China's Reopening, a Weaker Dollar and Monetary Policy Impact Crude Oil Prices

Over the past 24-hours the US Dollar saw no major price movements and kept within its current price range. This is a typical movement as we edge closer to tomorrow’s major announcement; the US inflation figures. Inflation figures are expected to again decline with the CPI figure possibly dropping to 0.0%. The lower the figure the better for the US stock market but can further strain the US Dollar. 

No matter the announcement tomorrow, most economists are likely to stick to their predictions that the Fed will stop hikes over the next 2-months. This is large because a Federal Fund Rate above 5.5% will definitely trigger a sharp economic decline. Members of the Federal Open Market Committee spoke earlier this week indicating a less hawkish policy going forward. Both Mr. Bostic and Ms. Daly have confirmed another 75 basis point hike is not an option. 

The US Dollar Index this morning has declined by 0.10% to 103.14. The index is hovering below the 52-week average price and below the daily price range. Both data indicate a bearish trend in the medium to long term, but traders should be cautious above volatility close to the CPI announcements. Furthermore, the US stock market saw mixed price movements as we had discussed in yesterday’s market analysis. US indexes had formed a bearish breakout but then formed a price correction and moved onto a new daily high. 

EUR/USD 30-Minutes Chart on January 11th 

All three major US indices moved onto a higher high during yesterday’s US trading session. According to Bloomberg, stock investors are currently pricing in an economic soft landing and also support from the Federal Reserve. These factors and predictions will need to materialize if the stock market is to avoid another bearish run. 

XAU/USD - The Bullish Trend Continues 

Gold against the US Dollar has formed its fourth consecutive bullish candlestick and has increased by over 3% this year so far. The price this morning has renewed its price highs and is now trading at the highest price since May 2022. The price is finding support from the weakening monetary policy and the devalued US Dollar. However, traders are evaluating if there are also other reasons why the Safe Haven asset is finding support while the economy is currently not showing major signs of decline. 

The well-known economist, David Neuhauser, has advised that large institutions may be preparing for possible rate cuts and recession which may occur later in the year. Mr. Neuhauser also advised smaller countries are specifically at high risk. Furthermore, technical analysis is currently providing mainly bullish signals. Take a look at today’s technical analysis video below:

 

Crude Oil - The CPI Figure is the Main Focus

Crude oil this week is continuing its attempt to regain lost ground from last week’s sharp decline. The asset specifically declined last Tuesday and Wednesday when the price shaved off more than 9% in value. The price has since increased by 3.20% over 5 trading days but investors are weary that the upward price movement is still experiencing little momentum. 

Crude Oil 30-Minutes Chart on January 11th 

The price this morning has so far increased in value but still remains lower than this week’s price highs. At the moment, technical analysis is not providing strong signals due to weak price movement. For example, the price has formed a symmetrical triangle with no significant impulse waves. Therefore investors are largely concentrating on the fundamental side. The price has been supported by three influential factors; the reopening of China, a weaker Dollar and a possible end to the global restrictive monetary policy. 

An economic decline this year is expected regardless of the reopening of China, this has been one of the reasons why the price is struggling to find significant bullish price movement. The US Department of Energy has advised that energy production in the States over the next month is likely to increase by 70,000 barrels, while demand is expected to decrease to 100.48 million barrels.

Investors are also happy to see that there has been no major reaction from the Russian Government regarding the EU and G7’s price cap. However, this may change in February when most of the sanctions come into play. In addition to this, politicians have advised that the risk of shortages has been lowered which could also support the European economy. 

Today, investors are awaiting the oil inventories which are expected to show a lower figure compared to the previous week. However, the main price driver this week is likely to be tomorrow’s Consumer Price Index considering the importance of the global monetary policy and Oil’s correlation with the US Dollar.

Summary:

• The US Dollar remains within the established price range as traders await tomorrow’s Consumer Price Index. 
• Gold forms its fourth day of price gains and reaches an 8-month price high. Traders expect a weaker monetary policy and economy.
• Crude Oil struggles to find support despite the re-opening of China’s borders.
• The US Department of Energy has advised they expected demand to decline in 2023.