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Oil markets hang in the balance as the US dollar pushes into a resistance level

A busy week concludes with the US jobs data now having more significance. We have heard from several central banks who all now state they are concerned about their respective jobs markets before they can raise the bank rates. The Bank of England was the most cautious considering they had signalled quite strongly that they were prepared to raise rates. OPEC+ adjusted output by 400K barrels per day and one minister said that there would be an excess of oil in 2022. A lack of demand and more supply could drop the oil markets and have the effect of reducing inflation which will give the central banks more room to maneuver and the room to be patient whilst waiting for the jobs markets to recover.

This morning we received information that the German industrial output data came in worse than expected. Month-on-Month the September output was down -1.1% versus the expected 1.0%. Although the figure is bad it is better than the -4.0% from the previous month. The EURUSD I currently hovering above a support line and is quite likely to drop through it if today’s markets bid up the US dollar again. Following on from the FOMC and BoE policy announcements, members of the ECB came out to say that the European central bank is taking citizens’ concerns about higher inflation “very seriously”. Member of the European Central Bank Executive Board Isabel Schnabel said the ECB had "good reasons" to believe that inflation in the Eurozone will visibly decline in 2022 but warned against prematurely tightening Eurozone rates. Which is another reason to add to the list of why the euro is likely to fall a bit further today.

The forex heatmap in the run-up to the London open is showing a risk-off sentiment, with the euro surprisingly bullish alongside the yen and dollar. In the Asia-Pac session, we heard from the RBA again and their comments combined with a strong greenback have suppressed the commodity pairs.

The RBA Statement on Monetary Policy said that the central bank is keeping supportive monetary conditions but will act if the economy reacts adversely to worsening health conditions. In the same way, the Fed and BoE pivoted towards the jobs market, the RBA said the labour market would need to be tighter and wage growth materially higher for inflation to come in between 2%-3% on a sustainable basis. That the RBA would not raise the Cash rate until these criteria had been met and that they would be patient.

The AUDUSD is now trading below the daily moving averages and there is little market structure support to stop the AUDUSD from moving down to the rising trend line. If the US dollar were to collapse after the NFP, we could get a pop in commodities and currency pairs like the AUDUSD would benefit. Another worry for Aussie traders came from comments out of China. China's Premier Li Keqiang used a very unwelcome phrase yesterday, referring to "downward pressure" on the economy. When Chinese officials used "downward pressure" before it was 2019 and we all know what happened next. Iron Ore prices are signaling the reflation trade could be well and truly over.

Brent oil is at the cusp of ruining someone’s day. If we are to believe that there will be an excess of oil early next year, Brent will break down through the neckline of the head and shoulders pattern and come and visit the $70 per barrel level. If we are to believe there is a sustained shortfall in supply, the bull flag will break to the upside. Currently, I cannot work out who is correct, so it is best to stay out of a market you don’t understand.

For the bears looking to initiate a short trade in Brent, you can take some heart that you are going against the majority of the heard like 61% of traders on the ActivTrader platform are long the Brent contract.

GBPUSD fell after the Bank of England failed to deliver the expected rate hike. 74% of traders on the ActivTrader platform are now bullish as we enter a possible demand zone, and we have NFP today which could move the US dollar either way. If NFP is less than 500K and the previous month is revised lower, this could be bearish for the US dollar and the pound may survive above the daily swing low. The price action is forming a descending channel so that at least could break to the upside in the future but there is a distinct possibility that we keep grinding lower. 1.42500 is a target to the upside as I believe one day the stops up there get triggered and we blast higher. However, the current price action is not showing a significant higher swing high, meaning this chart is currently looking more bearish.

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