Investors Are Focused on Oil Volatility and Signals From the Fed

Yesterday we largely spoke about Crude Oil and the possibility of a further decline. The asset indeed saw a strong decline but also a clear price rejection. Overall, the asset saw the highest volatility among all assets. In addition to this, investors focused on the US Dollar, which continued to climb, and also rumors of a change in the UK’s Brexit stance. 

Crude Oil

The price had originally declined rapidly at the start of the US trading session by 5.20% for approximately 2-hours. The decline was triggered by expectations that the “West”, specifically the G7, would proceed with further restrictions on oil exports from Russia. More specifically, the G7 group is considering an oil price cap that would come into force in early December. According to reports, if approved, the announcement would be made by the end of the day tomorrow.

Crude Oil 1-Hour Chart on November 22nd

Of course, Russia did not approve and simply kept to its stance of either redirecting its supplies to other countries, specifically Asian countries, or lowering its supply. A lower supply does have the possibility of supporting the prices, however, reports arose claiming that OPEC would increase supply to compensate. This caused the price to drop to an 11-month low.

The price rejection was a result of simply buyers looking to take advantage of the reduced price but also Saudi Arabia confirming that OPEC would not increase supply. Therefore, the price movement would depend on how this story continues to develop. OPEC’s meeting scheduled for the first week of December will also play a big part in the “Supply and Demand”.

EUR/GBP

The price of the EUR/GBP continued to decline yesterday and the price formed a new lower swing, but saw strong support at 0.86440. The price this morning has increased but has still remained within a downward trend formation, traders only need to be cautious that the price does not increase above 0.86750 and 0.86928. If the price increases above these levels onto a higher swing, signals may change.

EUR/GBP 1-Hour Chart on November 22nd

The price movement has been strongly influenced by a possible change in the UK’s Brexit policy, which has now been denied by the UK Prime Minister. Reports arose that the UK may seek a Swiss-style agreement with the EU in order to assist with economic growth and their skilled worker shortage. However, Rishi Sunak has confirmed this is not an option, which slightly pressured the Pound.

The exchange rate will likely be influenced by tomorrow’s PMI reports for both the EU and UK. All PMI figures are expected to be below 50.0 except for the French Service PMI. Below 50.0 indicates a high possibility of economic contraction. However, traders will be looking to see how the actual figures perform against predictions.

USD/CAD

The price movement of the USD/CAD formed a clear breakout formation. The price broke below the 1.34970 support level and then retracted back to this level over the past 24 hours. This is known as a support level being flipped to a resistance. So far the price has found resistance at this level but has not formed more than a retracement. Traders will be looking to see if the price forms a bullish breakout or if the price corrects back down to 1.32220.

USD/CAD Daily Chart on November 22nd

Traders continue to monitor comments being made by members of the FOMC, attempting to price in the next rate hike. FOMC Member, Ms. Daly, advised last night that the policy should neither be too slow or too fast. Traders took this as a signal for a 50 basis point hike. However, the market will also be listening close to today’s speeches from George, Mester and Bullard.

Lastly, investors will be evaluating tomorrow’s PMI reports. If the figure is again lower than expected, it may pressure the US Dollar.

Summary:

• Crude oil prices decline to an 11-month low but correct up upwards after OPEC denies increasing output.
• The G7 Group is considering increasing restrictions on Russian Oil Exports.
• The UK Prime Minister denies that the UK will seek a Swiss-style relationship with the EU.
• Tomorrow’s PMI releases will strongly influence the EUR/GBP exchange rate.
• FOMC Member, Ms. Daly, seems to be in favor of a 50-basis point rate hike in December.