Traders are largely sitting on their hands today after bidding up prices of stocks, crude oil and other risk assets in the first two days of the week. There hasn’t been much in the way of fresh catalysts to provide direction, with all the attention being on Friday’s speech by Jerome Powell.
Covid situation deteriorates
If anything, the news flow has been somewhat negative today. Japan, for example, has expanded that state of emergency to eight more prefectures, bringing the total to 21. The fresh measures will go into effect from Friday through to 12 September. In the US, more than 77% of ICU beds are being used right now to treat severely ill COVID patients, almost all of them unvaccinated.
German Ifo declines again
The only piece of noteworthy data released from eurozone was the IFO German business confidence, which fell for a second straight month to 99.4 in August from 11.7 previously, with supply concerns and rising Covid cases weighing on the minds of managers.
Even so, the German economy minister has said that the Eurozone’s largest economy will reach pre-pandemic levels at start of 2022, while ECB's de Guindos has confidently announced the central bank could again revise upwards its macroeconomic projections, despite threats posed by supply disruptions, rising cost pressures and so on.
Markets flat
So, by midday in London, European indices were trading mixed with the German DAX edging lower, while the UK’s FTSE and France’s CAC were among those in the positive territory. US futures were in the red, but not by much. Crude oil had erased earlier losses to turn flat, while gold and silver were off by less than 0.5% each. The Dollar Index was up modestly as the likes of USD/JPY and USD/CAD edged higher, while the EUR/USD and GBP/USD fell slightly.
The lack of clear direction is a sharp contrast to how things had unfolded in the first couple of days of the week when risk assets surged higher as investors convinced themselves that Jerome Powell is going to soften the Fed’s hawkish tone from its previous policy meeting when he delivers his eagerly-anticipated speech at the Jackson Hole conference on Friday. This is in response to the softening of US data of late, undoubtedly because of the rapid spread of the delta variant of Covid.
Crude oil inventories up next
Later on, oil prices will be in focus again after their sharp gains over the previous two sessions, as the EIA reports its weekly crude stockpiles report. Expectations are for a decline of 1.9 million barrels in inventories. Last night, the American Petroleum Institute (API) reported a decrease of 1.622 million.
If we see a bigger drawdown then this will probably keep oil prices supported, while an unexpected build should see prices trim some of their sharp gains made earlier in the week. Prices rallied after the FDA approved Pfizer’s Covid vaccine, which raised hopes that more people who were previously unwilling to get vaccinated will soon have to take the shot as large businesses and government organisations will probably make it mandatory for workers to be vaccinated. This should reduce the risks of future lockdowns and restrictions, even if the vaccines are not 100% effective. As a result, traders have speculated that demand for oil should rise as more people are likely to travel if fully inoculated.
WTI has reached potential resistance area
Ahead of the US oil stockpiles report, WTI was sitting at session highs. Oil prices were testing a potential resistance area around $67.70. Here, the 38.2% Fibonacci retracement level meets the downwardly-sloping 21-day exponential moving average. A potential reversal signal is what the bears will be looking out for here, while the bulls will want to see prices consolidate before making a higher high above $70 in the coming days. Whichever scenario plays out, oil traders will want to trade in that direction.
Source: ThinkMarkets and TradingView.com