Recovery in dollar may strain commodities; central banks in focus next week

On the technical front, NYMEX Crude is trading close to a falling trend line resistance near $77.50 per barrel. Sustained closing above $77.50 per barel would give the bulls the edge to take the price higher towards the next resistance of $79.50 per barrel.

After hopes of a pause in rate hikes by the US Federal Reserve triggered euphoria last week, global markets turned little cautious amid mixed data and earnings results from the US.

The dollar recovered from the 15-month lows of 99.57 hit earlier in the week after an unexpected decline in US jobless claims flashed signs that the labour market remains strong and boosted rate hike bets. While on the other hand, housing data turned out lacklustre with housing starts, building permits and existing home sales, all missing estimates in June.

The greenback also received support from cooler than expected UK inflation, dovish remarks from Bank of Japan (BOJ) Governor and European Central Bank (ECB) official. ECB Governing Council member Klaas Knot said monetary tightening beyond next week’s meeting is anything but guaranteed, hinting towards an end to unprecedented campaign of interest-rate hikes. BOJ Governor Kazuo Ueda said inflation target still remains distant signaling support to maintain ultra-loose monetary policy for the time being.

Most commodities have seen a pullback from higher levels seen last week owing to rebound in dollar. COMEX Gold surged to six-week high of $1989.8 per troy ounce in line with dollar weakness, decline in US treasury yields and fresh geopolitical tensions between Russia and Ukraine.

Similarly, Silver witnessed an uptick to $25.48 per troy ounce supported by prospects of sooner than expected peak fed funds rate. But recovery in dollar above the resistance of 101 reversed the gains in precious metals. On the price action front silver looks more attractive to gold as indicated by the gold-silver ratio that is at May 2023 lows near 79.40.

LME base metals sharply retreated from higher levels earlier in the week following disappointing Chinese economic recovery and fresh signs of trouble in China’s real estate market. However, weekly decline was limited amid China’s vow to boost consumption, treat private companies the same as state-owned enterprises to bolster corporate confidence and reports of easing home buying restrictions there provided some respite.

Crude oil prices are headed for a fourth consecutive weekly gain as signs of supply tightness offset demand concerns. Decline in Russia’s seaborne crude flows to a six-month low in the four weeks to July 16, decline in stockpiles at the storage hub at Cushing, Oklahoma by the most since October 2021 coupled with Saudi’s production cut, have all helped WTI prices to hold above $76 a barrel.

On the technical front, NYMEX Crude is trading close to a falling trend line resistance near $77.50 per barrel. Sustained closing above $77.50 per barel would give the bulls the edge to take the price higher towards the next resistance of $79.50 per barrel.

Traders will be heading into the next week with major central bank meetings lined up. Although Fed is widely expected to announce a 25 bps rate hike, markets may cautiously watch US Advanced GDP and Core PCE data to better gauge monetary policy outlook and set expectations for September meeting. Flash manufacturing PMI from EU, UK and the US will drop earliest hints on the factory activity in July.

Most importantly, markets are expecting additional stimulus measures from China’s politburo meeting scheduled at the end of July as recent data releases have sparked concerns of China missing its 2023 growth target of 5 percent, already lowest in decades.

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