Crude Oil Dips as US Dollar Finds Firmer Footing Ahead of CPI. Where to for WTI?

Crude Oil, WTI, Brent, US Dollar, US CPI, Treasuries, USD/JPY, BoJ – Talking Points

• Crude oil slid lower as market focus turns to tomorrow’s US CPI
• The prospect of the Fed tightening further has underpinned yields
• If rates go higher for longer, will a strong USD sink WTI crude?

Crude oil gave up some ground today after making a 2-week peak on Friday. The WTI futures contract has traded under US$ 79 bbl while the Brent contract is approaching US$ 85.50 bbl.

Concerns around another hot US inflation figure on Tuesday have led to speculation that the Federal Reserve might need to be more hawkish than previously anticipated.

The futures and swaps markets are now looking at a peak in the Fed funds target rate above 5.20% this year, well up from around 4.9% a fortnight ago.

The US Dollar has inched higher so far today, with the largest gains seen against the Japanese Yen.

The next Bank of Japan (BoJ) Governor will be announced on Tuesday with speculation that Kazuo Ueda will get the nod. His standing toward monetary policy is somewhat unclear.

The 10-year Japanese Government Bond (JGB) has spent the day bumping up against the BoJ’s upper limit of 0.50% while USD/JPY traded above 132.00.

Treasury yields have held onto Friday’s move higher with the benchmark 10-year note near 3.75% at the time of going to print. Gold is a touch weaker near USD 1,860 an ounce.

APAC equities are mostly in the red, with the exception of mainland Chinese indices which are slightly firmer. Futures are pointing to a soft start for Wall Street.

Looking ahead, after Swiss CPI, a couple of ECB and Fed speakers might provide markets with something to ponder.

The full economic calendar can be viewed here.

WTI CRUDE OIL TECHNICAL ANALYSIS

WTI crude oil has traded in a range of 70.08 – 83.34 for 3 months.

When the price made a 2-week high on Friday, it moved above the 10-, 21-, 34- and 55-day Simple Moving Averages (SMA). If it continues to hold above these SMAs, bullish momentum might unfold.

Nearby resistance could be at Friday’s high of 80.33. Further up there could be a significant resistance zone in the 82.48 – 82.72 area, where there are several breakpoints and previous peaks.

On the downside, there could be support at the recent low of 76.52 ahead of the prior lows of 72.25 and 70.08.

Chart created in TradingView

— Written by Daniel McCarthy, Strategist for DailyFX.com

Please contact Daniel via @DanMcCathyFX on Twitter