Two trades to watch: EUR/USD, Oil

EUR/USD drops in risk-off trade & despite Macron’s win

EUR/USD has plunged lower, heading towards the European open.

Despite a win by Macron in the French Presidential elections (58% vs. Le Pen’s 42%), which is a relief for the euro, the relief rally was short-lived.

The euro is dropping sharply in risk off-trade as the European Commission works on a sixth sanctions package, which could involve some sort of oil embargo.

Christine Lagarde also poured cold water over the prospects of a July rate hike in a TV interview over the weekend.

Looking ahead, German IFO business sentiment data is expected to show a deterioration in business morale to 89.1 in April, down from 90.8 in March.

Meanwhile, the USD is rising on hawkish Fed bets safe have flows.

Where next for EUR/USD?

EURUSD trades below its multi-month falling trendline and below its 50 & 100 sma in a bearish trend. The RSI is below 40 and remains out of oversold territory, keeping sellers hopeful of further downside.

Bears have taken out the 2022 low of 1.0765, bringing 107 round number and 1.0630, the March 2020 low, into target.

Buyers will look for a move over 1.08, the round number, and March 2022 low, in order to claw higher towards 1.0940, last week’s high.

 

Oil falls to a two week low on demand fears

Oil prices fell 4.5% and are declining a further 3.8% at the start of the week on demand outlook fears.

Ongoing COVID lockdowns in China are raising demand concerns. China’s oil demand has been falling the most since the Wuhan lockdown at the start of the pandemic, with fuel consumption expected to fall 20% YoY.

Shanghai shows no signs of letting up its strict zero-COVID policy, instead vowing to step up the enforcement of COVID restrictions.

Also hurting the demand outlook is the prospect of higher interest rates slowing economic growth and bringing demand destruction.

However, reports that the EU is looking at ways to sanction Russian oil is helping to limit losses. Should any news of EU sanctions on oil come through, we could expect to price of oil to rebound higher.

Where next for WTI oil?

US crude oil ran into resistance at 109.10, the falling trendline, and rebounded lower. The price moving below the 50 SMA and the $100 psychological level, combined with the RSI heading below 50, keeps sellers optimistic about further losses.

Sellers will be looking for a move below the rising trendline at 96.30 to bring 94.80, the February 14 high, into play before exposing the 100 sma at 91.00, with a move below here creating a lower low.

Buyers see $100 as the first line in the sand for any recovery ahead of the 50 sna at 102.00 and 104.20, the April 21 high. It would take a move over 109.10 to create a higher high and the bulls to gain traction.