President of the European Central Bank, Christine Lagarde, stated on Wednesday that the European Central Bank is committed to ensuring that inflation stabilizes at 2% “over the medium term” amid the current complexities and crisis. Currently, the Euro Area inflation rate is at 7.4% and the monthly rate of change came in at 2.4%. Prior to this ECB statement, Germany had announced that it was ready to support an EU ban on Russian oil if it were a gradual phasing out and that its gas storage was up to 33.5%, up from 25% at the end of last month. Whereas the EU will temporarily increase gas purchases from Russia through countries ready to pay in Russian roubles. This action will directly fund the Kremlin and obviously, support the Russian economy and help the appreciation of the rouble, as demand for the currency will now increase.
The rouble has already strengthened against the US dollar since the USDRUB peaked on the 10th of March 2022, and now the USDRUB is lower than the price before the February invasion of Ukraine. Russia’s annual inflation rate accelerated in March 2022 as money fled the sanction hit economy. The Russian Central Bank decided to raise rates to 20% to stem the flows and then was able to reduce the interest rate by 300bps bringing the rate to 17% in an unscheduled meeting at the beginning of April.
Brent is currently trading within a narrowing wedge with $105 on the 9-day average. This corrective pattern is likely to break out, but I’d have to expect a false breakout to start. Because of this, I will wait for a break, retest, and continuation trade. Until that occurs, the supply and demand are also doing battle with a rising US dollar and possible supply shocks from China coming over the next few months, which could hurt world supply chains and have an element of energy demand destruction. US crude inventories rose by 0.7million barrels but came in under the expected 2.0million barrel build. Gasoline stocks came in with a larger than expected draw, which could signify demand and movement of people, ie. Economic activity. A larger than expected draw on Distillates could also indicate better than expected movements of goods, as distillates are made up of things like diesel which is found in agriculture and logistics vehicles. The initial reaction in the energy markets was positive but on the m30 chart, the price found the 200-period moving average before dropping away from the $105 price level by a couple of dollars.
Natural gas from the US is also likely to be in demand after the European summer, so it will be interesting to see if the EU etc. stock up now before the end of year cold snap comes. If so, the Natural Gas price is unlikely to dip during this traditional seasonal low demand period.
Gold is currently making new lows for the month and has taken out last month’s lows too. The price action on the daily chart is still above the 200-period moving average, so there is a chance that today’s sweep of March’s lows has now cleared the liquidity under the mid to late March period and that the pop to $2k/oz in April cleared the liquidity above that same range. I am now expecting the price to head slightly higher to test the mean and possibly the $1920 level before dropping lower into the 200-period moving average. The Bollinger Band %B is showing that the current price is at a potential reversal point. The longer the global inflation rises, and the US Fed are hawkish, the more likely the real yields increase which will be detrimental to precious metals prices.
The forex heatmap continues to show Australian dollar strength and a weak yen and euro. Global indices have had a relatively good day, with the majority closing green. The Shanghai stock exchange tops the list with a 2.49% rise today, with the UK FTSE100 beating the US indices by just over 0.1% to close at 1.09% at today’s closing bell.