paradise of the US dollar flows raw materials under pressure

Crude oil, copper and iron ore: talking points

  • Crude oil sees tough start to week as growth concerns mount
  • Copper’s lackluster performance continues amid rising virus cases
  • US dollar gains on safe haven flows, pressures on commodities

Crude oil, copper and iron ore prices have fallen this week as a wave of risk aversion moves through global markets. Investors took off the accelerator on risky assets and other cyclically sensitive assets beginning in the APAC session on Monday. benchmark crude oil and copper indices fell more than 1% during the week, while iron ore was down more than 4%. At the same time, the US dollar was up almost 0.5% through the DXY index. A stronger dollar makes raw materials valued in the currency more expensive.

spread of the highly transmissible Delta variant has downgraded economic growth forecasts in recent weeks. This follows a trend in economic data lacking analyst estimates from mid-summer onwards. This likely contributed to safe-haven dollar offers, as negative economic pressures fueled growth concerns. This can be seen in the chart below, which shows the Citi Global Economic Surprise Index versus the DXY Index. «/>

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Investors in the US returned from a prolonged weekend with a more pessimistic market outlook after digesting negative employment data from last week. US Department of Labor reported a measly 235,000 additional jobs for August. This fell short of the consensus forecast of half a million and was the worst impression since December 2020. Fed funds futures show that rate hike bets have declined since the week before the June 2022 FOMC meeting.

Meanwhile, the Asia-Pacific region is also tackling Covid-induced growth problems. Australia continues to grapple with a daily number of Covid cases approaching record levels. New South Wales (NSW) and Victoria are in an ongoing lockdown and economists are forecasting economic contractions for the third quarter unless the state economies, which make up nearly half of Australia’s population, can reopen quickly. RBA issued a dovish policy decision on Monday when the central bank extended its schedule to buy assets on its balance sheet.

China also reported worrying data indicating that Covid lockdowns on the economic powerhouse are hurting growth. Last week, the National Statistics Office (NBS) reported PMI data that revealed that the service sector entered contraction territory in August. manufacturing PMI also declined from the previous month, but managed to stay above the 50 mark, indicating an expansion in the sector.

Trade data for August showed a more optimistic picture of the Chinese economy. Exports increased 25.6% year-on-year in US dollars. Imports also beat analysts’ expectations. This week, analysts will analyze China’s inflation data and new yuan loans for August to cross the cables. Both events can have market potential.

China is a major importer of iron ore, mainly from Australia and Chile, and is also a large consumer of copper. While the trade data bodes well for the red metal and iron ore, sporadic locks have put pressure on the metals group as a whole. Copper imports fell in August, according to data from the Chinese government. However, iron ore imports increased after falling for four consecutive months (see chart below).

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What to watch this week for crude oil, copper and iron ore

  • US API and EIA Crude Oil Inventory Data for the Week Ending September 3
  • Chinese economic data: inflation and new loans in yuan for August

Crude Oil Technical Forecasts

Crude oil is grappling with a trend line from the March low after rebounding from resistance in late August. Prices tried to eclipse the psychologically imposing level of 70 in early September, but failed. 100-day SMA provides a confluent support / resistance level alongside the trend line, with the 50-day SMA dipping just above. That being said, breaking out of the trend line and the SMAs could lead to a more bullish result over the next week. Alternatively, a dip below the trend line could open the door to losses.

Daily Crude Chart

Chart created with TradingView

Technical copper projections

Copper prices are in a somewhat similar position to crude oil, with an ascending trend line from the February low that is currently just above. Prices fell below the trend line earlier this month, along with the 50-day SMA. A rally from the end of August was delayed to the 100-day SMA. A lower drop will bring the psychological level of 4,000 into view. bulls will need to regain the trend line to reestablish a better short-term outlook.

Copper daily chart

Chart created with TradingView

Iron ore technical forecasts

Iron ore problems continue to grow technically. Since the gap below trend line support in late July, losses have increased. falling 50-day SMA appears to be about to trade below the long-term 200-day SMA. This would generate a Death Cross formation and is a high-profile bearish signal that could add more pressure to prices.

Iron ore daily chart

Chart created with TradingView

– Written by Thomas Westwater, Analyst at

Contact Thomas, use the comment section below or @FxWestwater at

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