The Federal Reserve’s tightening of monetary policy, upcoming US jobs data and the release of other economic figures may pressure oil to continue trading downwards.
Oil traded in a bullish trend last Friday after finding a strong support-level at $74 per barrel, which was the day-low in last Wednesday and Thursday’s trading sessions.
It then rallied to ward off the 200-day exponential moving average (EMA) of $77.25 in an hourly timeframe.
But in last Friday’s trading, oil’s bullish momentum slowed after the price traded closer to the intraday support of $76.75, which was broken the previous Wednesday. Technically, this will become a resistance level.
The potential for a US interest rate hike has weighed across markets, with the outcome of this week’s Federal Open Market Committee meeting eagerly awaited.
Expectations are that the US central bank will raise the interest rate to 5.25 per cent, a 0.25 per cent increase on the current peak of five per cent.
April’s US employment data is forecast to be weaker, with Forex Factory reporting an expected 180,000 jobs to be added and the unemployment rate to be up to 3.6 per cent from 3.5 per cent.
PPLS business manager Nhim Kosol said: “If the growth in jobs again exceeds 200,000, and wages and unemployment rate remain steady, it will be a strong signal for US consumers to continue spending.
“This will in turn lead to resilient inflation and pressure on the Fed to implement another interest rate hike, with the US dollar likely to surge again, pressuring the oil price.”
Meanwhile, US GDP reported growth at an annual rate of 1.1 per cent in the first quarter of 2023 compared to the 2.6 per cent expansion in the fourth quarter of 2022, while jobless claims improved last week from 246,000 to 230,000, which raises concerns for the Fed.
Technically, oil prices need to settle above $80 per barrel to maintain bullish momentum to the upside.
Oil was trading around $75 per barrel on Tuesday morning, well below the 200-day EMA of $76.85 and near the 50-day EMA of $75.75, with the major resistance $83.45.
Should the price break strongly below the support level of $74, it will continue to decline to $69.50 per barrel.
