Geopolitical Tensions and Market Reactions

With increasing tensions in the Middle East, particularly Iran’s direct assault on Israel, the market’s reaction has been relatively measured in terms of oil prices. The U.S. administration’s careful approach to imposing severe sanctions against Iran aims to prevent sharp price increases and potential disagreements with China, thus avoiding the usual rise in oil markets following such geopolitical events.

U.S. Inventory Data and Strategic Reserves

The American Petroleum Institute (API) reported a significant uptick in U.S. crude inventories, with an increase of about 4.09 million barrels last week, far surpassing expectations. This rise suggests a temporary relief in supply concerns. Conversely, reductions in gasoline and distillates stockpiles indicate strong fuel demand which supports refinery operations.

Additionally, today’s pending report from the Energy Information Administration (EIA) will be critical in confirming these trends and could sway market directions. Regarding policy, the U.S. has halted repurchases for the Strategic Petroleum Reserve due to elevated oil prices, reflecting a strategic decision to manage national reserves efficiently.

Short-term Market Forecast

The latest API data shows a significant build in U.S. crude inventories, a bearish indicator suggesting an oversupply. Coupled with the anticipated EIA report, this development overshadows otherwise bullish factors such as strong U.S. fuel demand and geopolitical risks.

Global economic uncertainty is causing investors to exercise caution, dampening potential price spikes. Expect oil prices to remain subdued, with the market’s current bearish tilt likely keeping price movements within a confined range in the short term. This period calls for a conservative approach, given the prevailing economic and supply conditions.

Technical Analysis

XAU/USD Current price: $2,370.03

• Financial markets struggle with sentiment amid Middle East tensions, on-hold central banks.
• US Government bond yields are in retreat mode after reaching fresh 2024 highs.
• XAU/USD giving modest signs of an imminent bearish correction.

Spot Gold eased on Wednesday after being unable to surpass the $2,400 mark for a second consecutive day. The US Dollar trades marginally lower against its major rivals despite resurgent risk aversion following Wall Street’s opening. Asian stocks traded mixed, but European indexes were mostly up, as market players seemed to accept interest rate cuts in the United States (US) are on hold for now. However, US indexes quickly turned south at the beginning of the session, undermining the sentiment.

Tensions in the Middle East weigh on the mood. Israel is preparing some retaliation on Iran after the latter launched a massive attack over the weekend despite being advised against it. Furthermore, talks between Israel and Hamas to reach a cease-fire have been interrupted.

Meanwhile, US government bond yields are retreating. After flirting with 2024 highs, the 10-year Treasury note offers 4.60%, down 5 basis points (bps), while the 2-year note is down 4 bps, now yielding 4.92%

XAU/USD short-term technical outlook

XAU/USD trades near $2,370, and the daily chart shows that the slide may continue. Technical indicators retreat from extreme overbought levels, suggesting the decline may continue. Still, a steeper slide remains out of the picture, as XAU/USD refuses to give up while developing its moving averages above all. The 20 Simple Moving Average (SMA) maintains its firmly bullish slope at around $2,281 and roughly $300 above an also bullish 100 SMA.

The 4-hour chart shows XAU/USD extending its slide below a mildly bearish 20 SMA, which is also supportive of a downward extension. The longer moving averages maintain their bullish slopes far below the current level, but technical indicators support the bearish case. The Relative Strength Index (RSI) indicator is extending its slide sub-50, while the Momentum indicator heads firmly south but still above its midline.

 Support levels: 2,359.80 2,345.20 2,333.20

Resistance levels: 2,380.70 2,393.50 2,409.20  

XAU/USD Current price: $2,370.03

• Financial markets struggle with sentiment amid Middle East tensions, on-hold central banks.
• US Government bond yields are in retreat mode after reaching fresh 2024 highs.
• XAU/USD giving modest signs of an imminent bearish correction.

