Dollar roars on geopolitical tensions

17 September, 2019

Investors across the globe are entering the trading week on a mission to avoid riskier assets following drone attacks on Saudi Arabi’s oil fields over the weekend.

This bombshell development could not have come at a more painful time for the global economy currently engaged in a gruelling battle with trade developments and geopolitical risks. Heightened geopolitical tensions in the Middle East should accelerate the flight to safety ultimately sending investors rushing towards safe-haven assets like the Japanese Yen, Gold and Dollar.
We can already see this sentiment in the Dollar Index (DXY) which has jumped 0.77% as of writing to trade above 98.60. While the DXY is positioned to blast higher amid the risk-off mood, where prices conclude this week will be heavily influenced by the Federal Reserve meeting on Wednesday.

In regards to the technical picture, the DXY is bullish on the daily charts. A strong daily close above 98.60 should inspire a move towards 99.00 and 99.20.

Are Oil bulls really back in town?

The dynamics influencing oil prices are set to swing back to supply-side factors after the attacks on key Saudi Arabia oil facilities removed 5.7 million barrels from the markets.

Oil prices were explosively bullish today, rising 20% during early trading before later surrendering almost half of the gains. Given how the absence of 5.7 million barrels is equivalent to 50% of Saudi Arabia’s Oil production and roughly 5% of global supplies, the outlook for oil tilts to further upside on this massive supply disruption. The longer it takes for Saudi Arabia’s oil production to recover, the stronger the argument for higher oil prices in the short to medium term.

Whether Oil can appreciate towards $100 will depend on many factors, ranging from global growth, US-China trade developments and OPEC +. I still believe that as long as demand remains missing from the equation, the upside for oil will be capped down the road.

Looking at the technical picture, WTI Crude is bullish on the daily charts with prices trading around $60.90 as of writing. A Daily close above $60 should inspire a move towards $63.80 and $65.00.

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