Breaking News
0
Ad-Free Version. Upgrade your Investing.com experience. Save up to 40% More details

Oil Supply And Risk Sentiment Suggest More Upside For U.S. Dollar

By Fullerton MarketsForexJul 21, 2021 02:35AM ET
www.investing.com/analysis/oil-supply-and-risk-sentiment-suggest-more-upside-for-us-dollar-200592634
Oil Supply And Risk Sentiment Suggest More Upside For U.S. Dollar
By Fullerton Markets   |  Jul 21, 2021 02:35AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 

There is more upside for the dollar in the near term as the OPEC+ agreement to increase oil supplies, weighs on energy companies in Asia and adds to the negative tone from last week’s equities close. The outlook for growth is also a bit gloomy as global virus cases spike again.
 
The dollar is losing its reaction function to falling Treasury yields, which suggests that it is attracting safe-haven flows. Since the start of July, 10-year yields have declined around 18bps, yet the dollar index has been moving higher.
 
FX markets are likely to find liquidity at below-average levels for the next few weeks and that will exaggerate the impact of any stop-loss selling while USD longs are far from being extreme, reflected in trader positioning. In the latest CFTC data, leveraged traders trimmed net EUR shorts, while adding to longs in AUD, CAD, and CHF.
 
The grand OPEC+ bargain, to boost production, raise baselines, and make nice again, sets the stage for slightly lower oil prices. The deal carries the potential for WTI to revisit the $60s/bbl in the coming sessions and Brent could follow, but declines will not be too painful.
 
A tight market will get 400,000 barrels/day added in August and similar volumes in subsequent months. If all goes to plan, that is 2 million barrels/day by year-end and more in 2022. Higher baselines kick in from Q2. Where there was confusion on output and the risk of a price war before, there’s now clarity.
 
In theory, the sprawling alliance could continue to loosen the taps until all its 5.8 million barrels/day of halted output is restored. That is a powerful reminder that there is plenty of spare crude oil capacity out there to meet rising demand, especially in the US and parts of Europe.
 
The pact comes at a delicate juncture, however, as the Delta variant clouds the picture, especially in Asia. It also comes after enthusiasm toward commodities has cooled after running hot in the first half of the year. With this backdrop and the promised OPEC+ barrels, risks in the market are tilted slightly towards the downside for now.
 
On the other hand, the resurgence in COVID infections will suppress global bond yields by feeding concerns that the economic recovery may falter. From the UK to Indonesia, infections have accelerated with daily new cases in several countries, prompting many governments to tighten restrictions on social activities.

The likely negative economic impact may lead to central banks around the world maintaining extremely loose monetary policies and pushing back plans to remove some supports.
 
The US 10-year yield has already dropped 45bps since the recent high on Mar. 31, as traders unwound reflation bets. Lower yields are here to stay at least until the virus situation noticeably improves.

Oil Supply And Risk Sentiment Suggest More Upside For U.S. Dollar
 

Related Articles

Blake Morrow
Chart Of The Day: EEM Versus USD/MXN By Blake Morrow - Jul 29, 2021

The iShares MSCI Emerging Markets ETF (NYSE:EEM) versus USD/MXN is still one of my favorite correlations in the markets. Today, the EEM has bounced back to the 38% retracement and...

Kenny Fisher
CAD Improves As U.S. GDP Underperforms By Kenny Fisher - Jul 29, 2021

The Canadian dollar has extended its rally on Thursday. USD/CAD has declined by 0.76% this week and is back below the symbolic 1.25 line. U.S. GDP Misses Forecast U.S. data was a...

Oil Supply And Risk Sentiment Suggest More Upside For U.S. Dollar

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
or
Sign up with Email