[Market Review].
The US Dollar Index is hovering low. The US Dollar Index was mainly running in the 90-90.4 range during the day. With Friday’s disappointing non-farm payrolls report, U.S. bond yields and the dollar will likely remain under pressure in the near term. Nonetheless, Dallas Fed President Kaplan said the U.S. labor market should continue to recover strongly as consumer demand remains strong. He added that despite higher wage terms offered by employers, hiring remains difficult and they still see strong job growth and recovery as the trend, especially when the leisure and tourism industry and its field reopens.
Gold is consolidating at higher levels. The dollar index is hovering lower while gold is consolidating higher. Gold prices traded near $1,830 during the day, hitting a high of $1,845.23 per ounce, a new high since February 11. Gold was supported by increased expectations that U.S. interest rates will remain low. In addition, the renewed flow of discretionary capital into gold and strong physical demand from China and India ahead of last month’s Indian embargo also boosted gold prices, added TD Securities commodity strategists.
Silver gave back its gains. Moving on to silver. Earlier, silver rose to near $27.85 before shaking to the downside and falling as low as near $27 before finally closing down 0.8%.
The euro held steady at the 1.21 mark. In non-U.S. currencies, the euro was less volatile during the day. Against the backdrop of a modest rebound in the dollar index, the euro fell 30 pips against the dollar, but still held the 1.21 handle.
The British pound rose through the 1.41 handle. Unlike the euro under pressure, the pound oscillated upward during the day and rose strongly through the 1.41 handle. British Prime Minister Johnson announced a further easing of the embargo measures from May 17, when indoor bars and restaurants will be reopened, while international travel with some countries will resume. This supported the pound.
U.S. oil was slightly under pressure during the day. Finally, a look at the oil market. U.S. oil came under slight intraday pressure. Oil prices were boosted by a hack on the pipeline system of the largest U.S. fuel pipeline operator. Progress in U.S.-Iranian relations may be a key factor in the direction of oil prices in the near term. U.S. ships fired warning shots at Iranian speedboats which again stirred up U.S.-Iranian tensions. And India rare disease attacked India’s new crown patients, or will add another gloom for the new crown treatment, will limit the oil price rise. According to the “Indian Express” reported that several areas in India appeared signs of new crown patients infected with trichinosis, has been blind, death and other cases.
[Risk Warning].
U.S. dollar: bearish sentiment on the rise again after the market focus on U.S. bond yields
Financial website Fxstreet said that speculative positions in all G-10 currencies except the British pound rose on a net basis in the week ended May 4, suggesting that bearish sentiment in the dollar has risen again. The Canadian and New Zealand dollars are now showing considerable net long positions, probably due to interest rate hike expectations. The short selling in the British pound may be related to UK politics. EUR positions are only slightly changed and JPY shorts still have considerable room to close, although much depends on the movement of US Treasury yields in the coming weeks.
Euro: Euro expected to continue to strengthen Focus on the February high of 1.2243
Analysts at Commerzbank pointed out that the Fed’s policy wording since the past two weeks, as well as U.S. employment data, have sat on this forecast that the Fed will find it difficult to start tapering QE efforts during the year. This means that the pace of policy after the European Central Bank, may once again ahead of the Federal Reserve. The recent speeches of ECB officials seem to corroborate this point. Against this backdrop, the EURUSD has reversed upward again since the past month and is expected to sustain thereafter. The short-term upside target is the February high of 1.2243, and thereafter up to the year-to-date high of 1.2349.
New Zealand dollar: the market began to question the easing of the New Zealand dollar fears to rise to 0.73
The Netherlands International Group notes that we need to keep an eye on New Zealand Finance Minister Robertson’s pre-budget speech and some housing data in the near term. Inevitably, the market is starting to question how long the New Zealand Fed can stick to a moderate tone given the improved data and may indeed start to see a resurgence of tightening expectations. NZDUSD should be back above its late April highs and could rise to 0.73.
[Key Outlook].
TBD OPEC crude oil production expected to increase in April
First, let’s focus on the monthly crude oil market report to be released by OPEC. Last month, OPEC published its monthly report, which showed that OPEC crude oil production increased by 200,000 barrels per day in March. The report, meanwhile, revised upward the growth rate of global crude oil demand to 5.95 million barrels per day in 2021.
By April, a Reuters survey, showed that oil production rose in OPEC members led by Iran, with the largest decreases in Venezuela and Libya. OPEC members kept their production cut commitments, reducing their share to 123% in April from 124% in March. OPEC oil production increased by 100,000 barrels per day in April from a year earlier, rising to 25.17 million barrels per day.
Recently, Colonial Pipeline, a major U.S. fuel and gas pipeline operator, was hacked and forced to shut down its pipeline operating system. The relevant U.S. authorities are currently involved in the investigation. Analysts said that if the pipeline shutdown time is greater than 3 days, oil prices will rise further. Previously, according to market participants, the impact of Colonial Pipeline’s pipeline network will start to rise significantly after about five days of disruption, taking into account the inventory situation. Sources then said that the company plans to reopen the pipeline later this week.
22:30 Bailey expected to maintain cautious stance
Next, take a look at the upcoming speech by Bank of England Governor Tony Blair. Earlier this month, the Bank of England announced its interest rate resolution, keeping the level of interest rates unchanged at 0.1% and the size of bond purchases unchanged at $895 billion. The central bank said it slowed the pace of weekly bond purchases to 3.4 billion pounds a week from the previous 4.4 billion pounds, and that it expects the bond purchase program to end near the end of 2021 and expects to raise key interest rates in the second quarter of 2023.
Bailey said at the conference that the slowdown in bond purchases does not represent a change in policy, and that the economy will return to pre-epidemic levels this year, but there is uncertainty about the degree of economic depression, and the MPC will focus on medium-term inflation risks rather than temporary ones. On balance, Bailey is likely to reiterate that the UK economy will recover steadily and that the BoE’s monetary policy has not changed and will focus on medium-term risks to inflation. Bailey is unlikely to have a statement that surprises the market, so just keep an eye on it.
Wednesday 04:30 API crude oil inventories may decrease
Finally, let’s focus on API crude inventories. Last week, the API reported a 7.688 million barrel decrease in US crude oil inventories. This was followed by the release of EIA crude oil inventories which decreased by 7.99 million barrels.
By the end of the week, the market expects that U.S. API crude oil inventories may decrease by 2.25 million barrels for the week ending May 7. If the published value is larger than expected, oil prices may come under pressure; conversely, oil prices may rise.
The total number of U.S. oil drilling has not increased significantly in recent weeks. And the US vaccination is advancing rapidly, the epidemic is relatively well controlled and the economy is recovering in an orderly manner, which will push up the demand for crude oil and thus support the oil price.
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