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Crude Oil Prices May Turn Lower on US CPI, FOMC Minutes

Crude Oil Prices May Turn Lower on US CPI, FOMC Minutes

Ilya Spivak, Head Strategist, APAC

CRUDE OIL OUTLOOK:

  • Crude oil prices stalling after surging to seven-year highs
  • September US CPI, FOMC minutes may trigger a pullback
  • Negative RSI divergence flags fading upside momentum
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Crude oil prices may pull back having paused to digest gains at 7-year highs near the $82/bbl figure. All eyes are on September’s US CPI data as well as minutes from last month’s FOMC meeting. Traders will look to the outcomes to influence the path of Fed policy expectations.

Inflation is expected to register at 5.3 percent on-year, unchanged from the prior month. The core rate stripping out volatile items like food and energy is penciled in at 4 percent, likewise unchanged. Leading PMI data flags the possibility of a modest cooling.Nevertheless, overall price growth is expected to stay elevated.

Meanwhile, FOMC minutes are likely to echo the hawkish tone of the policy announcement itself. While the central bank opted to hold back on formally announcing when tapering QE asset purchases will start, its forecast for the path of the target Fed Funds rate turned noticeably more hawkish.

In June, Fed officials saw the first rate rise in 2023, with 50bps in hikes that year. By September, the forecast called for 100bps in tightening to be delivered over the same time frame, with a further 75bps slated for 2024. The markets responded in kind, with the outlook priced into the futures markets steepening.

Fed funds futures chart created using TradingView

Comments echoing this adjustment in the central bank’s thinking coupled with a CPI print that does not derail the path toward stimulus withdrawal – an outturn that would probably require an improbably large surprise on the downside – seems likely to boost yields and the US Dollar. That may pull crude oil prices lower.

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CRUDE OIL TECHNICAL ANALYSIS

Crude oil prices are marking time below resistance at 81.85, the 38.2% Fibonacci extension. Negative RSI divergence warns that upside momentum is fading, which may set the stage for a pullback. Initial support is at 79.78, but a daily close below 75.27 seems needed to truly neutralize the near-term uptrend.

Alternatively, breaking above 81.85 may put prices on course to challenge resistance levels at 83.98 and 86.11, marked by the 50% and 61.8% extensions respectively.

Crude oil price chart created using TradingView

CRUDE OIL TRADING RESOURCES

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

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

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