Spot Gold eased on Wednesday after being unable to surpass the $2,400 mark for a second consecutive day. The US Dollar trades marginally lower against its major rivals despite resurgent risk aversion following Wall Street’s opening. Asian stocks traded mixed, but European indexes were mostly up, as market players seemed to accept interest rate cuts in the United States (US) are on hold for now. However, US indexes quickly turned south at the beginning of the session, undermining the sentiment.

Tensions in the Middle East weigh on the mood. Israel is preparing some retaliation on Iran after the latter launched a massive attack over the weekend despite being advised against it. Furthermore, talks between Israel and Hamas to reach a cease-fire have been interrupted.

Meanwhile, US government bond yields are retreating. After flirting with 2024 highs, the 10-year Treasury note offers 4.60%, down 5 basis points (bps), while the 2-year note is down 4 bps, now yielding 4.92%

XAU/USD short-term technical outlook

XAU/USD trades near $2,370, and the daily chart shows that the slide may continue. Technical indicators retreat from extreme overbought levels, suggesting the decline may continue. Still, a steeper slide remains out of the picture, as XAU/USD refuses to give up while developing its moving averages above all. The 20 Simple Moving Average (SMA) maintains its firmly bullish slope at around $2,281 and roughly $300 above an also bullish 100 SMA.

The 4-hour chart shows XAU/USD extending its slide below a mildly bearish 20 SMA, which is also supportive of a downward extension. The longer moving averages maintain their bullish slopes far below the current level, but technical indicators support the bearish case. The Relative Strength Index (RSI) indicator is extending its slide sub-50, while the Momentum indicator heads firmly south but still above its midline.

 Support levels: 2,359.80 2,345.20 2,333.20

Resistance levels: 2,380.70 2,393.50 2,409.20  

 

Crude oil appears toppy after a mammoth rally since February, unable to push higher despite some seriously strong tailwinds stemming from geopolitics, supply curbs and ongoing strength in the US economy. While there are obvious fat tail risks that could lead to substantial price spikes, if they don’t materialise, it suggests crude may need to move lower before moving higher again.

Crude oil underpinned by strong macro tailwinds

Blockages of shipping routes in the Middle East, potential damage to energy infrastructure from conflict, additional sanctions on Iran impacting global supply. Those risks are now partially priced into crude oil which, along with ongoing supply curbs from OPEC members and Russia, have contributed to a 22% rally since early February.

While they’re unlikely to dissipate soon and could lead to huge upside if the geopolitical situation were to worsen, the recent price action has not been overly bullish, in part due to a stronger US dollar and concerns the Fed may keep interest rates unchanged well into the second half of 2024, increasing the risk of an economic.

But price action has been suspect recently

Twice WTI has ventured above $87.50 this month only to be knocked lower, including a sizeable reversal last Friday. While it continues to find bids on dips below $84.70, the inability to push higher has seen the price squeeze up against uptrend support today. While it’s only a minor trendline, it can be used to base trade ideas around, depending on how the price evolves.

Should it break lower, traders could sell below $84.70 with a stop above looking for an unwind to $83 or even $80.30. Should the price move towards Monday’s low at $84, consider lowering your stop to entry level, providing a free-hit at downside.

Even though long positions held by traders are not yet at extreme levels, according to the latest COT report, there has been an uptick in recent weeks, adding to the risk that downside could initiate forced selling among those who recently joined the rally.

Even though near-term risks appear skewed to the downside, if the price doesn’t play ball the idea can be flipped around, allowing for traders to buy the dip with a stop below $84.70 for protection. The initial target would be the double-top at $87.65 with $89.50 the next level after that.

Managing near-term headline risk

From a fundamental perspective, geopolitical developments will continue to play an outsized roll in dictating price, so make sure your stops are placed so that they limit the damage if the trade moves against you, especially if going short.

Among known events, US crude oil inventory will be released by the energy Information Administration later Wednesday. Markets look for a modest build with stocks of gasoline and distillates expected to decline.

