Investors were mainly intrigued by two developments within the trading markets. First was the US Dollar again significantly declining after more poor economic data from the US. And the second was related to another strong decline in the price of crude oil, which fell by 4.5% during yesterday’s trading session. The decline in the price of crude oil was largely linked to more COVID related news from China and the current EU negotiations on an Oil price cap.
EUR/USD
The EUR/USD increased in value yesterday and is still trading higher during this morning’s Asian Session. During yesterday’s European session, the price originally declined to a lower low giving potential signals of a downward trend. However, poor US economic data caused the price to move in favor of the Euro again. Since the start of the US session yesterday, Indicators have been producing bullish signals.
The price of the Euro against other competitors is currently less attractive and the Euro Currency Index has declined. As a result, it's clear that the price movement is more related to the US Dollar. The US Dollar Index is currently trading at 105.76, almost at a 4-month low.
The US Dollar was mainly pressured from the Flash Services and Manufacturing PMI which read much lower than expected. The Manufacturing PMI was a specific concern for investors as the index declined below 50.0 which indicates a possible economic contraction. In addition to this, a declining manufacturing sector can also keep inflation higher for longer and pressure the employment sector.
The Services PMI also declined from 47.8 to 46.1, and the weekly Unemployment Claims increased to 240,000, which is the highest since August. European and UK PMI figures were also below 50.0 but higher than expected, which potentially supported the currencies.
The Federal Reserve’s Meeting Minutes continued to add fuel to the fire. Most members of the FOMC voiced their concerns about increasing interest rates too fast and the adverse impact on the economy. The report signaled a decreased interest rate hike for December. Currently, most experts estimate a 0.50% rate hike from both the Fed and the European Central Bank.
No major news is expected from the US or the EU this afternoon. However, investors will be focusing on the current negotiations taking place regarding the EU’s price cap on Russian oil imports. The decline in oil prices could lower inflation further, but only if prices remain low and do not correct back upwards again.
Crude Oil
The price movement of crude oil has been under pressure since the 14th of November. The decline has been mainly powered by prices being overbought, restriction in China, global economic slowdown and now a potentially softer EU stance against Russian oil.
This morning, the price is showing little volatility and mainly a sideways trend. However, yesterday the price declined by over $6 per barrel. Traders are now eager to see if the price will be able to form a clear bearish breakout at the current support level ($76.85). This may provide a signal for further downward price movement.
China has confirmed that the number of COVID-19 cases have increased to over 55,000 within a single day. This is the highest ever recorded in China and most cities are either in lockdown, partial-lockdown or have certain Covid related restrictions. This is likely to impact already-dwindling demand.
The EU is also negotiating on the current Russian oil price cap, which economists advise is likely to pressure oil prices further as it reassures markets on supply. Some states within the EU are pushing for a lower price cap in order to “punish” Russia further, whereas other members are pushing to a minimum of $70 per barrel. This is specifically being pushed for by members with large shipping industries and struggling economies, such as Greece.
Summary:
- USD declines significantly and the US Dollar Index is trading at a 4-month low.
- Flash Services and Manufacturing PMI came in much lower than expected, adding pressure on the USD.
- FOMC continues to indicate a lowered interest rate hike for December, with markets expecting a reduced 50 basis point hike.
- Crude oil declines after Chinese COVID cases reach all-time-highs. Most cities are in lockdown or living under high restrictions.
- Oil prices may be potentially supported by a less harsh price cap from the EU on Russian oil.
