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Convoluted Oil market dazzles global equities – Market Analysis – April 22

Miguel A. Rodriguez
Miguel A. Rodriguez
05 November 2022
Markets take a breather, consolidate slight gains

The market has had a tranquil session after the tensions of the previous two days.

Crude Oil

The catalyst for this turmoil was that Crude, in its WTI OIL benchmark, came for the first time in history to trade negative on the May futures contract. The causes of this enormous distortion are the significant imbalances between market supply and demand, given the drastic drop in consumption worldwide, and a technical reason, such as the lack of spare capacity in the main world Oil hubs. There was literally no place to store the Oil.

These conditions continue to be unchanged, and the figures published by EIA showed an increase in Crude Oil inventories of 15,022 M barrels, a number well above the average for this indicator, and which continues to put enormous pressure on the Oil market. 

Alongside the battery of figures published by the EIA, we have the situation of the inventories in Cushing, Oklahoma, since this is the place where the deliverable Crude Oil of the future WTI is stored and distributed. The latest news is that's increasing to 4,776 M barrels and will undoubtedly cause tension again in the front WTI contract and will affect the price of the other references.

However, it's been calm until now, and the price of Crude Oil has rebounded from the lows in what is considered in the market as a tense calm awaiting news.

Global equities

The stock markets, in the last days, have performed in close correlation with the Crude Oil, so today light gains have been experienced in a corrective movement of the previous bearish leg that began on April 20. This market is supported by government stimulus packages and by some stocks that have released better-than-expected earnings and that have benefited from the current situation. 

However, there are still some earnings to be published, and what will be more critical in the future, the economic figures that will show the real impact on the economy of this crisis. In this sense, on Thursday, the PMIs are released, both in the Eurozone and in the United States.

The Euro Crosses

The currency market has remained on the sidelines of these massive movements in recent days with trading range without defining trend. But late today, timid selling pressure has begun in the Euro

There are fundamental reasons to expect a downward movement in the single currency, mainly due to the tension that the peripheral countries of southern Europe will face due to the enormous financing needs caused by the pandemic crisis. 

In Italy, the country most affected along with Spain, and also the country with the highest debt over GDP ratio at 130% - analysts see a reflected widening of the spread between the Italian bond and the 10-year German bond that has reached lately 260 bp. 

This is the primary concern of the European Union that up to now has not decided to approve a stimulus package of 1.5 trillion Euros through a joint bond issue. The outcome of the meeting that will be held on Thursday will depend on the evolution of debt spreads, and with them the performance of the Euro. Most market analysts are not very optimistic in this regard.

The leading Euro crosses stay now at the support zone after today's sales. EUR/USD finds its first support at 1.0815, below 1.0772, and a movement below this would open the way to the 1.0650 area, lows reached in mid-March.

EUR/JPY, a pair susceptible to the risk sentiment of the market, has first support in the area between 116.50-60, another minor support at 116.17 and below it does not find any obstacle, from a technical point of view, until the area of 115.00.

EUR/GBP is a cross that has suffered from high volatility in recent weeks caused mainly by the Pound that has been indirectly affected by the turmoil in the Oil market. 

The general sentiment of the market before these ups and downs is that in the current crisis environment, the Pound should benefit marginally against the Euro. Now again, it is in a downward movement that may increase if the tension in the Eurozone worsens.

The pair has closer minor support in the 0.8777 zone and below a significant level at around 0.8690- 0.8700, a daily close below which would clear the way for further losses.

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Miguel A. Rodriguez
Miguel A. Rodriguez
Financial Writer

Miguel worked for major financial institutions such as Banco Santander, and Banco Central-Hispano. He is a published author of currency trading books.