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Markets gripped by inflation concerns

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By Lukman Otunuga, Senior Research Analyst at FXTM

Asian shares were in the red on Tuesday following a broad selloff on Wall Street overnight, as surging oil prices stoked concerns about global inflation.

King dollar drew strength from the risk-off mood, while gold prices snapped a three-day uptrend, trading below $1760. Interestingly, European markets have opened on a positive note despite the losses witnessed in Asia with US futures inching higher, suggesting Wall Street could claw back losses in the afternoon.

Nevertheless, growing worries about inflation are likely to foster a sense of unease and caution across financial markets. Given how consumer prices are already at multi-year highs, persistent signs of rising inflationary pressures may force central banks to tighten policy sooner than expected.

 

Oil soars as OPEC+ stick to plan

Oil bulls were on a tear on Monday, pushing prices to levels not seen in three years after OPEC+ decided not to increase their output by more than previously agreed.

This decision was made despite calls from world leaders to bring additional production to the market amid the growing energy crunch. While the jump in oil prices may be a welcome development for OPEC+, the cartel’s actions threaten to raise tensions between major energy consumers, especially those who are dealing with high inflation.

Regarding the technical picture, oil remains firmly bullish on the daily charts with indicators pointing to further upside. Brent is currently trading around $81.50 with the October 2018 high at $86.71, while WTI is lingering around $78.00 with $80.00 acting as the first level of interest.

 

Gold under pressure

Gold has stumbled into Tuesday’s session under pressure and failing to draw strength from the inflation fears or market caution.

An appreciating dollar is acting as a headwind ahead of the heavily anticipated US jobs report on Friday.

Given how gold remains sensitive to taper expectations, we should expect to see increased volatility through the non-farm payrolls data. Friday’s outcome could set the tone for the precious metal this month.

Looking at the technical picture, prices are trading below the 50-, 100- and 200-day Simple Moving Average, while the MACD trades below zero.

A solid daily close below $1750 could signal a decline towards recent lows at $1721. Should $1750 prove to be reliable support, a move towards $1780 and $1800 could be on the cards.

 

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