USOIL Weighed by Mr Powell’s Hawkish Remarks
USOIL Analysis
Fed Chair Powell was markedly more hawkish during his appearances in the US Congress this week, reinforcing the higher-for-longer prospects and sparking another repricing higher in market expectations around the terminal rate and the Fed's next move.
In particular, he spoke of likely "higher than previously anticipated" terminal rate due the recent stronger than expected economic data, in his opening remarks on Tuesday. He also opened the door to an acceleration in the pace of hikes, since he warned of "faster tightening" if data continue to come in hot. [1]
CME's FedWatch Tool now assigns the highest probability to a bigger 50 basis points rate increase at the upcoming meeting (from 25 bps previously), which is now projected to peak at 5.75%. Moreover, the inversion between the US 10-year and 2-year deepened, intensifying fears of recession. [2]
As a result, USOil posted its worst day since early January on Tuesday, running a losing week, with the technical outlook little changed. Below the EMA200, the commodity remains vulnerable to further losses towards the 72.23.70.06 region, although sustained weakness below it is tough given China's reopening.
USOil finds support today though, helped by the surprise drop in US oil stockpiles, to the tune of 1.7 million barrels in the week ended March 3. Given the OPEC+ supply cuts program and optimism around demand from China, black gold may find the chance to push for fresh monthly highs (80.95), but we remain cautious for its ability to take out 84.70.
In any case markets now brace for Friday's US jobs report and the next week's inflation update, which can determine the next leg of the move.
Nikos Tzabouras
Senior Market Specialist
Nikos Tzabouras is a graduate of the Department of International & European Economic Studies at the Athens University of Economics and Business. He has a long time presence at FXCM, as he joined the company in 2011. He has served from multiple positions, but specializes in financial market analysis and commentary.
With his educational background in international relations, he emphasizes not only on Technical Analysis but also in Fundamental Analysis and Geopolitics – which have been having increasing impact on financial markets. He has longtime experience in market analysis and as a host of educational trading courses via online and in-person sessions and conferences.
References
| Retrieved 09 Mar 2023 https://www.federalreserve.gov/newsevents/testimony/powell20230307a.htm | |
| Retrieved 23 Mar 2023 https://www.cmegroup.com/markets/interest-rates/cme-fedwatch-tool.html |
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