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Can Crude Oil Price Rally Last? Fed Cools 50bp July Rate Cut Bets

Can Crude Oil Price Rally Last? Fed Cools 50bp July Rate Cut Bets

Daniel Dubrovsky, Strategist

Asia Pacific Market Open Talking Points

  • Crude oil prices eye chart resistance, API hints larger-than-expected stockpile contraction
  • US Dollar and local bond yields rally as James Bullard talks down aggressive rate cut bets
  • Anti-risk Japanese Yen may appreciate, NZDUSD could fall if RBNZ hints August cut

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Crude Oil Prices Rally on API Inventory Estimates

Crude oil prices, despite the high volatility in equities today, paid the most attention to projected estimates from weekly API oil inventory data. They indicated a contraction of 7.55m barrels, more than 2.5 times the drawdown estimated by official EIA statistics for tomorrow. Those point to an outflow of just about 2.84m barrels. An outcome closer to EIA estimates may send the commodity lower.

Sentiment-linked crude oil brushed aside the 0.95% decline in the S&P 500 during Tuesday’s Wall Street trading session. Commentary from St. Louis Fed President James Bullard added pressure to already-sinking equities. While he mentioned that holding rates in June “puts a really high July probability”, he said that the situation “does not call for a 50 basis point rate cut”, undermining aggressive dovish policy bets.

The US Dollar thus got a boost as it paused recent aggressive declines above support at 95.95 when looking at DXY. This also led to a pullback in pro-risk currencies such as the Australian and New Zealand Dollars after recent gains. Fed Chair Jerome Powell also spoke but reiterated much of the language from this month’s FOMC statement. A report from Reuters that the US and China could have a “reasonable chance” to agree to talks at G-20 this week offered little to improve sentiment.

Crude Oil Technical Analysis

On the daily chart, crude oil has extended its near-term recovery of over 15 percent into its 6th day, taking out resistance at 57.93. This comes after clearing a near-term falling channel of resistance earlier this month. From here, oil could be looking to test a potential descending trend line from the middle of April which is the blue line below. This is also in-line with bullish-contrarian price signals indicated by IG Client Sentiment.

Join me every week on Wednesday’s at 00:00 GMT as I uncover how you can use market positioning in your own trading strategy.

Crude Oil Daily Chart

Can Crude Oil Price Rally Last? Fed Cools 50bp July Rate Cut Bets

*Charts Created in TradingView

Wednesday’s Asia Pacific Session

With that in mind, weakness from Wall Street could permeate in Asia Pacific equities during Wednesday’s trading session. That could bode well for the anti-risk Japanese Yen. Meanwhile, the New Zealand Dollar is looking to the upcoming RBNZ rate decision. Expectations are for a hold, with overnight index swaps pricing in a 75% chance of a cut in August. Dovish commentary that supports this may sink NZDUSD.

Join DailyFX Analyst David Cottle LIVE at 1:45 GMT as he covers the RBNZ rate decision and outlook for the New Zealand Dollar!

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--- Written by Daniel Dubrovsky, Currency Analyst for DailyFX.com

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

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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