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Crude Oil Eases as Markets Ponder a Possible Chinese Reopening. Will WTI Rally?

Crude Oil Eases as Markets Ponder a Possible Chinese Reopening. Will WTI Rally?

Daniel McCarthy, Strategist

Crude Oil, WTI, Brent, US Dollar, Fed, Hang Seng, AUD, NZD, Gold - Talking Points

  • Crude oil has been caught in the crosswinds of global growth prospects
  • The Chinese government denied any easing of any Covid-19 related restrictions
  • APAC equities were unfazed by the denials, but USD resumed an upswing

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Crude oil slipped through Asian trade after a 5% gain on Friday. The run higher was based on rumours that China might ease their Covid-19-related restrictions, but this was dismissed by Chinese health authorities on Saturday.

Several assets have reflected this sway in hopes of a reopening of China but there has been somewhat of a divergence to start the week through Asian trade.

Commodity and currency markets are mostly reflecting the swing from a “risk-on” to a “risk-off” type of trading environment around the news on Monday.

Equity markets, on the other hand, appear to have held onto the hope of higher growth from the world’s second-largest economy. The positive perspective could reflect an article in the People’s Daily online edition that alludes to a managed reopening.

China’s trade balance was released today, and the surplus came in at US$ 85 billion, lower than the US$ 96 billion anticipated, but that didn’t sour the mood.

APAC equities were led higher by Hong Kong’s Hang Seng Index (HSI), which has added over 9% in the last two trading days. Wall Street had a green day on Friday, but futures are pointing toward a soft start to their cash session ahead.

The growth- and commodity-linked Australian and New Zealand Dollars have been the underperformers today while the US Dollar has been the beneficiary in currency land.

The WTI futures contract is near US$ 91.50 bbl while the Brent contract is a touch below US$ 98 bbl. Gold has also eased in Asia today, trading near US$ 1,673 an ounce.

Elsewhere, Apple cut the output forecasts for their new iPhone on the back of lockdowns and lower-than-anticipated demand.

Former Treasury Secretary Larry Summers made comments over the weekend that he thought the terminal rate for the Federal Reserve could be above 6%.

The terminal rate is the Fed Funds level at which the current hiking cycle will peak. The markets now price this in at 5%, to be reached mid-2023. It is understandably eye-catching then that 6% is 100 basis points (bps) higher and some 200 bps above the current policy setting.

Looking ahead, European Central Bank President Christine Lagarde will be speaking, and markets will be watching for any more commentary from her regarding quantitative tightening.

There will also be a sprinkling of Fed speakers crossing the wires.

The full economic calendar can be viewed here.

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WTI CRUDE OIL TECHNICAL ANALYSIS

The WTI price has developed a potential Symmetrical Triangle that might indicate a possible bullish breakout unfolding.

Resistance could be at the previous peaks of 93.64, 97.66, 101.88 and 105.24.

On the downside, support may lie at the recent low of 81.30, which is just above a breakpoint at 81.20. The September low of 76.25 could also provide support.

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Chart created in TradingView

--- Written by Daniel McCarthy, Strategist for DailyFX.com

Please contact Daniel via @DanMcCathyFX on Twitter

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

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