Oil Prices Ease After Hamas-Israel War Boost

Energy

Summary:

Israel declared a "war situation" after the deadly attacks of Palestinian militant organization Hamas, in a development that likely sets back efforts to normalize relations between Israel and key Arab states, such as Saudi Arabia – one of the world's top oil producers.

The International Energy Agency (IEA) in its latest monthly report sees Iran as one of the top sources of oil supply growth for the year. It also noted that the country's output rose by around 600,000 barrels/day in the first eight months, despite sanctions. Washington appears to have been overlooking the increase in Iran's oil shipments, since they help lower prices, but the new developments could lead the US to a more forceful stance and make any lifting of restrictions much harder.

The Middle East is an important energy hub and the military conflict erupted at a time when oil market is tight and inventories low, as a result of the massive supply cuts by Saudi Arabia, Russia and other OPEC+ members. On the other hand, concerns around demand have emerged as China's recovery has slowed and major central banks around the world largely point to sustained restrictive monetary setting.

USOil jumped after the Hamas attacks on Monday, facilitating a rebound from last week's steep losses. It tries to regain the initiative and return above the EMA200 (balck line) that would bring the 2023 highs back in the spotlight (95.05-96.52), but we are not yet convinced about the $100 narrative.

Despite the initial boost, USOil eases as it's still early to assess the full impact of the Middle East flare up. It remains below the EMA200 and this creates risk for lower lows towards 77.57. However, sustained weakness does not look easy under current conditions.

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Kevin Du

Cryptocurrency

Financial analyst Raoul Pal likens the evolving crypto market to the changing seasons, suggesting we're transitioning from a stagnant winter to a flourishing crypto spring.

Pal often employs seasonal analogies to elucidate market trends. Similar to the erratic spring weather, cryptocurrency markets exhibit their rhythm. Prices may ascend one day, plummet the next, and stabilize.

According to Pal, the recent plateau in crypto prices is tethered to liquidity issues. Markets, akin to plants, require a steady influx of resources to prosper; without fresh financial injections or monetary stimuli, they tend to stagnate.

Fourth Quarter Forecast

Pal foresees a narrative shift in the market as the fourth quarter unfolds. Historical data often shows a surge in crypto prices, particularly Bitcoin, during Q4. Having elaborated on this topic for nearly a year, Pal's forecasts are now under the spotlight.

Several impending events could potentially catalyze this growth. The anticipated launch of the Bitcoin spot ETF and the forthcoming Bitcoin halving in April are among the factors that might contribute to a bullish momentum. Yet, the unpredictable market dynamics render any projection uncertain.

The Macroscopic View and The Virtue of Patience

The overarching macro cycle underscores the interconnectivity within the financial ecosystem. While some sectors may witness stagnation, others could see growth.

Crypto markets are currently reacting to innovative digital assets like NFTs, which are in their cycle of expansion and correction. Pal advocates for patience, emphasizing that substantial transformations are a marathon, not a sprint.

Central to Pal's discourse is the monumental potential he sees in Bitcoin. He ardently believes everyone should have a Bitcoin stake, however minimal, advocating for an investment as modest as 0.1 BTC.

Source: Coinpedia

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Alex

Economic

Forex

The Australian Dollar (AUD) staged a recovery from recent losses, possibly buoyed by the uptick in Australian Consumer Inflation Expectations. The Melbourne Institute's Consumer Inflation Expectations for October has been reported at 4.8%, showing a slight increase from the September figure of 4.6%.

Australia's data indicated a modest uptick in consumer expectations regarding inflation, which can be linked to higher oil prices. The surge in petrol prices, likely influences consumer expectations about what lies ahead.

Additionally, the AUD/USD pair could gain strength as the possibility of another interest rate hike by the Reserve Bank of Australia (RBA) heightens.

The US Dollar Index (DXY) is struggling to hold ground around 105.70 at the time of writing due to the downbeat US Treasury yields. The US Dollar (USD) encounters challenges despite robust economic data from the United States (US), notably in wholesale inflation, and the disclosure of the Federal Open Market Committee (FOMC) meeting minutes.

The US currency seems caught in a struggle as various factors counterbalance the positive economic signals. Speculations are rife about the US Federal Reserve (Fed) potentially shelving the notion of a rate hike. This speculation gains momentum from dovish comments and neutral postures adopted by key officials, adding an element of uncertainty to the currency's outlook.

