Boring on the dollar, interesting on oil

The correction on Wall Street is getting stronger. Yesterday, the main Wall Street indexes lost. Nasdaq Composite closed the day with a result of -1,2%. and the Dow Jones and SP500 fell by 0,8%.

The minutes of the December FOMC meeting confirmed that The Fed has probably finished tightening policy and is prepared to cut interest rates this year. The EUR/USD rate rose slightly yesterday evening and continues to rise this morning, reaching the level of 1,0940. Crude oil gained significantly as a result of the events in the Red Sea.

Changing Federal Reserve Policy

Yesterday's minutes from the FOMC meeting confirmed market expectations regarding a change in Fed policy. At the same time, investors received information that monetary conditions will remain tight for some time. The message was certainly not as dovish as Powell's words. The minutes did not contain anything else and therefore did not cause any major market volatility. Even though the message was dovish, the stock market lost at the end of the day. The dollar weakened slightly against the euro, but this move should also be considered cosmetic. The market is now focused on ADP report (today) and NFP (tomorrow).

However, the market valuation is still close to 70%. chances of the Fed cutting rates already in March, although in my opinion such a scenario is unlikely and a more realistic date is mid-year. Throughout 2024, the market sees a reduction of a total of 146 basis points, which gives 6 cuts, each of 25 basis points. This is twice as much as the latest forecasts of the American institution.

Concerns about oil supply

It was interesting on the oil market yesterday. The price of the raw material increased by over 3%. and eliminated Tuesday's discounts. Variety brent again approached the level of USD 79 per barrel. The gains came after reports of a disruption at Libya's main oil field heightened supply concerns stemming from tensions in the Red Sea. The Iran-backed Yemeni group said on Wednesday that “targeted” a container ship sailing to Israel, a day after U.S. Central Command (CENTCOM) said the Houthis fired two anti-ship ballistic missiles in the southern Red Sea.

Brent crude oil prices approached the technical barrier, which is the upper limit of the descending channel, which has been in place since October 2023. The scenario suggested by the potential inverted head and shoulders formation is still in play. The pattern is not typical, but it still suggests that a medium-term low is being built on the chart.

Source: Łukasz Zembik, OANDA TMS Brokers