Crude Oil, WTI, Jackson Hole, PCE Deflator, Technical Analysis – Talking Points:
- WTI crude oil prices failed to follow Thursday’s sentiment recovery
- US and Chinese economic woes still risk undermining energy prices
- All eyes turn to Jackson Hole and the Fed’s preferred inflation gauge
Crude oil prices weakened over the past 24 hours following much strength earlier in the week. Financial markets have been eagerly awaiting the annual Jackson Hole Economic Symposium. There, Fed Chair Jerome Powell will be speaking alongside other central bank leaders. There is much debate about how the Fed will proceed with monetary tightening next year, which can impact energy prices.
Despite the strong rally in the S&P 500 overnight, WTI struggled to find a footing. This could be due to concerns about a recession in the United States coupled with economic woes in China. These two nations combined make up around 34% of the global share of oil demand, according to the US Energy Information Administration (EIA).
China has already announced further stimulus this week amounting to around 1 one trillion Yuan. While this is a sign of the trouble brewing, it may also come as a relief in the future. In the meantime, all eyes are turning to the remaining 24 hours. Mr. Powell reiterating the central bank’s commitment to fighting inflation may continue eating away at 2023 pivot expectations.
The markets have almost fully priced out rate cuts next year. To that point, the central bank’s preferred gauge of inflation will also cross the wires at 12:30 GMT. The PCE Core Deflator is seen slowing to 4.7% y/y from 4.8% prior. An upside surprise could further bolster hawkish policy expectations, placing crude oil at risk if sentiment deteriorates.
Crude Oil Technical Analysis – Daily Chart
On the daily chart, WTI confirmed a breakout above the near-term 20-day Simple Moving Average. But, prices left behind a Bearish Engulfing candlestick pattern. This is somewhat undermining the push higher as the 92.95 – 95.11 inflection zone held. Moreover, the 50-day SMA remains pointing lower and could maintain the downside focus. That would place the focus on the 85.38 inflection point from the end of last year. Otherwise, keep a close eye on the 50-day line in the event of a turn higher into the weekend.
–— Written by Daniel Dubrovsky, Strategist for DailyFX.com
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