New sanctions and rising oil prices

25 May, 2020

Tensions between the US and China are growing. On Friday, the US Department of Commerce announced the blacklisting of 33 Chinese companies and government organizations, thereby putting additional pressure on the Chinese economy. In addition, the media reported that the White House administration of Donald Trump contemplated testing nuclear weapons which has not been confirmed. It is a known fact that China and Russia are already testing nuclear weapons.

Despite all this, the demand for Safe haven assets remains virtually unchanged. Gold prices remain subdued and safe haven currencies such as the JPY and CHF remain stable. This may be due to long weekends in the USA and Britain so on Tuesday there may be a surge in trading activity.

And now let's move on to the published report for changes in the business environment, as well as assessing the current situation and economic expectations from Germany. The data came in mixed and the current economic situation turned out to be worse than analysts’ expectations.

As a result, the activity of EUR buyers remains restrained. At the same time, a marked improvement in economic expectations eased the pressure on the EUR/USD currency pair. Despite this buying activity for this currency pair remains in the risk zone, until the pair returns above the technical resistance level of 1.0910.

Now let's move on to the black gold market. After a short-term, but rather deep correction, the oil price has bounced back. There are two reasons to be optimistic, and we have already discussed them several times. The first is the reduction of quarantine restriction measures, which leads to an increase in demand for oil and oil products and caused a decrease in US oil reserves.

The second, but just as important factor is the OPEC+ agreement for a cut in production. As a result, we are seeing a moderate increase in oil prices. To break through the strong technical area of resistance of $35–$36 per barrel, an additional and sufficiently strong bullish fundamental factor is needed such as an easing of lockdown measures in the USA regarding the coronavirus which will increase demand as the US is the world’s biggest consumer of oil. 


Source  
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