King Dollar returns and takes down Commodities and their Currencies

• USD surges as 10-year Treasury rises 4.4bps to 4.067%, highest level since November
• Oil unable to rally after US crude stockpiles dropped by a record 17 million barrels last week
• Gold slumps after hot ADP report keeps markets divided on whether Fed will tighten again

AUD/USD, NZD, USD, and USD/CAD are all seeing a tentative return of the king dollar trade.  The dollar is rallying on safe-haven flows following Fitch’s US sovereign rating downgrade.  The surge in Treasury yields is also supporting the greenback as the Treasury might need to offer attractive yields as issuance totals rise.  Lastly, the ADP report reminded traders that the US economy might still be too resilient for the Fed to be done with raising rates.

Tactical short-term traders might be eyeing further dollar strength if key technical levels are breached.  Currently the NZD/USD is breaking below key support, but momentum selling might need prices close below the 0.6050 region.  AUD/USD is also testing the waters below the 0.6550 zone, with further downside eying the 2023 low of 0.6458. USD/CAD has tentatively captured the 1.3300 level, which could support a rally towards the 1.3375 region.

Oil

Crude prices tried paring losses after the EIA report showed inventories posted a record draw of 17 million barrels.  The oil market just got even tighter as inventories are at the lowest levels since 1985.  Last night’s API report posted a hefty draw and AlphaBBL reported a sizable draw with Cushing stockpiles, so many energy traders expected a big drop with stockpiles and solid demand stats.

A strong dollar is getting in oil’s way, but that should only lead to limited downside given how good both the supply and demand fundamentals have become.  The bullish signs include US crude exports are rising and crude oil and distillate demand is rising.  The bearish signs are that gasoline demand seems to have peaked as higher prices at the pump.

WTI crude’s decline below the $80 level should be short-lived, but if momentum selling kicks in, prices could test the $77 region. ​

Gold

Gold prices are falling as the dollar steals all the safe-haven flows that stemmed from the US sovereign downgrade and as Treasury yields surge on rising debt sale expectations. The gold market is going to struggle as long as re-steepening of the US curve continues.  The VIX is rising and it seems Wall Street is getting nervous here.

Gold will eventually act like a safe-haven as stocks remain vulnerable given rising downbeat outlooks and as the UAW labor strike risks grow following the ambitious demands provided by the UAW president.

Bitcoin

Bitcoin is wavering above the $29,000 level as traders await any updates with a US spot Bitcoin ETF. We’ve seen this movie before… Michael Saylor is adding Bitcoin to MicroStrategy’s portfolio.  Fresh money has not yet been coming into the cryptoverse so range trading might remain a while longer.

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