settle back above the 106.50 level.

Markets Begin To Prepare For A 75 Bps Hike At The Next Fed Meeting

U.S. dollar gained upside momentum after the U.S. reported that ISM Non-Manufacturing PMI increased from 55.3 in June to 56.7 in July, compared to analyst consensus of 53.5.

The surprising strength of the services segment provided significant support to the American currency. According to FedWatch Tool, the probability of a 50 bps rate hike at the next Fed meeting in September declined to 48.5%. Meanwhile, the probability of a 75 bps hike increased to 51.5%. Put simply, the markets are starting to prepare for another aggressive rate hike at the next meeting.

Not surprisingly, major currencies have immediately found themselves under pressure against the U.S. dollar. EUR/USD has quickly moved below the 1.0150 level, while GBP/USD dropped towards 1.2110.

What’s Next For U.S. Dollar?

Traders will focus on rate hike expectations in the upcoming trading sessions. Today’s ISM report has already provided additional support to Treasury yields, which continue to rebound after the recent pullback.

In addition, the Factory Orders report indicated that Factory Orders increased by 2% month-over-month in June, compared to analyst consensus of 1.1%.

While many important economic reports will be released ahead of the next Fed meeting on September 21, the current situation looks favorable for an aggressive rate hike that will push the target rate to 300 – 325 bps. This is bullish for the U.S. dollar.

Traders should also monitor the dynamics of EUR/USD. In case EUR/USD gets back to the key 1.0000 level, it will have a good chance to settle below it and move towards 0.9500, which will trigger another bullish wave for the American currency.

For a look at all of today’s economic events, check out our economic calendar.

USD/CAD Price Prediction – U.S. Dollar Stays Strong As Pelosi Lands In Taiwan

Key Insights

  • Demand for the safe-haven dollar increased ahead of Pelosi visit to Taiwan. 
  • Worst-case scenarios did not materialize, but demand for the U.S. dollar remained strong. 
  • USD/CAD needs to get above the 50 EMA at 1.2880 to continue its rebound. 

Pelosi Visit To Taiwan Has Begun

USD/CAD continues its attempts to settle above the resistance at 1.2850, while the U.S. dollar is gaining some ground against a broad basket of currencies.

Pelosi visit to Taiwan is the central topic of the day for currency markets. The plane with Pelosi has already landed in Taipei, so worst-case scenarios did not materialize.

Interestingly, the safe landing did not trigger a risk-on move in the currency markets. The U.S. dollar was moving higher ahead of Pelosi visit, and the American currency continues to trade near daily highs against a broad basket of currencies.

Meanwhile, WTI oil has started to rebound from recent lows amid geopolitical tensions. This rebound is bullish for commodity-related currencies, including Canadian dollar. However, it should be noted that Pelosi visit and China’s comments after the visit will have the biggest impact on currency markets today.

USD/CAD Tries To Settle In The 1.2850 – 1.2880 Range

usd cad august 2 2022

USD/CAD is currently trying to stay above the 1.2850 level. In case this attempt is successful, it will get to another test of the resistance at the 50 EMA at 1.2880.

A move above the resistance at the 50 EMA will open the way to the test of the next resistance level at 1.2900. If USD/CAD manages to settle above this level, it will head towards the resistance at 1.2915.

On the support side, USD/CAD needs to settle back below 1.2850 to have a chance to gain downside momentum in the near term. The next support level for USD/CAD is located at 1.2825. In case USD/CAD declines below this level, it will head towards the next support at 1.2800. A successful test of the support at 1.2800 will push USD/CAD towards the support level at 1.2780.

For a look at all of today’s economic events, check out our economic calendar.