Read the latest issue of the OGV Energy magazine HERE

Published: 17-04-2024

XAU/USD Current price: $2,370.03

• Financial markets struggle with sentiment amid Middle East tensions, on-hold central banks.
• US Government bond yields are in retreat mode after reaching fresh 2024 highs.
• XAU/USD giving modest signs of an imminent bearish correction.

Spot Gold eased on Wednesday after being unable to surpass the $2,400 mark for a second consecutive day. The US Dollar trades marginally lower against its major rivals despite resurgent risk aversion following Wall Street’s opening. Asian stocks traded mixed, but European indexes were mostly up, as market players seemed to accept interest rate cuts in the United States (US) are on hold for now. However, US indexes quickly turned south at the beginning of the session, undermining the sentiment.

Tensions in the Middle East weigh on the mood. Israel is preparing some retaliation on Iran after the latter launched a massive attack over the weekend despite being advised against it. Furthermore, talks between Israel and Hamas to reach a cease-fire have been interrupted.

Meanwhile, US government bond yields are retreating. After flirting with 2024 highs, the 10-year Treasury note offers 4.60%, down 5 basis points (bps), while the 2-year note is down 4 bps, now yielding 4.92%

XAU/USD short-term technical outlook

XAU/USD trades near $2,370, and the daily chart shows that the slide may continue. Technical indicators retreat from extreme overbought levels, suggesting the decline may continue. Still, a steeper slide remains out of the picture, as XAU/USD refuses to give up while developing its moving averages above all. The 20 Simple Moving Average (SMA) maintains its firmly bullish slope at around $2,281 and roughly $300 above an also bullish 100 SMA.

The 4-hour chart shows XAU/USD extending its slide below a mildly bearish 20 SMA, which is also supportive of a downward extension. The longer moving averages maintain their bullish slopes far below the current level, but technical indicators support the bearish case. The Relative Strength Index (RSI) indicator is extending its slide sub-50, while the Momentum indicator heads firmly south but still above its midline.

 Support levels: 2,359.80 2,345.20 2,333.20

Resistance levels: 2,380.70 2,393.50 2,409.20  

Geopolitical Impact on Silver

The recent military actions between Iran and Israel, marking the first such aggression in over three decades, have stoked fears of a broader conflict, prompting investors to turn to silver as a safe-haven asset. The movement in silver prices is predominantly driven by these geopolitical events.

Economic Indicators and Federal Reserve’s Stance

The surge in U.S. retail sales indicates a robust economic momentum as Q1 concluded, which has adjusted expectations around the Federal Reserve’s monetary policy. The market has now scaled back its anticipation of interest rate cuts, expecting fewer adjustments by year-end. Federal Reserve Chair Jerome Powell emphasized the necessity of maintaining restrictive monetary policy longer to manage inflation and economic strength, which has influenced both the dollar’s strength and Treasury yields.

Challenges to Upward Momentum

In the short term, silver prices might face downward pressure as the initial geopolitical premium dissipates. However, ongoing central bank purchases of gold bullion provide a floor to potential declines in silver. The strategic nature of these purchases often makes them less sensitive to fluctuations in silver prices. Looking forward, the sustained high interest rate environment in the U.S. and a robust dollar may continue to challenge silver’s upward momentum.

Short-Term Market Forecast

Given the Federal Reserve’s current stance on interest rates and the ongoing economic strength in the U.S., the outlook for silver remains neutral in the near term. The dual pressure from a stronger dollar and higher yields could temper gains from safe-haven demand, likely leading to a stabilization or slight decrease in silver prices in the coming weeks.

Technical Analysis

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Stuck Inside Consolidation

Monday’s bearish breakdown below support of the 20-Day MA, 50-Day MA, and long-term downtrend line confirmed the continued development of a bearish pennant consolidation pattern. Nonetheless, there is no signal until natural gas breaks out of the pattern. The small symmetrical triangle pennant is bearish because it resides within a larger downtrend. If a downside breakout occurs the chance for the trend to continue lower increases.

