A “hawkish” speech of Fed Chairman Jerome Powell was a surprise to the markets. Commodity and stock markets reacted to it in a negative way and fell below the key levels. In his speech, the head claimed that the rate will be raised higher than expected, if strong economic data continue to come in. Markets have started to bet on a 0.5% key rate hike in March instead of 0.25% projected earlier.
Consumer and producer prices in China remained low in February as there was a decline in food and commodity prices. A preliminary conclusion is that China's reopening will not exacerbate global inflationary pressure. According to Eric Zhu, moderate consumer-price inflation and factory deflation are likely to continue in the coming months. So, it can be concluded that inflation will not be a concern for politics in the near future.
Easing pressure on world market prices has a positive influence on commodities. However, this growth factor for oil is a medium-term one. But the Fed's accelerated rate hike might be seen at the March meeting, so this event has more impact on oil prices.
According to the technical analysis, oil prices tried to break the pennant upwards. However, this breakout turned out to be false after the comments of the Fed Chairman. Now oil is locked inside the pennant again. Due to the fundamental negativity it is possible to test the lower boundary of the pennant with a downside attempt.
The dollar is also signaling a negative scenario for the commodities market. The dollar index has consolidated above the 200-day moving average that was tested earlier. This suggests a growing pressure on risky assets.
The downside target for oil, in this case, will be the level slightly below the pennant boundary, which is near the previous local low of $80.5. That’s where the Fibonacci retracement level of 0.618 is also located from the entire wave of growth. Stop-loss is placed on a second upward breakout from the pennant near $84.0.
Drop in the Brent oil:
Take profit — 80,5
Stop-loss — 84,0
This content is for informational purposes only and is not intended to be investing advice.