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Fed in Focus as Crude Oil Prices Grapple with Dollar Surge

Crude oil prices dollar surge

Crude oil prices are facing a decline amid the dollar surge. Fed speakers take the spotlight as markets react. Geopolitical tensions linger, and market sentiment is uncertain.

In a turn of events, crude oil prices are facing their third consecutive session of declines, primarily attributed to the robust performance of the United States Dollar. The impact of last week’s stellar jobs report from the world’s largest economy has triggered a surge in the Dollar’s strength, exacerbating the challenges faced by global markets.

According to futures markets, the January non-farm payroll data revealed an impressive 353,000 increase, surpassing economists’ expectations and eliminating any anticipation of a Federal Reserve interest rate cut in March. This unexpected turn of events has favored the Dollar in the currency complex but has created a challenging environment for commodities, with crude oil taking a notable hit.

Fed in Focus as Crude Oil Prices Grapple with Dollar Surge

While creating jobs in the U.S. at the current pace is positive for energy demand, the prevailing monetary focus on the Federal Reserve’s interest rate trajectory continues to dictate market sentiment. Amidst global economic uncertainties stemming from inflation concerns and disruptions in supply chains due to the ongoing impacts of COVID-19, the potential for abundant oil supply from countries within and outside the Organization of Petroleum Exporting Countries (OPEC) is further burdening the energy sector. In this context, China, a major crude oil importer, remains a concern.

Geopolitical factors, such as conflicts in Gaza and Ukraine, also contribute to oil prices’ vulnerability, as they can disrupt supplies at any given moment. As the market navigates a relatively quiet period for economic data in the coming weeks, attention will be directed toward central bank speakers, particularly Federal Reserve speakers. Monday sees Atlanta Fed President Raphael Bostic taking the stage, followed by Cleveland’s Loretta Mester on Tuesday.

Regarding technical analysis, the bulls have abandoned aspirations of reclaiming the two-month high set on January 29 at $79.16 per barrel. Now, the market is focusing on defending the third Fibonacci retracement level at $72.27. If this level is breached on a daily close this week, it may pave the way for further declines, potentially targeting psychological support at $70.

As reflected in IG’s data, market sentiment reveals a significant bias among traders, with approximately 87% maintaining long positions at current levels. While such extreme positioning might suggest a contrarian, bearish play, the recent substantial market downturns prompt consideration that the market is ripe for a period of reflection if not a meaningful recovery.

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