Choppy Price Action Until Breakout Likely

Alternatively, an upside breakout triggers a bullish reversal that has the potential to see further strengthening. Initial signs of either a bullish or bearish breakout occur on a move through one of the two boundary lines. However, more reliable signals will be provided on a rise above the most recent swing high at 1.94 or a drop below the last swing low at 1.59. If natural gas reaches the lower boundary line of the pennant and support is seen, the chance for a rally back towards to top line is likely once there is a sign of a bullish reversal. In other words, if natural gas trades inside the pennant, choppy price action will likely continue.

Long-Term Resistance Held During Recent Rallies

The two most recent rallies encountered resistance around previous support from the prior trend lows of February and April 2023 (green and red arrows). That is a logical area to encounter resistance in a downtrend and encountering resistance there supports a bearish continuation of trend. Moreover, the lower dashed blue line in a falling parallel trend channel further marked a similar resistance area.

If a breakdown does occur there is a shelf of long-term support going down to a low of 1.44. That low last provided support at the trend low from 2020. Further, it was the lowest price seen in natural gas since 1995.

For a look at all of today’s economic events, check out our economic calendar.

The average annual price of Brent crude oil stood at 83 U.S. dollars per barrel in 2024. This is according to preliminary data from March. This is nearly 20 U.S. dollars lower than the 2022 annual average, when an energy supply shortage and concerns over fallout from the Russia-Ukraine war saw prices surge. Brent is the world’s leading price benchmark for Atlantic basin crude oils. Crude oil is one of the most closely observed commodity prices as it influences costs across all stages of the production process and consequently alters the price of consumer goods as well.

What determines crude oil benchmarks?

In the past decade, crude oil prices have been especially volatile. Their inherent inelasticity regarding short-term changes in demand and supply means that oil prices are erratic by nature. However, since the 2009 financial crisis, many commercial developments have greatly contributed to price volatility; such as economic growth by BRIC countries like China and India, and the advent of hydraulic fracturing and horizontal drilling in the U.S. The outbreak of the coronavirus pandemic and the Russia-Ukraine war are examples of geopolitical events dictating prices.

Light crude oils – Brent and WTI

Brent Crude is considered a classification of sweet light crude oil and acts as a benchmark price for oil around the world. It is considered a sweet light crude oil due to its low sulfur content and a low density and may be easily refined into gasoline. This oil originates in the North Sea and comprises several different oil blends, including Brent Blend and Ekofisk crude. Often, this crude oil is refined in Northwest Europe.

Another sweet light oil often referenced alongside UK Brent is West Texas Intermediate (WTI). WTI oil prices amounted to 77.58 U.S. dollars per barrel in 2023.

XAU/USD Current price: $2,393.71

• Financial markets are in risk-on mode amid a potential escalation in Middle East tensions.
• The odds for a Federal Reserve rate cut in July dropped to roughly 41%.
• XAU/USD resumed its advance after a brief downward correction, could reach fresh all-time highs.

XAU/USD extends its recovery on Tuesday, approaching the $2,400 threshold mid-American session. Gold started the week on the back foot, sliding towards  $2,324.12 on Monday, but slowly recovered the ground lost amid a persistently sour market mood.  

Market players keep dropping bets on a Federal Reserve (Fed) rate cut in July, currently betting on a roughly 41% chance of happening. Strong United States (US) data coupled with concerns about the Middle East conflict between Iran and Israel will push inflation back up amid upward pressure in oil prices.

Asian and European indexes closed in the red, reflecting market fears, while Wall Street trades mixed. The Dow Jones Industrial Average (DJIA) managed to bounce back, but the Nasdaq and the S&P500 remain under pressure, weighed by the tech sector.

Fed Chairman Jerome Powell will participate in a panel discussion with other central banks’ authorities, although he is not expected to surprise markets. If something, Powell may reaffirm the Fed’s hawkish stance, further weighing on the market sentiment. Meanwhile, the Israeli war cabinet finished its post-Iran attack over the weekend, and news outlets indicate retaliation is coming.