Daily Digest Market Movers: Australian Dollar retraces recent losses on higher Consumer Expectations

Australia witnessed a rebound in inflation in August, largely driven by elevated oil prices. This resurgence raises the probability of another interest rate hike by the Reserve Bank of Australia (RBA).
The unfolding Middle East conflict adds a layer of complexity to the situation, potentially prompting the RBA to implement a 25 basis points (bps) interest rate hike, reaching 4.35% by the year's end.
The heightened geopolitical tension is fostering a surge in demand for commodities, particularly energy and gold. This surge is exerting a positive influence on the performance of the AUD/USD pair.
Australia's Westpac Consumer Confidence showed that current buying conditions improved in October. The index rose 2.9% from the previous 1.5% decline in September.
US Producer Price Index (PPI) surged in September on a yearly basis, jumping from 2.0% to 2.2%, surpassing the anticipated 1.6%. Core PPI experienced a rise, climbing to 2.7% from the anticipated easing to 2.3%, surpassing the earlier figure of 2.5%.
The yields on US Treasury bonds experienced losses on Wednesday, with the 10-year US Treasury bond yield marking the lowest level at 4.54%.
The Federal Open Market Committee (FOMC) minutes shed light on a divergence of opinions, underlining the importance of data reliance. The consensus for additional interest rate hikes appears contingent on a significant uptick in inflation.
Some participants argue that as the policy rate approaches its peak, the focus should shift from the extent of rate increases to determining how long to maintain the policy rate at restrictive levels.
Speculation is rife about the Fed potentially abandoning the idea of a rate hike. This speculation gains momentum from dovish comments and neutral stances from officials, contributing to the nuanced economic landscape.
Fed Governor Christopher Waller advocates a watchful approach to rate developments, suggesting that tightening in financial markets "would do some of the work for us." On the other hand, Fed Governor Michelle Bowman leans towards another rate hike, citing inflation persisting above the Fed's 2% target.
Thursday's Consumer Price Index (CPI) release is generating heightened anticipation. Projections suggest a dip in the annual rate for September, sliding from 3.7% to 3.6%. The weekly Jobless Claims report follows and could contribute further insights into the economic landscape.

Technical Analysis: Australian Dollar consolidates near 0.6420, immediate resistance at 23.6% Fibonacci retracement

The Australian Dollar hovers around 0.6420, aligning with the 23.6% Fibonacci retracement level at 0.6429. This juncture poses a significant hurdle, and a clear breakthrough could pave the way for upward momentum, aiming at the psychological milestone of 0.6500. Conversely, on the downside, a key support level is situated around the 14-day Exponential Moving Average (EMA) at 0.6400. These delineated levels serve as vital indicators for potential shifts in the trajectory of the AUD/USD pair, influencing market sentiment and trader decisions.

Australian Dollar FAQs

What key factors drive the Australian Dollar?

One of the most significant factors for the Australian Dollar (AUD) is the level of interest rates set by the Reserve Bank of Australia (RBA). Because Australia is a resource-rich country another key driver is the price of its biggest export, Iron Ore. The health of the Chinese economy, its largest trading partner, is a factor, as well as inflation in Australia, its growth rate and Trade Balance. Market sentiment – whether investors are taking on more risky assets (risk-on) or seeking safe-havens (risk-off) – is also a factor, with risk-on positive for AUD.

How do the decisions of the Reserve Bank of Australia impact the Australian Dollar?

The Reserve Bank of Australia (RBA) influences the Australian Dollar (AUD) by setting the level of interest rates that Australian banks can lend to each other. This influences the level of interest rates in the economy as a whole. The main goal of the RBA is to maintain a stable inflation rate of 2-3% by adjusting interest rates up or down. Relatively high interest rates compared to other major central banks support the AUD, and the opposite for relatively low. The RBA can also use quantitative easing and tightening to influence credit conditions, with the former AUD-negative and the latter AUD-positive.

How does the health of the Chinese Economy impact the Australian Dollar?

