Crude oil is on the rise again after another escalation in the Middle East. Oil prices jumped after fresh attacks on Saudi Arabian energy infrastructure, while Saudi Arabia's important East-West oil pipeline remains temporarily shut following last week's drone attack. This pipeline has become especially important because it allows Saudi oil to reach the Red Sea while avoiding the Strait of Hormuz. At the same time, new attacks around Gulf shipping routes are adding further concerns about oil supply.
As a result, crude oil remains above $100 per barrel, while US yields are also staying elevated. We already had strong US jobs numbers, followed by higher PPI and CPI figures last week, so inflation remains a major concern. Higher oil prices can make this problem even worse if they stay elevated, which could keep pressure on the Fed and interest rates.
This is also one of the reasons why other markets are struggling. Stocks are in a corrective pullback, while commodity currencies have been under pressure. When we see this kind of risk-off environment, together with higher US yields and a stronger dollar, it is important to keep an eye on currencies such as the Australian dollar.
Looking at AUDUSD, we have seen a very clean and impulsive reversal from last week's highs. We know that an impulse shows the direction of the trend, even if only temporarily, so this suggests that bears are becoming stronger and that more weakness could be seen.
However, after five waves down, we should be aware of a corrective rebound. Ideally, we will see a three-wave recovery, and if that rally remains corrective, it could offer another opportunity for the downside. Resistance is around 0.7170–0.7190, near the previous fourth-wave area.
For now, support for this first five-wave decline is around 0.7121, so AUDUSD could stabilize there in the next few sessions. But after a corrective rally, we would expect another leg lower, especially if crude oil and US yields remain elevated.
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