XAU/USD short-term technical outlook

From a technical point of view, XAU/USD is poised to extend gains. The daily chart shows technical indicators resumed their advances after correcting extreme overbought conditions, with the pair posting a higher high and a higher low. Additionally, all moving averages head firmly south, well below the current level, reflecting persistent buying interest.

In the near term, and according to the 4-hour chart, the bullish case is even more evident. XAU/USD met intraday buyers around a bullish 20 SMA, now bouncing sharply from the indicator. The 100 and 200 SMAs, in the meantime, maintain their bullish slopes below the shorter one. Finally, technical indicators resumed their advances, with the Relative Strength Index (RSI) indicator accelerating north around 63.

Support levels: 2,391.80 2,378.05 2,363.35

Resistance levels: 2,409.20 2,431.43 2,450.00

XAU/USD Current price: $2,393.71

• Financial markets are in risk-on mode amid a potential escalation in Middle East tensions.
• The odds for a Federal Reserve rate cut in July dropped to roughly 41%.
• XAU/USD resumed its advance after a brief downward correction, could reach fresh all-time highs.

XAU/USD extends its recovery on Tuesday, approaching the $2,400 threshold mid-American session. Gold started the week on the back foot, sliding towards  $2,324.12 on Monday, but slowly recovered the ground lost amid a persistently sour market mood.  

Market players keep dropping bets on a Federal Reserve (Fed) rate cut in July, currently betting on a roughly 41% chance of happening. Strong United States (US) data coupled with concerns about the Middle East conflict between Iran and Israel will push inflation back up amid upward pressure in oil prices.

Asian and European indexes closed in the red, reflecting market fears, while Wall Street trades mixed. The Dow Jones Industrial Average (DJIA) managed to bounce back, but the Nasdaq and the S&P500 remain under pressure, weighed by the tech sector.

Fed Chairman Jerome Powell will participate in a panel discussion with other central banks’ authorities, although he is not expected to surprise markets. If something, Powell may reaffirm the Fed’s hawkish stance, further weighing on the market sentiment. Meanwhile, the Israeli war cabinet finished its post-Iran attack over the weekend, and news outlets indicate retaliation is coming.

XAU/USD short-term technical outlook

From a technical point of view, XAU/USD is poised to extend gains. The daily chart shows technical indicators resumed their advances after correcting extreme overbought conditions, with the pair posting a higher high and a higher low. Additionally, all moving averages head firmly south, well below the current level, reflecting persistent buying interest.

In the near term, and according to the 4-hour chart, the bullish case is even more evident. XAU/USD met intraday buyers around a bullish 20 SMA, now bouncing sharply from the indicator. The 100 and 200 SMAs, in the meantime, maintain their bullish slopes below the shorter one. Finally, technical indicators resumed their advances, with the Relative Strength Index (RSI) indicator accelerating north around 63.

Support levels: 2,391.80 2,378.05 2,363.35

Resistance levels: 2,409.20 2,431.43 2,450.00

Gold’s technical outlook indicates a modest increase of 0.08%, bringing the price to $23,384.79. Currently, gold is holding slightly above the pivotal $2,370.67 mark. Resistance levels are observed at $2,403.98, with subsequent limits at $2,431.98 and $2,459.86 that could restrain further advances.

Support is initially positioned at $2,323.92, with additional fallbacks at $2,296.85 and $2,268.55 should the price retreat. The 50-day Exponential Moving Average (EMA) is at $2,337.46, while the 200-day EMA stands at $2,226.21, indicating potential support zones.

The market is currently observing a consolidation near the $2,084 level, and the formation of a doji candle at $2,385 suggests there could be a temporary bearish correction towards $2,370 before any upward movement resumes. The technical stance is bullish above $2,370.67, but a drop below this level could trigger a sharp decline in prices.