China is Australia's largest trading partner so the health of the Chinese economy is a major influence on the value of the Australian Dollar (AUD). When the Chinese economy is doing well it purchases more raw materials, goods and services from Australia, lifting demand for the AUD, and pushing up its value. The opposite is the case when the Chinese economy is not growing as fast as expected. Positive or negative surprises in Chinese growth data, therefore, often have a direct impact on the Australian Dollar and its pairs.

How does the price of Iron Ore impact the Australian Dollar?

Iron Ore is Australia's largest export, accounting for $118 billion a year according to data from 2021, with China as its primary destination. The price of Iron Ore, therefore, can be a driver of the Australian Dollar. Generally, if the price of Iron Ore rises, AUD also goes up, as aggregate demand for the currency increases. The opposite is the case if the price of Iron Ore falls. Higher Iron Ore prices also tend to result in a greater likelihood of a positive Trade Balance for Australia, which is also positive of the AUD.

How does the Trade Balance impact the Australian Dollar?

The Trade Balance, which is the difference between what a country earns from its exports versus what it pays for its imports, is another factor that can influence the value of the Australian Dollar. If Australia produces highly sought after exports, then its currency will gain in value purely from the surplus demand created from foreign buyers seeking to purchase its exports versus what it spends to purchase imports. Therefore, a positive net Trade Balance strengthens the AUD, with the opposite effect if the Trade Balance is negative.

Source: FXSTREET

To stay updated on all economic events of today, please check out our Economic calendar

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Titan FX

Energy

Crude Oil Price Technical Analysis

Yesterday, we discussed how Gold and Crude oil prices opened with a gap higher this week due to the Israel-Hamas war. Oil prices climbed above the $85.00 resistance zone before the bears appeared. The death toll is still rising in Israel and the Gaza Strip, as missile attacks continue, and conflicts explode for a sixth day on Thursday. Crude Oil Price Could See Swing Moves Due to Israel-Hamas War_1

Crude Oil Price Could See Swing Moves Due to Israel-Hamas War_1

Looking at the 4-hour chart of XTI/USD, the price spiked toward the $87.00 resistance zone and the 200 simple moving average (green, 4-hour). It struggled to continue higher and formed a short-term high at $87.36.

Recently, there was a downside correction below the $86.20 support. The price is now trading well below the $87.00 zone, the 100 simple moving average (red, 4-hour), and the 200 simple moving average (green, 4-hour).

If it continues to move down, the bulls might appear near the gap-close region at $83.30. The next major support sits near the $81.80 zone. Any more losses might call for a test of the $80.50 support zone or a trend change and drop toward the $80.00 support zone.

On the upside, the price might face resistance near the $86.20 level. The next major resistance is near the $87.00 zone, above which the price may perhaps accelerate higher. In the stated case, it could even visit the $90 resistance.

Looking at gold prices, there was a steady increase above the $1,850 level and the bulls could aim a spike above the $1,880 resistance.

Economic Releases to Watch Today

US Consumer Price Index for Sep 2023 (MoM) – Forecast 0.3%, versus +0.6% previous.

US Consumer Price Index for Sep 2023 (YoY) – Forecast +3.6%, versus +3.7% previous.

US Consumer Price Index Ex Food & Energy for Sep 2023 (YoY) – Forecast +4.1%, versus +4.3% previous.

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FastBull Featured

Daily News

[Quick Facts]

1. Timiraos: Fed minutes show officials are divided on the future rate rise.

2. Yellen says the U.S. economic outlook is optimistic but risks still exist.

3. Fed's Collins says the central bank may have to hike again if data calls for it.

4. Russia requires some exporters to sell FX proceeds to stabilize the ruble.

5. Fed minutes show one more rate hike may be appropriate.

[News Details]

Timiraos: Fed minutes show officials are divided on the future rate rise

Federal Reserve officials were split over whether they would need to raise interest rates again this year when they decided last month to hold their benchmark policy rate steady, the Wall Street Journal correspondent Nick Timiraos wrote. A majority of participants judged that one more rate increase at a future meeting would likely be appropriate, while some judged it likely that no further increases would be warranted. The rise in long-term U.S. Treasury yields that began in August accelerated after last month's meeting. If long-term Treasury yields remain elevated, there may be less need for the Fed to raise interest rates again this year.

