Crude Oil Holds Gain on OPEC+ Fallout and US Dollar Softens. Where To From Here?

[MongiIG]

CRUDE OIL, US DOLLAR, OPEC+, HANG SENG, RRR, AUD, CAD, YIELD - TALKING POINTS

• Crude oil prices find support post OPEC+ amid a listless US Dollar
• APAC equities were mixed, US yields firms a touch but curve still flattening
• Commodities and associated currencies rose. Will WTI recover from the low?

 

Crude oil continued to recover as the fall-out from OPEC+ sticking to the planned increases in production is digested. The extra 400,000 barrels a day due to be added in January is seen as allaying Washington’s concerns. The group gave themselves flexibility to adjust output at short notice as uncertainty around the impact of Omicron on global growth persists.

Asian equities were mixed today even though risk sentiment seemed to steady after Friday’s rout. Hong Kong’s Hang Seng Index was the weakest of the lot, down over 1.5% at one stage. The tech, entertainment and property sectors continued to weigh on that market.

US futures are currently pointing toward a positive start for Wall Street.

Risk assets made somewhat of a recovery today with speculation of a possible cut in reserve ratio requirement (RRR) in China. The Australian and Canadian Dollars were the best performing currencies. CHF, EUR and JPY were the underperformers to start the week.

Bitcoin collapsed 21% over the weekend and is seeing higher correlation to US stocks and risk assets generally.

Through all the chaos of last week, gold avoided the volatility and moved sideways. It has so far held on to Friday’s gains. Iron ore prices are consolidating near USD 94 a tonne on the Dalian Commodity exchange.

US Treasury 10-year yields recovered a few basis points but remains below 1.40%. Back-end yields continue to collapse, while front end yields are holding up as the Fed turned hawkish.

The curve flattening highlights the market concern of risks to growth. The 1-year real interest rate is near minus 6%. Its’ lowest level since the early 1980’s in the US. The real interest rate is the 1-year interest rate less the headline inflation rate.

Looking ahead, there’s not much data of note in the US today, so the market will be looking for any commentary from Fed speakers. Tomorrow sees the RBA meeting to decide on monetary policy.

CRUDE OIL TECHNICAL ANALYSIS

WTI oil made a low last week at 62.43, well above the August low of 61.74. These two levels may provide support.

The move lower went below the lower band of the 21-day simple moving average (SMA)

based Bollinger Band. When it closed back inside the band, the price consolidated and edged up.

Resistance could be the pivot points and prior highs of 69.49, 72.93, 74.76 and 79.33.

Chart created in TradingView

 

Written by Daniel McCarthy, Strategist for DailyFX.com. 6th December 2021.