This week began with the fallout from weekend events, most notably the attack on Saudi Arabia’s largest oil production centre.

While the source of the attack has yet to be officially confirmed, the effect on Saudi oil production was immediate. The result would be for Crude and Brent Oil to open higher by over 10% and for equity futures to point to lower openings. For FX, USDJPY bore the brunt of the uncertainty moving as low as 107.50. XAU moved the other way, hitting a high of $1,512.

EUR and GBP both moved lower against the USD. GBP has had quite the rally off the recent low around 1.1950 and ahead of the meeting between Boris Johnson and EU officials, traders were happy to take some profits.

EUR, on the other hand, suffered from one ECB member’s comments that incoming ECB head Lagarde would like to keep an ultra-loose monetary policy. Not surprising news but a timely reminder of the current monetary situation.

As the US day gets going, crypto sees a quick sell-off with BTC down $200 to $10,130 and ETH reversing some earlier gains back to $189. DJ futures point to a lower open by 100 points as traders digest the likely long-term effect on oil prices from the weekend’s events in Saudi.

EURUSD begins the session at 1.1025 and GBP 1.2450. USDJPY is 107.88 and XAU $1,500. US bond yields have moved lower with the 10Y down to 1.86% to start the day.

The recurring theme for the US session would be USD strength even with yields lower. USDJPY briefly rallies above 108.00 and EUR dips to 1.1094 as the market looks for some safe havens with the price of Oil showing no sign of moving back lower.

Add in a Trump Tweet about the ‘strongest dollar ever’ and the ‘greenback’ was in for a good day. For the crypto markets, the bulls might have expected some love with all of the geopolitical tensions and eventually, we seek out some gains.

BTC rallies back over $10,300 and ETH bounces to $199.50. As the day draws to a close, equities never recovered from the initial fall, the DJ ending lower by 142 points. The USD finishes near its highs with USDJPY back to 108.10 and EUR at 1.1000. XAU closes at $1,499.

Oil was the big mover and shaker for reasons already alluded to. The knee jerk reaction was an obvious one but what will really count is the time taken for oil supply to return to normal levels and the possible escalation of events in the Middle East.

So let’s take a quick look at some key levels. As you can see from the 2H chart, we have made 3 lows around the $50.50 are over the past 3 months – that is the obvious level of support. For strong resistance, we turn to April’s high around $66.57, which afte4r today’s gap higher is not a million miles away.

If the disruption to supply continues or the situation in the Middle East escalates, the high of $76.88 from October 2018 is the next major level of resistance. Expect there to be plenty of volatility ion the oil markets over the coming days.

David Hannigan
Author

A graduate of the Cass Business School, Dave's career began with Credit Suisse as an Equity Options Trader on the London Stock Exchange, before moving into the world of FX with Chemical Bank and Citibank. 1994 saw him join National Australia Bank, first as a Senior Dealer, then Senior Vice President and Chief Dealer.

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