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Crude Oil Prices May Fall if the Fed Dithers on Stimulus Boost

Crude Oil Prices May Fall if the Fed Dithers on Stimulus Boost

Ilya Spivak,
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Crude oil prices edged down alongside stocks as risk appetite wavered across global financial markets. Interestingly, the US Dollar was unable to claim its usual haven appeal against this backdrop. The benchmark currency edged lower, helping to boost anti-fiat demand and prolong the rally in gold prices for an eighth consecutive day.

Taken together, this suggests the markets are unnerved by the macro backdrop – from escalating US-China tension to a second viral wave of Covid-19 – and expect the Federal Reserve to respond by clearly setting the stage for near-term stimulus expansion. For its part, the rate-setting FOMC committee may judge it too soon to act as economic data steadies and credit conditions remain generously accommodative.

The Greenback is likely to find fuel for recovery in this scenario, weighing on commodities. Gold may retreat as the appeal of non-interest-bearing cash alternatives fizzles. Meanwhile, souring sentiment is likely to punish the spectrum of cycle-sensitive assets, pushing crude oil prices lower. Pressure may be offset somewhat if official EIA inventory data echoes API forecasts calling for a 6.8-million-barrel storage drop last week.

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Crude oil prices are tracing out a Rising Wedge chart formation, which may be setting the stage for a reversal lower. Negative RSI divergence supports the bearish argument. Breaking below the wedge bottom with confirmation on a daily closing basis likely targets the 34.78 inflection level next. Alternatively, claiming a foothold above resistance in the 42.40-43.88 area yes the $50/bbl figure thereafter.

Crude oil price chart - daily

Crude oil price chart created using TradingView


Gold prices are digesting gains ahead of resistance at 1985.67, the 100% Fibonacci expansion. A daily close above this barrier may expose the 123.6% level at 2059.74. Alternatively, pullback that puts prices back below the 78.6% Fib at 1918.49 might set the stage for a retest of the 61.8% expansion at 1865.76.

Gold price chart - daily

Gold price chart created using TradingView

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--- Written by Ilya Spivak, Head APAC Strategist for DailyFX

To contact Ilya, use the comments section below or @IlyaSpivak on Twitter

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