The Oil price is very much in focus once again today as investors await more global data releases. Data from China has underwhelmed, reiterating concerns over weak growth for the global economy and this has impacted the Oil price. We also need to be reminded that as a commodity, Oil, relies on global demand. Therefore, when data from the global data releases suggest that world economic momentum is trending weaker or that growth will remain at a subdued level for an amount of time, Oil prices suffer as a result of concerns there will be less demand for commodities.
Oil traders must continue to watch global data releases, especially announcements from China because of how important its momentum is for the world economy. China is not only the second largest economy in the world, but it is also the largest purchaser of commodities. Therefore, when eyebrows are raised or fear increases following Chinese economic data, subsequent concerns over the global economy lead to additional pressures to the Oil price that are already a risk to sentiment.
What to watch on Tuesday
Oil price volatility will still likely be on our radars as the market awaits the release of the UK employment report and more importantly for Oil price, US retail sales. The United States these days is mostly a provider of its own Oil rather than importer of Oil as we used to remember it traditionally, but this can still have an impact on Oil price. For example, we are all aware that the United States is the largest economy in the world. As such, issues or hopes over the United States economy can lead global sentiment. If global sentiment is weak, investors do not want to invest in a risky asset and Oil can be considered as such.
We should also be aware that a main component of the United States economy is domestic consumption. Therefore, US retail sales data releases is one of the most important economic releases from the standpoint of gaining an understanding on US GDP momentum.
We are also at a point where investors are somewhat impatient towards understanding what the next move of the Federal Reserve might be. After the fastest pace of interest rate increases in the United States that many of us have seen in our lifetimes, the Fed is not giving much away. This is because the US central bank prefers to wait and see how the United States economy is performing after raising interest rates aggressively in the past year.
Jobs reports, Inflation announcements and Retail Sales data releases are all of critical significance for United States interest rate policy.
Retail sales might move global markets
Global financial markets continue to trade in a choppy environment. Sometimes they are up, sometimes they are down. They are lacking a trend. In many ways, this is because investors have no clarity as to what the Federal Reserve are thinking. This is likely because the Fed are unsure as well. This is why US Retail Sales need to be watched today.
If the Retail Sales report suggests that US consumers are feeling the crunch from higher United States interest rates, it might be the signal the market is waiting for that lower interest rates are coming. This is important for global stock markets because lower interest rates have traditionally meant good news for world stocks.
Therefore, weak global data announcements might once more be digested as good news for global stock markets.
Bitcoin still at risk to losses
Price action for Bitcoin has not been kind in recent weeks. We are only into the second trading day of the week and the most famous cryptocurrency of them all is down nearly 2%. Over the last month, Bitcoin has lost 10% of its value.
From a fundamental point of view, news flow around Bitcoin and Cryptocurrencies do not appear to be driving sentiment. As such, the current price action and fluctuations appear to be driven from technicals.
Technical analysis suggests that the current price action is profit-taking after a very successful 2023 so far. We should not forget that even after losing 20%, Bitcoin is still up by more than 60% year-to-date.
What I think has encouraged the profit-taking and weaker investor sentiment for Bitcoin has been the failure to surpass $30,000. As noted on various occasions in our analysis, $30,000 was a likely key resistance handle for Bitcoin. Its inability to successfully close above $30,000 likely led to reduced inspiration from enthusiasts in their battle for higher Bitcoin price.
The good news is that the rally for 2023 is not necessarily done. As was also noted, the inability of Bitcoin to rise above 30k was likely to lead to a trading range between $30,000 and $25,000. It appears that this has been the case in reality.
Therefore, it might be more worthwhile to monitor whether Bitcoin can fall below $25,000 before becoming tempted to price in further potential declines.