Yesterday’s decision by OPEC to restrict oil supply has pushed the price of crude higher by some 5%. The move took the markets by surprise, with the divisions between Iran (who are still enjoying their return to global markets) and Saudi (who are cash-strapped) seen as too big to overcome at this point in time. This represents the first cut in production since way back in 2008, during the depths of the global financial crisis. No great surprise to see the currencies of the oil producers gaining the most on the news, so the Canadian dollar, Mexican peso, Norwegian krone and Brazilian real have all done well. Importers, who now face a bigger trade deficit as a result of the price increase, have lagged, so most notably the yen and the single currency.

Of course, the other impact will be on inflation rates and most countries could do with a bit more inflation at this point in time, so this will not be an unwelcome development. Because you can’t generally substitute energy spending for other things, there is always the caveat that higher energy prices result in consumers having less free income to spend elsewhere. But that’s probably the secondary issue for most developed market central bankers right now. For today, the data calendar is on the light side, with EU consumer and business confidence data at 09:00 GMT, with German inflation data following at 12:00 GMT and a further reading on US Q2 GDP at 12:30 GMT.

Did you know?

If overwhelmed by pessimism and falling prices, the FX market is defined as “bearish”, while if characterised by optimism and rising prices, it is called “bullish”. These two terms derive from the way in which bears and bulls attack their opponents, with the former swiping its paws downwards and the latter thrusting its horns upwards.

Word of the day
"Swing Trader" - A currency trader who places short-term trades in order to benefit from short-lived trends.
Pro Tip

Most market activity occurs when at least two market centres are open at the same time.

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