Yellen says the U.S. economic outlook is optimistic but risks still exist

U.S. Treasury Secretary Janet Yellen on Wednesday, October 11, continued to give an optimistic view of the U.S. economy. I still see as the base case for the United States to be a so-called soft landing, she said, that is, the inflation rate falls but the unemployment rate will not rise significantly. Unemployment remains low, but wage pressures that may contribute to the persistence of high inflation have eased, and inflation is falling, she added. However, the U.S. economy still faces risks, with global external shocks being one of them. The recent situation in Israel has caused additional concerns.

Fed's Collins says the central bank may have to hike again if data calls for it

Boston Fed President Susan Collins said on Wednesday that while the odds of the economy escaping a recession have grown, it's possible the central bank is not done with interest rate hikes aimed at bringing inflation back to its target. "I expect we'll need to hold rates at restrictive levels for some time – until we see evidence that inflation is on a sustained path back to 2%," Collins said.

"While we are likely near, and could be at, the peak for policy rates, further tightening could be warranted depending on incoming information," she said.

Russia requires some exporters to sell FX proceeds to stabilize the ruble

Russia has introduced a mandatory sale of foreign exchange earnings to 43 companies, including major oil exporters, in order to stabilize the ruble exchange rate, according to a decree signed by Russian President Vladimir Putin. For a period of 6 months, mandatory repatriation and sale of foreign exchange earnings on the Russian market is introduced for individual companies in the volumes and terms to be set by the government, the statement said. These include a number of companies related to the fuel and energy complex, metals industry, chemical and forestry industries, and grain. A government statement quoted Russian First Deputy Prime Minister Andrei Belousov as saying that the main purpose of these measures is to create long-term conditions for increasing the transparency and predictability of the foreign exchange market and to reduce the possibility of currency speculation.

Fed minutes show one more rate hike may be appropriate

The Fed minutes showed that monetary policy should remain restrictive for some time in order to continuously push inflation down; at the same time, the Fed found that risks have become more balanced. Participants generally judged that, with the stance of monetary policy in restrictive territory, risks to the achievement of the committee's goals had become more two-sided.

A majority of participants judged that one more rate increase at a future meeting would likely be appropriate, while some judged it likely that no further increases would be warranted. All participants agreed that the Committee was in a position to proceed carefully that policy decisions would continue to be based on the economic outlook as well as the balance of risks. The minutes showed that the Fed officials face a two-way policy outlook between the recession as well as the risk of too tight policy and the risk of sustained inflation above 2%. At that meeting, the Fed kept its benchmark interest rate at 5.25%-5.5% and hinted that interest rates would remain high for longer than expected after one more rate hike this year.

[Focus of the Day]

UTC+8 14:00 U.K. GDP MoM (Aug)

UTC+8 15:40 ECB executive Elderson speech

UTC+8 16:30 ECB Governing Councilor Villeroy delivers a speech

UTC+8 17:00 Peel, chief economist of the Bank of England, delivers a speech

UTC+8 17:00 European Central Bank Governor Holzmann speaks

UTC+8 18:00 ECB Governing Council member Nott speaks

UTC+8 18:50 ECB Governing Council members Vujcic and Vasle deliver speeches

UTC+8 19:30 The European Central Bank publishes the minutes of its September monetary policy meeting

UTC+8 20:30 U.S. CPI (Sept)

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Thomas

Stocks

Asian shares rose on Thursday as markets wagered that U.S. rates have peaked after more dovish remarks from Federal Reserve officials, while traders awaited the U.S. consumer inflation report later in the day for further monetary policy clues.

MSCI's broadest index of Asia-Pacific shares outside Japan gained 0.7 per cent to the highest level in three weeks. Tokyo's Nikkei rallied 1.3 per cent for a third straight day, climbing away from its five-month low hit last week.

Hong Kong's Hang Seng index jumped 1.8 per cent, driven by a 3 per cent surge in banking shares after Central Huijin Investment, China's state fund, raised stakes in the big four banks. China's blue chips rose 0.7 per cent.

Overnight, Wall Street closed higher after Federal Reserve minutes showed a growing sense of uncertainty around the path of the U.S. economy, with volatile data and tightening financial markets posing risks to growth and leading policymakers to extend a rate pause last month.

The recent buoyancy in sentiment also owe much to comments from more Fed officials suggesting rates there may have peaked, which triggered a welcoming pullback in Treasury yields.

