Two trades to watch: Oil, EUR/USD

Charts (6)

Oil surges as the West consider cutting off Russian oil supply

 

Oil prices have gapped sharply high on the open as the West weighs up a ban on Russian oil exports.

So far Western sanctions have avoided oil directly, but as the conflict in Ukraine intensifies and the West looks to rachet up sanctions, oil is in the spotlight. Furthermore, most buyers are already refusing to take Russian oil in a self-imposed sanction.

A ban on Russian oil would create a significant oil supply shock. Fears of such a move sent oil 18% higher on the open with Brent hitting $130 before easing lower. With 8% of the global oil supply absent from the market for a prolonged period of time, oil prices could reach $185 according to JP Morgan.

Both oil benchmarks gained 20% last week.

Surging oil and commodity prices are fueling fears of stagflation.

Iran nuclear deal revival doesn’t appear to be as imminent as expected,

Where next for WTI crude oil?

 

Oil prices have jumped higher running into resistance at $127.50 around the August 2008 high. The chart is extremely overbought across all time frames from 1 month, scaling into the 4-hour chart, which should suggest that we could see at least some consolidation at this level before further gains.

That said these are unprecedented fundamental drivers which we are dealing with.

On the upside, a break above $128 can open the door to $135 and beyond here the all-time high of 150 comes into focus.

On the downside, a fall below $115 would be significant before bringing $100 into focus.

 

OILchart

EUR/USD tumbles to fresh 20-month lows

 

After falling 3% last week, EUR/USD has gapped lower on the open on Monday, dropping to 1.0823 a fresh 20 month low on stagflation fears.

As commodities, particularly energy prices shoot higher and fears of a recession in Europe grow, expectations of a rate hike by the ECB are being pushed back.

The USD is being boosted on safe-haven flows.

Strong German data has been shrugged off, with all eyes on Russia, Ukraine developments.

German retail sales rose 2% MoM, up from -4.6% and ahead of the 1.5% forecast.

German factory orders rose 1.8% in January, down from 3% in December but ahead of the 1% forecast.

Sentix investor confidence is due later and is expected to fall to 10 from 16.6. There is no US data due.

Although sentiment is likely to be the biggest driver.

Where next for EUR/USD?

EURUSD is extending its decline from 1.15 reached in early February. The pair has fallen below its 50 & 100 sma and has moved below its falling trendline support dating back to March last year, before hitting support at 1.0820. The RSI has run deeply into oversold territory so some consolidation could be on the cards on this otherwise very bearish chart.

A move below today’s low of 1.0820 opens the doors to 1.08 round number and 1.0720 the April 2020 low.

On the upside, buyers need to push the price back over the falling trend line at 1.0965 in order to expose the 1.10 round number. It would take a move over 1.11 to negate the near-term bear trend.

 

eurusd chart

 

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