MARKETS THIS WEEK

Crude

WTI crude oil prices plunged below $70 this week due to concerns about global economic slowdown, China’s stock market decline, a strong dollar, and falling copper prices. This has triggered worries about inflation and economic growth. OPEC’s production cuts haven’t been enough to stop the decline. Therefore the price could fall further to $58-63. US strategic reserve refills might offer some support, but overall the oil market remains bearish.


While oil demand hasn’t been negatively impacted by recession talks, hedge fund and CTA selling are contributing to the price decline. China’s manufacturing and jet fuel demand remain strong, and US demand for refined products is showing signs of a rebound. Oil prices continue to decline despite the ongoing conflict in the Middle East. Future market projections remain uncertain, with potential for a rebound to the low $90 range depending on OPEC+ adherence to production quotas.


Gas

Europe has managed to avoid severe gas shortages despite relying heavily on Russian gas, thanks to high storage levels and efficient redirection of supplies. Global natural gas prices have also fallen about 8% this week due to record-breaking US production, high storage reserves, and forecasts of a milder winter.


Gold

Gold surged above $2100 this week but lost about 3%. However the dollar’s weakness and falling bond yields and the recent upmove in gold is still a sideways trend as the perception of geopolitical risk diminishes. The anticipated recession and heightened volatility are likely to push the USD Index significantly higher in 2024, potentially causing a major sell-off in precious metals.


Silver

Silver faces vulnerability amid weak economic data, possibly revisiting 2022 lows in recessionary fears. Silver trails its post-pandemic peak. Job cuts, falling GDP estimates, weak data, rising interest rates and rising jobless claims, depreciating consumer confidence signal challenges to silver’s prospects. Spot silver fell little over 5% this week.


DXY Index

The DXY index, which measures the dollar’s strength against a basket of major currencies, fell below a critical support level of 105 last week. Risk-on sentiment led to a decline in US Treasury yields and the US dollar. These shifts were primarily influenced by the Fed’s decision not to raise interest rates and the employment data. However, the Fed’s hawkish tone still leaves room for further tightening. This week DXY remained sideways indicating the end of a corrective phase for the dollar, with potential for uptrend towards the 105 next week.


USD/JPY

This week’s 1.2% rise in the Yen was not due to the Bank of Japan’s potential hawkish shift, but rather to the risk-on sentiment that fueled the rally in global equities. A tighter BoJ policy in the current environment could actually hurt Japanese inflation and wages. Japanese investors could be returning to buy US Treasuries as the FX hedging costs become more favorable.


This week saw USD/JPY below 142. The corrective movement may end at the psychological 140. While a break above 145 would signal the resumption of the uptrend to 160. Yen requires the BOJ to maintain its dovish policy. BOJ board member Adachi has dismissed rumors of a monetary shift, suggesting they will maintain the current policy to combat deflation.


EUR/USD

The EUR/USD is facing a key test with upcoming data releases and Fed/ECB meetings. The dollar is strengthening due to mixed US data and limited Fed communication. And the euro is weakening on dovish ECB comments and weak European data. The EUR/USD may find a bottom around 1.0700 if the Fed remains dovish or the European data improves and causes weakened demand for the dollar.


GBP/USD

The GBP/USD will face a crucial test next week due to key data releases and forthcoming interest rate decisions from the Fed and the BoE. The dollar might strengthen as US data was mixed causing the risk-on sentiment to fade next week.


Stock market performance

This week saw continuation in risk appetite. Nasdaq, Dow Jones Industrial Average and the S&P 500 this week. While the current market sentiment is positive, its sustainability depends on several factors including economic conditions and geopolitical tensions. Efforts to keep tensions low in the Middle East are crucial in limiting their impact on markets. The current market sentiment is positive, driven by recent data and Fed decisions.


For more insights and analysis, visit UpTrendPicks.com

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