WTI Crude Punches Above $49 as Brexit Fears Abate

US crude has posted slight gains on Monday, following strong gains in the Friday session. WTI Crude is trading at $49.14 in the North American session, its highest level in a week. Brent crude is showing the same upward trend, and is trading at $50.13, for a premium of $0.99. On the release front, the markets continue to closely monitor the Brexit referendum vote on Thursday. On the release front, it’s a quiet start to the week, with no US events on the schedule. On Tuesday, Federal Reserve chair Janet Yellen will testify before the Senate Banking Committee in Washington.

WTI Crude has jumped 6.5% since Friday, as risk sentiment has increased following the most recent polls on the Brexit referendum. These same polls have also boosted the British pound. On Friday, two polls showed the “In Camp” back in the lead, while a third poll pointed to renewed momentum for the “In” camp. The hard-fought campaign between the “In” and “Out” camps resumed on Monday, following the killing of a Labor MP last week, which shocked the UK and briefly suspended campaigning. Prime Minister David Cameron and other senior government ministers have warned that that a vote to leave the EU would cause turmoil in global financial markets, and a recent Treasury report says an EU exit will wipe out 800,000 jobs in the UK and cause a recession. With the referendum’s outcome very much in doubt, traders can expect volatility in the currency and commodity markets during the week.

With the Fed remaining on the sidelines at its June policy meeting, will we see any rate hikes this year? In the heady days of December when the Fed raised interest rates by a quarter-point, there was talk of up to four hikes in 2016. Fast forward to June, and the Fed hasn’t made a move so far this year. Many analysts are predicting only one hike in 2016, but on Friday, St. Louis Fed President James Bullard said that the economy may need just one hike in the next 2-1/2 years. Bullard did not mince words, bluntly stating that the Fed had done a poor job in its predictions about the US economy, and said the markets have no faith in the Fed’s “dot plot” of projected interest rate policy, as the Fed’s actual pace of rate hikes was much slower than its projections. Bullard added that this “mismatch” between words and action had caused distortions in the global financial markets and eroded credibility in the Federal Reserve.

US inflation and employment numbers were soft on Thursday. Core CPI and CPI, the primary gauges of consumer inflation, both posted small gains of 0.2%, within expectations. The Federal Reserve continues to insist that inflation will head towards its target of 2.0 percent, but given current inflation levels are not much above zero, it’s hard to see this happening, absent a huge surge by the US economy. Meanwhile, Unemployment Claims increased to 277 thousand, above the estimate of 267 thousand. This marked a four-week high, and once again raises questions about the strength of the US labor market. The employment picture appeared to be very bright in early 2016, but the Nonfarm Payrolls report of just 38 thousand in May shocked the markets and could delay a rate hike by the Federal Reserve.

WTI/USD Fundamentals

Monday (June 20)

  • There are no US releases on the schedule

Tuesday (June 21)

  • 14:00 Federal Reserve Chair Janet Yellen Testifies

*Key events are in bold

*All release times are EDT

WTI/USD for Monday, June 20, 2016

WTI/USD June 20 at 12:10 EDT

Open: 48.21 Low: 48.21 High: 49.32 Close: 49.14

WTI/USD Technical

S3 S2 S1 R1 R2 R3
39.32 43.45 46.69 50.13 53.50 56.79
  • WTI/USD posted small gains in the Asian session. The pair was flat in European trade and has moved upwards in the North American session.
  •  46.49 is providing support
  • There is weak resistance at 50.13

Further levels in both directions:

  • Below: 46.49, 43.45, 39.32 and 35.25
  • Above: 50.13, 53.50 and 56.79

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Kenny Fisher

Kenny Fisher

Currency Analyst at Market Pulse
Kenny Fisher joined OANDA in 2012 as a Currency Analyst. Kenny writes a daily column about current economic and political developments affecting the major currency pairs, with a focus on fundamental analysis. Kenny began his career in forex at Bendix Foreign Exchange in Toronto, where he worked as a Corporate Account Manager for over seven years.