Crude Oil May be Making Bullish Breakout on Renewed US-Iran Fighting; US Dollar Remains Firm on More Hawkish Fed; Crypto Recovering; Markets Await US Data
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- Crude Oil continues higher but note that this movement is weak and barely a technical breakout. Brent Crude has moved above $91, while WTI Crude is trading above $87, extending yesterday’s rally. The market is increasingly focused on the risk that disruption to oil shipping through the Strait of Hormuz may become more persistent. However, I think that in the end, Iran simply can no longer do enough in the Strait of Hormuz to seriously spike the price of Crude Oil. There is no evidence of major, prolonged supply disruption now.
- The US Dollar remains supported. Fed Chair Kevin Warsh’s hawkish Jackson Hole remarks have increased expectations of a September rate hike. Markets are now assigning roughly a 60% chance of a 0.25% hike at the next meeting, which continues to support the greenback, which is not far from its 2-week high.
- US Treasury Yields are rising, with the 10-Year reaching a multi-year high. Trend traders will already be long of US Yields and probably some other Yield instruments elsewhere. Japanese 10-Year Yields reached 3% for the first time in 30 years.
- In the Forex market, the Australian Dollar has been the strongest major currency since today's Tokyo open, while the Swiss Franc has been the weakest. This is in line with the long-term trends in both currencies.
- Gold is attempting to stabilize. Gold has found some support near $4,445 per ounce after its recent sharp decline. The metal remains pressured by the stronger Dollar and higher expected US rates, but the worsening Middle East situation might generate renewed safe-haven demand, although I think that is unlikely.
- Bitcoin and Ethereum have recovered modestly. Bitcoin is trading close to $78,700, while Ethereum is near $2,467. Both are higher over the past 24 hours, but rising oil prices, Treasury yields, and Fed rate-hike expectations remain headwinds for cryptocurrencies. If either currency will make a significant bullish breakout, it is more likely to be Ethereum, following a daily close above $2,515.
- The agricultural commodities Wheat, Soybeans, and Sugar have all made long-term bullish breakouts. Trend traders will be eager to be long, as soft commodities such as these have tended to produce outsize gains from long-term breakouts.
- Today brings important US data: ISM Manufacturing PMI.