Crude oil falls as hawkish Fed and ECB erode growth outlook. Where to look for WTI?

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Crude Oil, Price Cap, US Dollar, Fed, ECB, Bundesbank, Nagel, EUR/JPY – Talking Points

  • O rawthe costs slipped as headwinds build for global growth
  • EUR/JPY rallied on a hawkish ECB joining the Fed’s stance for big hikes
  • all eyes are on the US CPI on Tuesday.Osick it helps or hinders the WTI?

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Crude oil is lower on Monday after the US price cap plan appears to be moving forward and concerns remain over the outlook for global growth amid rising rates.

The US Treasury issued indicative guidelines on Friday on how the proposed cap will work, but there remain a number of unanswered questions about how it will work.

At the same time, the Fed’s James Bullard, Esther George and Christopher Waller all reiterated the central bank’s hawkish stance. The market is considering easing consumer spending conditions as well as China’s Covid-19 related lockdowns to hamper growth and, by extension, demand for oil.

The WTI futures contract is close to US$85.50 per barrel while the Brent contract is close to US$91.50 per barrel. Overall, it looks like the markets have yet to fully decipher the implications of Ukrainian forces fending off Russian troops.

The US dollar had a mixed start to the week, losing ground to the Euros but gaining against Japanese yen Again. This saw EUR/JPY push towards Friday’s 8-year high above 144. Other currency pairs were quite subdued.

The euro appears to have benefited from comments from Bundesbank President Joachim Nagel. He made hawkish comments on German radio over the weekend, hinting there could be more outsized hikes from the European Central Bank (ECB). Nagel sits on the Governing Council of the ECB which determines rate changes.

The yen weakened despite more jaws from Japanese officials, this time it was the turn of Deputy Chief Cabinet Secretary Seiji Kihara. He cited excessive unilateral currency movements that are being watched.

Japan also announced looser travel rules for in-bound tourists that would benefit from a weak yen and boost economic activity.

Treasury yields added a few basis points to the Asian trade curve. Gold is stable near US$1,713 an ounce.

APAC stock markets that were open had a strong start to the week after a stellar performance on Wall Street on Friday. China, Hong Kong and South Korea are on vacation to start the week.

European equity index futures are in the green, but North American markets are eyeing a benign start to their cash session.

The main event for the week ahead is the US CPI numbers which will be seen on Tuesday and watched closely for hints of Fed action.

The full economic calendar can be viewed here.

Recommended by Daniel McCarthy

How to trade oil

TECHNICAL ANALYSIS of WTI Crude Oil

Oil is trading at levels seen before the Russian invasion of Ukraine. Last week it touched a previous low at 81.90 but was unable to follow. This can continue to provide support.

This move saw the price break below the 21-day low simple moving average (SMA) based Bollinger Band. then close inside. This could indicate that a reversal might occur or that the bearish momentum might end.

Resistance could be at a recent high of 90.39

Chart vscreated in TradingView

— Written by Daniel McCarthy, Strategist for DailyFX.com

To contact Daniel, use the comments section below or @DanMcCathyFX on Twitter

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