On Monday, West Texas Intermediate (WTI) crude oil realized an important opening gap. This change is indicative of multiple economic forces at play affecting the market. The latest move, which has WTI breaking out of a descending triangle pattern, has been mostly driven by the weaker U.S. dollar. Oil prices are an extraordinarily volatile commodity market at the moment. This is occurring at a time when the U.S. is confronting major economic challenges, including a budget standoff in Congress that threatens to increase the national debt by $4 trillion.
Promised new U.S. budget and new economic policy which is now stalled in Congress has economists and market analysts on edge. Passing no budget or a continuing resolution worsens the nation’s debt crisis and adds uncertainty to volatile financial markets. As lawmakers are still at odds over the measure, its effects on the dollar and economic stability more generally continue to be unclear.
In addition, trade relations with China have bogged down, making things even more troubling on the economic front. It’s understandable that the U.S. administration is shaken by China’s sudden imposition of a new 50% tariff on steel. This decision has drawn out bipartisan backlash and concern over retaliatory action by China. The collapse of these trade negotiations bodes ill for increased uncertainty across many sectors, not least agriculture and manufacturing.
On top of all that, the ISM manufacturing index just came in dismally, a sign of serious manufacturing sector malaise. This intelligence increases the opacity of an already difficult economic picture. Taken individually or especially together, analysts think these data points could cause the Federal Reserve to reconsider its current monetary policy. That’s particularly the case if other economic indicators continue to trend toward weakness.
The price action in silver has had a lot of eyes on it, as silver has recently hit a critical resistance level on the daily chart. Investors are understandably watching this movement closely as it could be an early indicator of growing changes in market sentiment and investment strategy.
Market conversations these days focus on the merits of the “TACO trade.” The strategy further emphasizes actively trading commodities and currencies as economic cycles and conditions shift. As these discussions continue, all eyes remain on the proceedings. To the industry’s benefit, they say, could be a big shift in the White House’s approach to fiscal and trade policies. Relatedly, such a dangerous militarization of U.S. sanctions would predictably weaken any economic benefits from a correspondingly strong U.S. dollar.
The market is still trying to process these changes. So far as WTI’s future price action is concerned, it is evident that its trajectory will remain tightly linked to domestic and global economic drivers. All else equal, a weaker dollar is usually positive for oil prices, but the uncertainty to continue may keep upward pressure in check.