Crude Oil Drops as Hawkish Fed and ECB Erode Growth Prospects. Where to for WTI?

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

• Crude oil prices slipped as headwinds build for global growth
• EUR/JPY rallied on a hawkish ECB joining the Fed stance for large lifts
• All eyes are on US CPI on Tuesday.Will it help or hinder WTI?

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

US Treasury issued indicative guidelines on how the proposed cap would work on Friday but there remains 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 re-iterated the hawkish stance of the central bank. The market is looking at softening consumer spending conditions as well as Covid-19 related lockdowns in China to hamper growth and by extension, demand for oil.

The WTI futures contract is near US$ 85.50 bbl while the Brent contract is a close to US$ 91.50 bbl. Overall, it seems that markets are yet to fully decipher the implications of Ukrainian forces pushing Russian troops back.

The US Dollar had a mixed start to the week, losing ground to the Euro but gaining against the Japanese Yen again. This saw EUR/JPY push toward Friday’s 8-year peak above 144. Other currency pairs were fairly subdued.

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

The Yen weakened despite more jawboning from Japanese officials, this time it was Deputy Chief Cabinet Secretary Seiji Kihara’s turn. He cited excessive one-sided moves in the currency are being monitored.

Japan also announced a relaxing of travel rules for in bound tourists that would benefit from the weaker Yen and boost economic activity.

Treasury yields have added a few basis points across the curve in Asian trade. Gold is steady near US$ 1,713 an ounce.

APAC equity markets that were open had a rock-solid start to the week after a stellar performance on Wall Street on Friday. China, Hong Kong and South Korea are on holiday to start the week.

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

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

The full economic calendar can be viewed here.

WTI Crude Oil TECHNICAL ANALYSIS

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

That move saw the price move under the lower 21-day simple moving average (SMA) based Bollinger Band. and then close back inside it. This could indicate a reversal may unfold or that bearish momentum might pause.

Resistance might be at a recent peak of 90.39

Chart created in TradingView

— Written by Daniel McCarthy, Strategist for DailyFX.com

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