Crude Oil Nears Peak as USD, Euro Pause pre-US CPI & ECB

Crude oil nears peak as USD and Euro pause ahead of US CPI & ECB, with the potential for significant market impact looming.

 Talking Points

• Crude oil maintains recent gains in anticipation of inventory data.
• US CPI may influence Fed rate hike expectations for the upcoming week.
• The Euro has rebounded from recent lows, with attention turning to Thursday’s ECB meeting.

Crude Oil Nears Peak as USD and Euro Pause Ahead of US CPI and ECB

Crude oil continues to eye a new high going into Tuesday’s trading session, as markets ponder the direction for the US Dollar ahead of US CPI on Wednesday. The WTI futures contract is back above US$ 87.50 bbl, while the Brent contract is near US$ 91 bbl.

Reports emerging today suggest that the US will waive sanctions against Iran, which will pave the way for the release of up to US$ 6 billion of oil revenue in exchange for the release of 5 American citizens. If talks continue to positively progress between the countries, it might lead to more supply potentially entering global trade.

The 10-month peak seen yesterday is within grasp ahead of the American Petroleum Institute (API) report due today. Further depletion of stockpiles may see an uptick in volatility. The OVZ index measures volatility in the oil price, similar to how the VIX index gauges volatility on the S&P 500.

WTI CRUDE OIL AND VOLATILITY (OVX). 

It will be followed by the US Energy Information Agency’s (EIA) weekly petroleum status report on Wednesday. The EIA will also release its monthly report this week, as will OPEC+.

The US Dollar continues to struggle today after a rout on Monday, ahead of CPI tomorrow. Economists in a Bloomberg survey estimate a 3.6% year-on-year headline print for August and a 4.3% core CPI. Interest rate markets are uncertain about a year-end Federal Reserve hike, attaching a 50% probability for a 25 basis point increase. A surprising CPI outlier could dramatically alter these odds and influence demand for the US Dollar.

US FEDERAL RESERVE TARGET RATE MARKET PRICING

Overnight, Morgan Stanley upgraded Tesla to buy from neutral, which saw the TSLA stock price rally over 10%, boosting the Nasdaq to close its cash session 1.14% higher. The rest of Wall Street posted smaller gains and APAC equity indices have had a quiet day. Futures are pointing toward a quiet start to the European and North American day session.

Spot gold and silver are trading near US$ 1,920 and US$ 23.20 respectively an ounce. EUR/USD is trading near 1.0750 at the time of going to print. The interest rate market is ascribing around a 40% chance of a 25 bp hike by the European Central Bank this Thursday.

ECB TARGET RATE MARKET PRICING

After the UK jobs data, Germany will see the results of the ZEW survey. In the US, there is much anticipation for the launch of the iPhone 15 and iPhone 15 Pro later today.

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