WTI crude tumbled to fresh three-month lows at $42.56 during trading on Tuesday, as the ongoing concerns over the persistent oversupply of oil in the global markets encouraged bears to install a round of selling.
For an extended period oil has remained fundamentally bearish, with the recurrent oversupply woes sabotaging any real recovery in value. The growing threat of a renewal in US oil production continues to haunt investor attraction further, while fears of a decline in demand amid slowing global growth have capped most upside gains.
The commodity could be poised for steeper losses as the toxic combination of excessive oversupply and fading demand provide a foundation for sellers to attack.
From a technical standpoint, prices are trading below the daily 100 and 20 SMA while the MACD trades to the downside. Previous support around $44 could act as a dynamic resistance, which may encourage a further decline towards $40.
Stock markets adopt cautious stance
Global stocks were mixed on Tuesday, with most major equities displaying signs of exhaustion following the sharp decline in crude oil prices which weighed heavily on global sentiment. Asian shares concluded slightly depressed as optimism waned over the Bank of Japan unleashing the bazooka 20-trillion-yen fiscal stimulus this week.
In Europe, the growing uncertainty ahead of the central bank meetings simply created a wave of jitters which offered an opportunity for bears to hunt. Wall Street concluded in the red territory on Monday and could follow this fashion if the anxiety repels investors from riskier assets.
It seems the cracks in the market rally are showing as anxiety mounts, and further declines could be expected if the ongoing concerns over slowing global growth encourage investors to scatter from riskier assets.
Dollar bulls dominate markets
The rising optimism over the Federal Reserve potentially raising US rates in 2016 has installed the dollar bulls with enough inspiration to rattle the global currency markets. For an extended period, hopes over the Fed taking action have bolstered the value of the dollar, and the renewed optimism could cause dollar strength to be a dominant theme in the markets.
In the month of July US data has repeatedly beat expectations, consequently fulfilling the domestic prerequisites for US rates to be increased in 2016. If the Brexit anxieties ease with the flow of time, then the Fed could be provided a compelling reason to break the tradition of central bank caution by raising US interest rates.
From a technical standpoint, the Dollar Index has turned bullish on the daily timeframe and the breakout above 97.00 could open a path towards 98.00. Prices are trading above the daily 20 SMA while the MACD has crossed to the upside. Previous resistance at 97.00 could transform into a dynamic support which opens a path towards 98.00.
Commodity spotlight – gold
Gold is currently entangled in a fierce tug of war with US rate hike expectations and risk aversion from concerns over the global economy. The metal has found some support above $1308 and currently searches from a direction as the combination of dollar strength, anxiety ahead of the central bank meeting and lingering Brexit uncertainties keep the metal in limbo.
Although it is widely expected that US rates will not be increased in July, a hawkish-sounding statement could punish gold further, consequently opening a path below $1308. On the other hand, if concerns over the global economy continue to elevate then the metal may remain buoyed as investors flock to safe-haven safety.
From a technical standpoint, prices are trading below the daily 20 SMA while the MACD has crossed to the upside. Bulls need to keep above $1308 to maintain dominance.
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