Crude Oil Ponders Course as Markets Fear the Return of the Fed. Lower WTI?

Crude Oil, US Dollar, Fed, WTI, Brent, AUD/USD, RBA, USD/JPY – Talking Points

• Crude oil steadied in Asia today after losing ground to strong US data
• The US Dollar went higher overnight as tighter conditions from the Fed loom
• If the Fed can achieve a soft landing, where will WTI end up?

Crude oil slipped lower in the US session overnight but has steadied through Asia today as markets consider the implications of strong US data.

The US Dollar gained after the ISM services index came in at 56.5 rather than the 54.4 anticipated for November. Factory orders and durable goods orders also beat expectations at 1.0% and 1.1% respectively for October.

The data appeared to remind markets that the US economy is running near full capacity and that if the Fed wants to get inflation back under control, the bank will need to tighten financial conditions more than previously thought.

Crude oil was caught up in the melee and the WTI futures contract to a low of US$ 76.77 bbl while the Brent contract touched US$ 82.52 bbl. Both contracts recovered slightly into the close and have been steady so far today.

Treasury yields soared higher across the curve and the 2s 10s inverted beyond 80 basis points (bps) again.

Wall Street went lower on tightening fears with the Nasdaq leading the way, down -1.93% in the cash session.

Asian equity markets have been mixed with Japan’s Nikkei 225 and China’s CSI 300 showing small gains. Hong Kong’s Hang Seng index and Australia’s ASX 200 are in the red.

The RBA hiked rates by 25 basis points today to 3.10% as forecast, eventually underpinning the Aussie Dollar. The yield curve flattened with Australian Commonwealth Government Bonds (ACGB) bumping up in yield. The 3-year note added 6 bp to be near 3.10%.

Japanese Yen was hardest hit with USD/JPY trading above 137 again today. Gold is trading near US$ 1,770 at the time of going to print.

Looking ahead, after German factory orders, the US and Canada will see trade data.

The full economic calendar can be viewed here.

CRUDE OIL TECHNICAL ANALYSIS

The WTI contract broke below the 10-day simple moving average (SMA) in the last session to reclaim its position below all period SMAs. This may indicate that bearish momentum could evolve.

Support could be at the breakpoints of 76.25, 75.27, 74.96 and 74.76 or at the recent low of 73.60.

On the topside, resistance might be at the breakpoints and the recent high of 81.30, 82.63 and 83.34.

Chart created in TradingView

— Written by Daniel McCarthy, Strategist for DailyFX.com

Please contact Daniel via @DanMcCathyFX on Twitter