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Market Insights

Oil prices stall, EUR/USD looks to ECB, Germany 40 bears react

Commodities examples image representation with commodities in wall street

EUR/USD wrestles with resistance - ECB Lagarde vs king dollar

Friday’s mixed non-farm payroll report provided mixed reactions from markets. With the initial headline figure beating analyst expectations (187K vs 170K), the USD strengthened against a basket of currencies, driving the US Dollar index up 0.61% for the day.

However, with the unemployment rate rising from 3.5% (July) to 3.8% in August, the average hourly earnings decreased, while the participation rate edged higher (from 62.6% to 62.8%), indicating a slow down in the US labour market. With the probability for the Federal Reserve to hold rates steady at the September FOMC now rising to 93%, ECB president Lagarde is scheduled to speak at 13:30 GMT, providing potential insight into the future trajectory of rate hikes.

Fed Probabilities

rate expectations
Source: CME FedWatch tool

As spending and retail sales out of the United States remains resilient despite the continuation of monetary tightening, data out of Germany and the broader Euro area has shown significant signs of decline, which may cause the ECB to pivot and ease rates sooner than expected (expectations are for rates to remain at 4.25% until the second half of next year).

While the rate differentials have played a role in driving price action for the major currency pair, any surprises of alterations in the forward guidance could assist in determining the EUR/USD’s next move.

EUR/USD daily chart

Chart prepared using TradingView

Germany 40 technical outlook

While the German Dax received a minor boost in early hours of trading, a temporary retest of resistance at 15,900 drove Germany 40 to a daily high of 15,963 before heading lower. The swift reaction from bears and failure to gain traction above 15,900 has resulted in the formation of an inverted hammer, representing a firm barrier of resistance that could continue to hold bulls at bay.

With support remaining around the daily low of 15,850, a break below 15,800 and increased selling pressure could see prices falling toward the next level of psychological support at 15,500. For a resumption of the uptrend, a hold above 15,900 and a break above 16,000 is required, bringing the next zone of psychological resistance into play at 16,100.

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German Germany 40 daily chart

Dax daily
Chart prepared using TradingView

Labor day holiday keeps oil prices steady ahead of Saudi Arabia’s output decision

Oil prices are currently holding steady at their highest levels since November, ahead of Saudi Arabia’s decision to either roll over or end the voluntary production cuts of one-million barrels per day next month.

Since last year, production cuts have increased consistently, bringing the accumulated cuts to a total of 3.66 million barrels per day (3.6% of global demand).

Oil production

With Russian deputy prime minister Alexander Novak announcing that OPEC+ (Organization of the Petroleum Exporting Countries + Russia) had agreed on the guidelines for continued reductions in oil output, supply constraints have overshadowed fears of a recession, which weighed on oil prices earlier this year.

While both Brent crude (UK oil) and WTI (US oil) have recovered approximately 35% since the May slump, last week’s American Petroleum Institute (API) and the US Energy Information Agency (EIA) weekly petroleum inventory reports revealed a notable drop in oil inventories, exacerbating the momentum of the rally.

Although the concerns regarding supply constraints have continued to provide a tailwind for the liquid commodity over the past year , the Labor day holiday in the United States and Canada may be contributing to the muted price action in today’s session.

Oil technical levels

With the daily chart for WTI futures illustrating an extreme drop in volume of contracts currently being traded, due to the holiday weekend, the return of liquidity from US and Canadian commodity traders could provide better insight on the directional bias of oil prices for the remainder of the week.

WTI crude oil (futures) daily chart

wti futures
Prepared using TradingView

At the time of writing, while WTI crude oil futures trade above the 100 - week MA, holding as support at $85.80 p/b, the 20-month MA remains intact as resistance at a level of $86.84. A break in either direction may provide the potential for a technical breakout.

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Not investment advice. Past performance does not guarantee or predict future performance.