Wednesday, February 15, 2017

Crude Oil Prices at Risk as US Dollar Rebounds, Inventories Swell

Talking Points:
  • Crude oil prices retreat as Yellen drives US Dollar upward
  • Gold prices pressured as Fed outlook turns more hawkish
  • More Fed Chair comments, EIA inventory data due ahead
Hawkish comments from Fed Chair Janet Yellen shaped price action yesterday. The central bank chief warned against waiting too long to raise rates, sending the US Dollar higher alongside Treasury bond yields and steepening the 2017 tightening path implied in Fed Funds futures. Gold prices suffered amid ebbing demand for non-interest-bearing and anti-fiat assets while the USD-denominated WTI crude oil price benchmark succumbed to de-facto selling pressure.
From here, another day of Yellen testimony is ahead. Having discharged her duties in the Senate, the Chair will now do the same in the House of Representatives. Her prepared remarks ought to be essentially unchanged but the line of questioning thereafter may not match what has already crossed the wires. This could pave the way for follow-through on yesterday’s price action as the hawkish narrative is advanced. 
The case for steeper rate hikes may find further support on the data front. January’s CPI report is expected to put the headline on-year US inflation rate at 2.4 percent, the highest since March 2012. Price growth readings have tended to outperform relative to consensus forecasts since mid-2016, opening the door for an even steeper uptick. 
Elsewhere on the data docket, EIA inventory data is expected to show crude oil stockpiles added 3.5 million barrels last week. A private-sector estimate from API predicted a far more sizable gain of 9.9 million barrels over the same period yesterday. A print closer in line with that assessment may amplify USD-derived pressure as traders increasingly fret about swelling swing supply countering support from OPEC output cuts.
GOLD TECHNICAL ANALYSISGold prices continue to struggle to make good on a Bearish Engulfing candlestick pattern, though the setup hasn’t been invalidated. A daily close below the 38.2% Fibonacci retracementat 1219.20 targets the 23.6% level at 1182.36. Alternatively, a move back above the 50% Fib at 1248.98 exposes the 61.8% retracementat 1278.76.
Crude Oil Prices at Risk as US Dollar Rebounds, Inventories Swell
Chart created using TradingView
CRUDE OIL TECHNICAL ANALYSISCrude oil continue to tread water in familiar territory. From here, a daily close above range resistance at 53.86 targets the 55.21-65 area (January 3 high, 38.2% Fibonacci expansion). Alternatively, a push below rising trend line support – now at 51.82 – exposes the 38.2% Fib retracement at 50.25. 
Crude Oil Prices at Risk as US Dollar Rebounds, Inventories Swell
Chart created using TradingView
--- Written by Ilya Spivak, Currency Strategist for

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