The latest rise in oil prices may jeopardize the already complicated balancing act at the Fed (between containing manufacturing deterioration from the trade war) and Trump's managing of Saudi and Iran without provoking further price ascent. Yet, the US administration continues to send signals about reprisals against Iran and that helped crude to its 4th best day on record Monday. US crude oil is currently trading at $62 (from an earlier $63.38), while Brent is at $68.10 (from $71.95 earlier). CAD loses half of its gains as US equity futures head into the red. EUR is the strongest of the day after better than expected ZEW sentiment survey. Data points on Tuesday include US industrial production and homebuilder sentiment. The Premium JPY trade was stopped out, leaving only 1 trade in progress. A new trade shall be issued ahead of the US opening bell.
Oil finished Monday with an astounding $8 rally in the largest percentage climb since 2009 and fourth-highest on record. The attack on Iran sets in motion a wild amount of possibilities, including war between Iran and Saudi Arabia.
Trump's response has pointed the finger at Iran but stopped short of anything definitive. So far in his Presidency, he has largely ignored the drums of war and his firing of John Bolton underscored that just a week ago. Not to mention the fact, Congress is will unlikely authorise a strike on Iran.
This time, he's hinting that action may be in order but his tepid response so far suggests it may be limited. That may mean a further escalation down the line but if so, the market will revert to a focus on fundamentals and the ability of Aramco to bring production back online. On that front, reports vary widely with some suggesting nearly all of it could be restored in two weeks while others say it could be months.
Oil Complicates Fed Odds
Expect oil headlines to be a major factor in the days ahead but the Fed remains a key input. The odds of a cut fell to 95% from 100% a week ago. The oil jump complicates the decision because it creates a series of pros and cons. Higher gasoline prices for consumers and geopolitical uncertainty are negatives, but higher inflation and more investment/profits from US oil firms are positives. Ultimately, it's more of a reason to cut 25 bps as anticipated while sticking with a wait-and-see statement and message. Also, pay attention to the dissent and whether St Louis Fed president Bullard shall stick to his position of demanding a 50-bp rate cut after the oil spike.
Trading foreign exchange on margin carries a high level of risk and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to trade foreign exchange you should carefully consider your investment objectives, level of experience and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with foreign exchange trading and seek advice from an independent financial advisor if you have any doubts.
Recommended Content
Editors’ Picks
USD/JPY holds positive ground around 151.50 following Japanese CPI data
The USD/JPY pair holds positive ground for the second consecutive day near 151.45 on Friday during the early Asian trading hours. The cautious approach from the Bank of Japan to keep monetary conditions accommodative exerts some selling pressure on the Japanese Yen.
AUD/USD holds above 0.6500 in thin trading
The Australian Dollar managed to recover ground against its American rival after AUD/USD fell to 0.6484. The upbeat tone of Wall Street underpinned the Aussie despite broad US Dollar strength and tepid Australian data.
Gold price finishes Thursday’s session set to reach new all-time highs
Gold price rallied during the North American session on Thursday and hit a new all-time high of $2,225 in the mid-North American session. Precious metal prices are trending higher even though US Treasury yields are advancing, underpinning the Greenback.
Bitcoin price extends retreat from $69K as old whales shift their holdings to new whales
Bitcoin price continues to move further away from the $69,000 threshold, gaining ground as BTC bulls hope for a retest of the $73,777 peak. This is because of the general assumption that clearing this blockade would set the tone for a reach higher, marking a new all-time high.
Bears have been standing before a steamroller so far this year
Despite a pushback on rate cuts from Christopher Waller, and what was supposed to be cautious trading sentiment ahead of critical US inflation data released later on Friday, the S&P 500 rose on Thursday, marking its best first-quarter performance in five years.