U.S. Dollar Extends Slide, OPEC and China in Focus

China remains in the spotlight and has driven a “risk-on” sentiment throughout this morning’s Asian Session. China seems to be pivoting its COVID-19 policy after vigorous demonstrations over the previous weeks. According to Chinese media, the demonstrations were the largest since the Tiananmen Square Demonstrations in 1989.

The main change introduced was the removal of recent testing to enter public transport, offices, and malls. In addition, government officials have advised citizens they are only required to do tests if they have symptoms. The news, in general, has created a “risk-on” appetite. As a result, the US Dollar declined to a new monthly low, and crude oil attempted to reach $82.

Crude oil also came under the influence of the OPEC meeting, which took place yesterday, and an EU agreement on price caps. A relief for citizens is that OPEC had not decided to decrease oil production again, as they did in October. OPEC advised they will keep to their previous target of lowering production by 2%.

The EU has also agreed on a $60 per barrel price cap on Russian oil. However, experts have advised that the EU has placed a cap that will most likely not trigger a reaction from Russia, and the EU will be able to continue energy flows as usual. As this has little effect on the supply, crude oil has decreased to $80.30 per barrel. However, if Russia does react by not supplying Europe, the price will likely experience high volatility.

The price of global stocks came under pressure from a surge of panic sellers after the US employment figures for November were better than expected. The reaction was triggered by fear the Fed would hike by 75 basis points again. However, this is not likely unless next week’s CPI figure is also higher than expected. After a 1.5% decline, global stocks slumped to previous price levels.

The price of the EUR/USD within the Asian session increased to almost a 6-month high. However, at the start of the European Session, the price swung back in favor of the US Dollar and corrected back to the market open price. Currently, the price is trading within a retracement and continues to receive such indications. Further buy signals are likely to be obtained above 1.0584, and sell signals will come into play if the retracement maintains momentum.

The price has significantly been influenced by Friday’s employment figures which show that the US economy remains resilient to the Fed’s interest rates hikes. Nonfarm payrolls remained above 260,000 instead of declining to 200,000, and the unemployment rate remained at 3.7%, which is also positive. Lastly, the average hourly earnings increased to 0.6%, the highest since February 2022. The hourly earnings specifically supported the US Dollar as it is known to drive economic activity.

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This morning, the Euro sees a mixed performance depending on the currency pair. The Euro is performing specifically better against the Pound, but uncertainty remains due to the latest EU price cap and if Russia will continue to supply. The European authorities set their price ceiling for Russian oil at $60 per barrel, which will not include insurance costs and other surcharges, so the actual cost of purchases may be slightly higher.

European Inflation is likely to surge and economic activity to significantly decline if Russia refuses to supply. This is something that investors will potentially be monitoring closely. Investors will also monitor the PMI data due today.

Written By: NAGA