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Crude Oil Prices Might Fall According to US CPI, FOMC Protocol

OUTLOOK CRUDE OIL:

  • Crude oil prices are stagnating after rising to a seven-year high
  • September US-CPI, FOMC protocol could trigger a pullback
  • Negative RSI divergence suggests declining upside momentum

Crude oil prices could retreat after pausing to digest gains to 7-year highs near the $ 82 / bbl number. All eyes are on September US CPI data as well as the minutes of last month’s FOMC meeting. Traders will watch the results to influence the course of the Fed’s monetary policy expectations.

The inflation rate is expected to be 5.3 percent year-on-year, unchanged from the previous month. The core rate, which excludes volatile items such as food and energy, is also unchanged at 4 percent. Leading PMI data suggests the possibility of modest cooling.Nevertheless, price growth is expected to remain high overall.

In the meantime, the FOMC minutes are likely to echo the restrictive tone of the political announcement itself. While the central bank was reluctant to formally announce the start of tapering QE bond purchases, its forecast for the rate of the Fed Funds target rate was noticeably more restrictive.

In June, Fed officials saw the first rate hike of 2023, with a 50 basis point hike that year. By September, the forecast called for the tightening to be implemented by 100 basis points over the same period, with a further 75 basis points planned for 2024. The markets reacted in the same way, pricing in the outlook for the futures markets.

Fed Fund Futures Diagram created with TradingView

Comments reflecting this adjustment in the central bank’s mindset, coupled with CPI pressures that aren’t hindering the path to unwinding stimulus measures – an outcome that would likely require an unlikely downside surprise – seem likely to yields and the US -Dollars to crank up. That could pull crude oil prices down.

TECHNICAL ANALYSIS OF CRUDE OIL

Crude oil prices mark the time below the resistance at 81.85, the 38.2% Fibonacci expansion. A negative RSI divergence warns that the upward momentum is weakening, which could set the stage for a pullback. Initial support is at 79.78 but a daily close below 75.27 seems necessary to really neutralize the short term uptrend.

Alternatively, a break above 81.85 may pull prices on track to challenge resistance levels at 83.98 and 86.11, which are marked by the 50% and 61.8% extensions, respectively.

Crude Oil Prices Might Fall According to US CPI, FOMC Protocol

Crude oil price chart created with TradingView

RESOURCES FOR CRUDE TRADING

— 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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