The US Midterm elections are officially underway, with most political experts expecting republicans to come out on top. However, this week, the US dollar is not currently on top against its main competitors such as the euro, pound, and even the yen, which has been extremely weak this year.
Traders seem to be waiting for clarity from the congressional elections and Thursday’s Consumer Price Index before positioning themselves within the market. The US dollar Index this morning has increased by 0.33% but did significantly decline yesterday and Friday.
Furthermore, the global stock market has generally performed well while the dollar has struggled. The Dow Jones Industrial Average, S&P 500, and Nasdaq have all increased in value, with the Dow Jones outperforming the other two. However, traders should note that the Nasdaq has significantly struggled and underperformed compared to other indices. This is understandable, considering technology stocks are known to be strained during poor economic conditions. Lastly, investors are cautious that the Thursday CPI figure does have the potential to derail the improved sentiment.
Moreover, European indices, such as the DAX and CAC, have performed extremely well. The French CAC has increased in value for five consecutive weeks, measuring 12.30%. The DAX has increased by almost 15% within this period but has experienced larger retracements.
Lastly, gold has declined this morning as the US dollar has increased in value. The price is currently hovering around previous resistance levels. However, the US Commodity Futures Trading Commission has advised that the US has seen a significant rise in speculated positions from bulls. Technical analysis during this morning’s Asian session indicates a retracement but not an impulse wave.
Crude oil
Crude oil significantly declined after a failed attempted bullish breakout at the start of the US Trading Session. The price has since declined to $90.90 per barrel and generally has remained within the range formed since the start of trading yesterday. Technical indicators are currently struggling to provide a clear signal as the price lags momentum.
The price, in general, is being influenced by two opposing factors which can potentially support prices or send them crashing. The main reason for the surge in demand is uncertainty for the next 3-4 months. OPEC has lowered its oil production targets, and the Eurozone proceeds with an embargo on Russian Supplies to the region. This uncertainty has led to panic buying before the colder winter months.
Generally speaking, high economic activity has also supported the price despite lower economic growth. Tourism and travel remain high, and consumers are still spending. On the other hand, traders do not forget the factors that can completely change the scenario.
Central banks continue to hike interest rates, and economists maintain the view that the economy will experience a recession soon. Both are known to pressure the price of oil, even though this cannot yet be seen from the price movement.
However, approximately 55% of economists believe the Federal Reserve will lower December’s interest rate hike from 75 to 50 basis points. This possibly is being priced into the market. This cannot be accurately predicted until the inflationary figures for October and November are known.
Lastly, China continues to release negative economic data. China confirmed that imports declined by 0.7% and exports by 0.3%; both were poorer than expected. China is the largest buyer of crude oil, and that's why this is a concern for buyers.