Oil drops as demand worries rise
US dollar remains sideways, and the British pound is starting to show weakness as the Delta covid-19 variant looks like it will cause some major disruptions to the UK economy and the travel industry.
Market Wrap
I personally only trade the Nasdaq daily and keep an eye on longer-term movements in the forex and equity markets. If I didn’t commentate on all markets, I could be forgiven for thinking the world was in a good place, as the Nasdaq is now defying the laws of gravity. Could this be a blow-off top? Quite possibly.
The Nasdaq tagged 14,500 and at the US futures open the S&P500 touched a new all-time high before dropping below the London sessions lows. It feels like the S&P500 is losing steam and I still think the Dow Jones is leading these markets on the next move, but if you were a perma-bear you would be very frustrated and probably ready to concede defeat. This is why this could be a blow-off top.
European stocks are being hit by the impending doom emanating from the beaten-up travel sector. The ecosystem over there is going to be paired down to just the thinnest of margins and companies that can literally survive on vapours. Rising fuel costs, stay-cations, governmental incompetence, and a genuine fear of spreading disease and its variants are causing the likes of airline and travel companies to haemorrhage money with no guarantee of being able to recoup any with summer holiday tourists.
The oil and fuel process is set to continue unless OPEC+ opens the faucets and starts ramping up supply. In their latest summary, they project a 1.7million barrel per day deficit in supply. Yes, they are talking up their own book, but the truth is in there somewhere. A tight market and increasing demand (currently) are likely to at least keep prices elevated at these levels, though today was one of those rare days where we have a red candle. The 20, 50, and 200 are some ways off below, so $71’ish should be the first sticky area as is the swing high from 16th June. However, if this European travel disaster picks up a head of steam we may be in a scenario where a large buyer of fuel just isn’t there and we could quickly turn the deficit in supply into a deficit in demand.
The rising US dollar is also not helping the oil process and today the daily-200 ema once again acted as both a magnet and a ceiling for the US dollar index prices. The stochastic indicator is still in the overbought territory and the longer it stays here the more likely I see this US dollar trending higher. An overbought stochastic always works best quickly, or when there is divergence to price. Otherwise, price tends to grind higher, and the Stochastic will just reflect the rising higher prices that get touched daily.
There have been quite a few ECB central bankers across the news wires today and the EURGBP is pushing higher and no longer giving clear sell signals. The British pound is suffering because of the impending doom from the Delta variant and so far, it is EURGBP higher, GBPUSD lower. UK shoppers were down week-on-week with a fall of 0.2% and pound traders will be looking to see if the EURGBP can break out above 0.8600 or break down below the GBPUSD’s support of 1.3790 in the coming days.
The ActivTrades sentiment indicator is showing that retail traders prefer the longs still with 74% buyers of the EURGBP.