Rising USD Stalls Crude

Crude prices are reversing this week following a solid rally over July that saw crude futures gaining almost 20% off the lows. Price made it as high as a test of the 82.59 level where the market is stalled for now. A stronger US Dollar is creating a roadblock to higher prices here and while the greenback continues higher, some further correction is likely near-term. With this in mind, Thursday’s US CPI data will be the key input to watch.

A further decline in inflation should see USD peeling off, sending oil higher, as traders scaled back rate hike expectations for September. Any stickiness however, particularly if we see an upside surprise, should send USD firmly higher into next week weighing on oil prices.

Weak China Data A Concern

Crude prices have also been hit by the latest data weakness out of China overnight. News of a third consecutive monthly contraction in exports along with a fresh drop in imports is a worrying sign for the economy. Given how important China is to overall demand levels for crude, further incoming data this week will be closely watched with PPI and CPI due next.

Technical Views

Crude

The rally in crude price has stalled for now into a test of the 82.59 level. This is a key resistance level for the market, roughly marking the highs for the year. While this area holds, a further correction lower is likely. However, while the market remains above the 72.61 breakout zone, the focus is on a further push higher and an eventual breakout targeting 93.47 longer-term.