Influences of Energy Prices Skyrocketing on September 28

In the market of commodity futures, energy futures continue to outperform their counterparts. The majority of this kind have enjoyed the increase by over 50%, among which the most outstanding ones are natural gas and coal futures. The former has risen by 138% since early this year, and the latter has soared by 154%. WTI Crude Oil that most people pay attention to has also increased by 57%. A reason for the rapid growth of prices in this regard is that natural gas and coal are in short supply, combing with winter approaching in the northern hemisphere. It is believed that the market of three energy futures mentioned above may continue to be bullish as the whole world witnesses the energy shortage to different extents currently.

The surge of energy prices is conducive to the economy and currency of energy exporters. Therefore, CAD performed well in the last week. It is estimated that the short-term USD/CAD is likely to reach the level at 1.2500 even 1.2422. However, it is worth noticing that the fallout from this surge is the fast escalating inflation in the U.S. instead of the transient one implied by Powell. The inflation data announced by the U.S. in the future may grow dramatically, thus increasing the pressure on the Federal Reserve (Fed) in the field of interest-rate hikes and leading to its introduction ahead of schedule next year. If this comes true, USD will get benefits. The U.S.10-year government bond interest rate has reached 1.5% plus, which indicates that the financial market has predicted that the U.S. has a chance to bring hikes forward.

The 2021 German federal election concluded where no party has pocketed over 30% of total votes. Hence, the Social Democratic Party of Germany (SPD) that secured 25.7% of votes plans to lead a grand coalition with the Greens and the Free Democratic Party (FDP). SPD is less left-leaning than the Greens, whereas FDP is right-leaning, according to their political platforms generally comprised of tax hikes and the increase in welfare expenditure. Capitalists in Germany who disagree with these policies have taken the lead in transferring their assets to Switzerland for tax avoidance in the future. The financial market also concerns that the political platform of SPD may give rise to a fiscal crisis in the country. Consequently, the trend of EUR can remain under pressure because of an uncertain political prospect.

The situation where EUR is under pressure is favorable to DXY. I am prudently optimistic about the trend of DXY in the fourth quarter. However, USD may face a different story. For example, if the pressure of increasing interest rates in Canada and New Zealand is heavier than that in the U.S., their currencies will perform neck and neck in the market. As for USD/EUR, USD/JPY, USD/CHF, and USD/AUD, the market boasts a bullish trend from my perspective.