Crude Oil and AUD Struggle on Vague Chinese Stimulus Measures
- China’s stimulus update over the weekend lacked detail, impacting the price of crude oil and the Australian Dollar (AUD).
- Reports indicate that Israel may not attack Iranian oil assets, leading to a sharp decline in crude prices.
Overview
Both crude oil and the AUD faced challenges due to the lack of clarity surrounding China’s stimulus measures. The situation worsened as reports surfaced suggesting that Israel might refrain from attacking Iranian energy assets in response to a recent missile strike. Israeli Prime Minister Benjamin Netanyahu reportedly expressed readiness to target Iranian military installations rather than energy or nuclear facilities.
Crude Crushed as Geopolitical Risk Premium Unwinds
The geopolitical risk premium embedded in crude oil prices reacted swiftly to the news, causing front-month Brent and WTI contracts to plummet by approximately 5%. The daily chart for WTI shows a significant bearish candle following the report, breaking the uptrend established since early October. The price is now approaching a critical level of $71.07, which has alternated between support and resistance in recent months.
- RSI (14) has broken its uptrend from late October, signaling a bearish momentum.
- Traders may consider selling if the price breaks below $71.07, with potential targets at $70 and $66.33.
- An alternative strategy could involve buying if the price bounces off $71.07, targeting levels around $74.46 or $76.
AUD/USD Weakness Reflects China Disappointment
The AUD/USD pair experienced a decline, albeit less severe than crude oil, in response to the news. The commodity-linked currency retreated from recent gains, with indicators like RSI (14) and MACD signaling bearish momentum. A three-candle evening star pattern also suggests increased downside risks.
- Selling rallies is favored over buying dips in the near-term for AUD/USD.
- Shorting opportunities may arise if the price approaches the 50-day moving average, targeting a move towards support at .7000.
- Alternatively, a decline to .6700 could prompt selling with a potential target at the 200-day moving average around .6628.
Analysis
The impact of geopolitical events and economic policies on financial markets is crucial for investors to understand. In this case, developments in China’s stimulus measures and potential actions in the Middle East have directly influenced the prices of crude oil and the AUD/USD pair. Traders and investors need to stay informed and adapt their strategies to navigate through volatile market conditions.