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Storm pushes oil to 5-month high

EUR/NZD – Daily Candlesticks
Source: GKFX / MT4 (August 25, 2020)

EUR/NZD has run into potential resistance at 1.82-1.83 from previous highs from April-May and the 38.2% Fibonacci retracement of the decline from March-July. Confirmation the resistance has held could come after a break of the rising trendline.
 

TAKEAWAYS


•    Oil price rises to 5-month high as markets price in storm-related supply disruption
•    Dollar drops ahead of possible big announcement in Powell speech in Thursday
•    Exxon & Pfizer drop out of the Dow Jones index, replaced by Salesforce & Amgen
•    DAY AHEAD: US durable goods, PetroChina earnings, Tiffany & Co earnings
 

MARKETS


Brent crude oil rose 1.8%, while US crude rose 1.7% on Tuesday after oil producers were forced to shutdown refineries in the Gulf of Mexico because of Hurricane Laura.
Stock markets in Asia were mostly higher, as were those in the United States after both Chinese and US officials reaffirmed their commitment to the phase one trade deal. The exception was the Dow, which fell after an adjustment to its component companies pushed out Exxon Mobil.


The US dollar slipped for a second day, giving back more of last week’s gains. EUR/USD held above 1.18, while GBP/USD was over 1.31 but both remain below last week’s multi-year and multi-month highs respectively. 
 

GURU WISDOM


“You can get in way more trouble with a good idea than a bad idea, because you forget that the good idea has limits.” ― Benjamin Graham
 

Oil gains


We spoke too soon about the muted reaction in oil markets to the gulf coast storms. Oil prices pushed higher on Tuesday, rising to a 5-month high. 82% of the Gulf of Mexico’s offshore production is offline before Hurricane Laura hits according to Reuters, not far below 90% during Katrina. Still, given the level of potential supply disruption, the price reaction is still very limited when contrasted with the kind of volatility seen in March when 5% price moves were commonplace.
 

Powell focus

With little else on the agenda, speculation is rising before Fed Chair Jerome Powell’s speech at the online Jackson Hole symposium. Consensus is building that Powell will unveil his thinking on ‘average inflation targeting’. The idea that the Fed could let the rate of inflation run hot above 2% is dovish and should in theory push down the dollar. The only trouble is that inflation won’t rise above 2% just because of a speech- it’s a function of the economic environment.
 

Dow Reshuffle


Exxon, which is the rebranded Rockefeller Standard Oil, has been dropped from the Dow Jones index for the first since 1928 when the index rose to 30 constituents from 12. Exxon as well as Raytheon and Pfizer are being replaced by cloud-computing tech company Salesforce as well as Honeywell and biotech firm Amgen. The decision was taken after the news of the 4:1 Apple stock split.
 

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