- WTI has continued to extend declines while the dollar firms up on the 95 handle in NY, albeit, not by much.
- DXY has travelled from 94.93 to 95.21, currently, it sits at 95.13. Markets have been mixed following a choppy start to the week on Wall Street and similar volatility in Asia, ( The E-mini S&P was flat, Nikkei -0.3%, SSEC +0.3% & AsiaxJP -0.2% overnight).
Investors are focussed on the lack of progress being made on NAFTA and are concerned that Trump has shelved negotiations with China – (China warns of retaliation if U.S. slaps new tariffs) – all of which is dollar supportive.
Watching the dollar and EM contagion
However, the yen has picked up a bid, stripping some of the safe-haven flows away from the dollar as some investors question the sustainability of the dollar whereby the Fed’s rate path in 2019 is under scrutiny following the Jackson Hole dovish outcome and indeed Trump’s preference that the Fed slow down on hiking rates – leaning to a soft dollar policy under the Trump’s administration’s protectionist course that they have been steering., fulling filling the administration’s campaign pledges.
There has been a negative correlation between the dollar and the price of oil, and this is playing out nicely today so far. Oil was rising on a weaker dollar, but the demand doubts remain. Earlier, oil furtures tailed off and WTI dumped from 68.40, (68.84 the high) to a low of 66.79 pressured by concerns over a potential decline in global demand due to U.S. trade dispute with China and an EIA report that showed a bigger-than-expected decline in U.S. crude supplies – Domestic crude supplies dropped by 4.3 million barrels for the week ended Aug. 31..
Also, EM’s contagion is noted as filtering through to the commodity sector – just look at copper. Copper has fallen over 21 percent since June 7. It is widely viewed as a barometer of the health of the global economy, but the industrial benchmark metal has been one of the biggest casualties of growing trade tensions. Also, the ongoing expectations for tighter crude supplies tied to U.S. sanctions on Iranian oil that begin in early November are weighing on the black gold. Week to date, WTI crude futures trade more than 3% lower, while Brent has lost about 1.5%.
WTI Technical Levels
FXStreet’s Analyst Omkar Godbole, explains: “WTI could complete the head-and-shoulders pattern (on the daily chart) by falling to $64.75 (neckline support) in the over the next week. A daily close below $64.75 would confirm a head-and-shoulders bearish reversal and could yield a drop to $60.00 (psychological support). On the higher side, a close above $71.40 (Sep. 4 high) will likely send the bears packing, exposing the yearly highs above $75.00.”
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