U.S. Fed Governor Christopher Waller on Wednesday said higher market interest rates may help the Fed slow inflation, and let it "watch and see" if its own policy rate needs to rise again or not.

Waller has been among the most vocal advocates for higher interest rates to fight inflation, and his comments added weight to similar statements this week by Fed Vice Chair Philip Jefferson and Dallas Fed President Lorie Logan.

The dollar settled near a two-week low, but the yen is still under pressure at 149.09 per dollar, just a whisker away from the 150 level that could spur intervention from Japanese authorities.

Markets moved to further trim the chance of a Fed hike in November to just 9 per cent, down from 13.2 per cent a day earlier, and there is a 70 per cent chance that the rate is already at its peak, according to CME FedTool.

With the long-awaited pivot for the Fed in sight, traders are bracing for the all-important U.S. consumer inflation report later in the day. Stakes are higher because a producer price inflation report came in hotter than expected on Wednesday.

Economists expect the headline consumer price index (CPI) to haven risen 0.3 per cent in September from August and core CPI is seen steady at 0.3 per cent.

Alan Ruskin, chief international strategist at Deutsche Bank AG, said an upside surprise in the core rate of 0.4 per cent or more would catch investors off guard, although geopolitical risk is likely to deter the bond market from trading too bearishly on stronger data.

"The more lasting impact to the data would likely come from a 0.4 per cent m/m core number, which would mean that the two most important data releases for September numbers (non-farm payrolls and CPI) would both be making a case for the Fed remaining hawkish."

Long-dated treasury yields eased for a third straight sessions, also benefiting from some safe-haven demand from the ongoing conflict in the Middle East.

Ten-year yields eased 3 basis points to 4.5623 per cent on Thursday, off from its 16-year high of 4.8870 per cent.

Oil prices extended their declines on Thursday after top OPEC producer Saudi Arabia pledged to help stabilise the market amid fears of supply disruption from the conflict between Israel and Palestine.

Brent futures eased 0.4 per cent to $85.47 a barrel, after a 2 per cent drop in the prior session. U.S. West Texas Intermediate crude fell 0.5 per cent to $83.05, following a 2.9 per cent plunge on Wednesday.

Spot gold was 0.2 per cent higher at $1,876.77 per ounce, about the highest in two weeks.

Source: Reuters

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Alex

Central Bank

Economic

The minutes from the September 19-20, 2023 Federal Open Market Committee (FOMC) meeting underscored the Fed's commitment to curtailing price pressures.

On the economic outlook, Committee members noted that "that real GDP had been expanding at a solid pace and had been more resilient than expected. Nevertheless, participants also noted that they expected that real GDP growth would slow in the near term. Participants judged that the current stance of monetary policy was restrictive and that it broadly appeared to be restraining the economy as intended." Additionally, participants continued to anticipate that a period of below trend growth would be needed to return inflation to its 2% target.

On debating the appropriate policy actions, "almost all participants judged it appropriate to maintain the target range for the federal funds rate." A more cautious approach would better allow the Committee the cumulative effects of previous tightening on economic activity.

When discussing future interest rate hikes, the "majority of participants judged that one more increase in the target federal funds rate at a future meeting would likely be appropriate, while some judged it likely that no further increases would be warranted." Moreover, all participants stressed the importance of maintaining a restrictive policy stance until there is strong evidence that inflation is moving back to target.

Concerning the risks of additional rate hikes, committee members noted that "risks to the achievement of the Committee's goals had become more two sided." The Committee noted the potential for a larger-than-anticipated lagged impact on economic activity from tightening financial conditions.

Key Implications

Today's minutes confirmed that the Fed has kept another rate hike in play as economic activity continues to be buoyant underscored by strength in the labor market. This has been reflected in an expected shallower path of rate cuts. While inflation has been trending in a favorable direction, near-term inflation expectations have inched higher in recent months and will have the Fed attentively monitoring upside risks to inflation when calibrating policy to a restrictive level that balances the risks of doing too much versus doing too little.

With economic activity remaining strong, the Fed is likely to move forward with an additional rate hike and maintain rates at a restrictive level until there is clear evidence that inflation is on a sustainable path to its 2% target. The one risk to this view is the sharp tightening in financial conditions experienced over the past several weeks, highlighted by a rise in long-term treasury yields. Should this continue, it may give the Fed reason to pause.