Crude Oil Surges on Yemen Civil War Concerns

04/24/2015 7:00 am EST

Focus: FUTURES

James Hyerczyk, at FXEmpire.com, outlines how trader concern over Middle East supply was behind Thursday’s crude oil rally, how US economic reports influenced the foreign currency markets, and what the outcome of Friday’s meeting of EuroZone finance ministers could mean for gold and the euro.

June Crude Oil futures rallied nearly 3% on Thursday. Renewed concern over Middle East supplies was the catalyst behind the rally. Traders are worried that the civil war activity in Yemen will escalate into areas that may have a direct effect on supply. Brent crude also rallied close to 2%.

June Comex Gold traded slightly higher—but in a narrow range—indicating trader indecision. For most gold investors, the fundamentals are mixed. On one hand, the strong dollar is weighing on the precious metal. However, the market is also being underpinned by those who believe the market will rise if Greece defaults on its debt obligations and is removed from the EuroZone. There are also concerns over the escalating conflict in Yemen.

Technical factors are also contributing to the price action by Gold. Early on Thursday, the market found support at $1183.40 which is 50% of the March 17 to April 6 price range. March 17 is the day before the Fed meeting at which the central bank expressed concerns about the value of the US dollar.

Both the EUR/USD and GBP/USD posted modest gains. Short-covering and the lack of fresh news about Greece helped boost the euro. The easing of tensions over the UK’s May elections helped underpin the British pound.

Several US economic reports also helped influence the price action in the foreign currency markets because they led to a weaker US dollar. The weaker than expected reports lowered expectations for an early Fed rate hike, leading traders to lighten up on their long dollar positions.

US New Home Sales for March came in weaker than expected, at 481,000 in March. Traders were looking for a reading of 510,000 units.

Weekly jobless claims showed an increase of 1,000 to 295,000. The pre-report estimate was for a reading of 288,000.

The preliminary US Manufacturing Purchasing Managers’ Index fell to 54.2 in April from the final March read of 55.7. Factory activity showed the slowest momentum since January. Traders were looking for a PMI reading of 55.5.

In other news, HSBC’s preliminary reading of China’s factory activity for April posted a reading of 49.2, slightly below the 49.6 estimate. Markit’s German flash composite PMI fell to 54.2 in April after reaching an eight-month peak of 55.4 in March.

Finally, Greek Prime Minister Alexis Tsipras will meet with German Chancellor Angela Merkel in Brussels on Thursday, a day ahead of a key meeting of EuroZone finance ministers in Latvia. The outcome of the meeting could have an effect on the EUR/USD and gold markets.

By James Hyerczyk, Analyst, FXEmpire.com

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