Crude oil key to future direction of FX markets
Oct 9 (Reuters) -Crude oil is key to the future direction of FX markets with the growing likelihood of lower prices likely to hurt the dollar while relieving pressure on a number of hard pressed currencies, including highly influential ones like China's yuan, India's rupee and Japan's yen.
Should the Organization of the Petroleum Exporting Countries (OPEC) and its partners fulfil plans to increase the supply of oil it should suppress inflation, which will allow central banks to lower interest further - or faster - than currently expected. Brent Crude oil, which has been corralled within a $70-100 range during the period that producers have restricted supply, could drop significantly if the taps are opened wider.
Charts are hinting at a drop following the slide below 55, 100 and 200 monthly moving averages, and the monthly Ichimoku cloud, and $77.56/bbl which is the midway point of the huge rise in prices between 2020 and 2022.
A close under the 100-MMA at $68.70 may spur a deeper sell-off, and the heavy tone for oil that has persisted despite a conflict in the area of one of the biggest sources of production, suggest that an increase in supply will lead to a significant drop.
The dollar which has been underpinned as the currency of a major producer could lose a strong support at the same time as the Federal Reserve eases monetary policy, and lower oil prices may encourage policymakers to move more quickly, or lower interest rates further than currently envisaged.
The August 2021 low at $64.60/bbl and $63.02/bbl - 61.8 percent of the rise resulting from the pandemic - are the targets should oil drop, and may also become the centre of a lower $50-80/bbl range.
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(Jeremy Boulton is a Reuters market analyst. The views expressed are his own)
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