Should We Be More Concerned About Oil Sell-Off?

Oil has endured a rough week since peaking on the final trading day of July just shy of last month’s high. Crude’s surge towards multi-year highs has been built on recovery optimism as economies reopen on the back of successful vaccine rollouts. The Delta strain has thrown a spanner in the works, with the U.S. and China seeing surges, and the latter re-imposing restrictions. The former may also see activity slow if it doesn’t get a grip on the spread soon.

The 10%+ drop that we’ve seen this month has seen oil trading back around July’s lows, following the last plunge. Once again, WTI has seen support around $65, with Brent similarly catching a bid around $67. A break of this support could spell bad news for oil prices in the near term.

That would suggest there’s perhaps more to fear from recent Delta surges than we’re currently seeing because outside of crude markets, it’s all very calm. The Fed’s tapering plans on the back of a strong economy and strengthening labour market is attracting more attention. It seems there’s very different narratives occurring across asset classes right now. Should that support hold, then we may have simply established a broad summer trading range.

Gold Stabilizes After Crazy Start To Week

Gold has stabilized after a turbulent start to the week. Light trade early in the Asian session on Monday and a break of key support – $1,750 – triggered a flash crash to start the week, which gold spent the following hours recovering from before ending the day just shy of 2% lower.

While the sell-off may have been exacerbated by trading conditions, there’s no doubting it was coming after a flurry of strong economic data and Fed speak late last week. While gold recovered after the flash crash, it did then run into resistance at that previous support level and rotated lower once more, which effectively confirmed the breakout.

It has since stabilized in a $1,720-$1,740 range and is pretty much flat on the day. The near-term outlook continues to not look favourable for the yellow metal, especially if the data coming from the U.S. remains strong.

One thing that may limit downside is that a taper is so heavily priced in now, that we could see diminishing effects from the ongoing hawkish commentary from Fed figures. And while the rapid spread of Delta in the U.S. may not delay tapering, it could force policy-makers into a cautious approach to the pace.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.


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