Weekly Focus: Fed’s Blackout, Oil Prices Up

Investors remained alarmed last weekend as the Organisation of Petroleum Exporting Countries and its allies, known as OPEC+, speeded up the tempo to make additional cuts in global oil production. Saudi Arabia introduced another oil production cut of one million barrels per day starting from July for at least one month with a possible extension.

Some may describe these gestures from Saudi Arabia as rather formal as Riyadh is already producing oil below its formal quota. However, crude prices did indeed go up on Monday, opening with a huge gap at $77.76 per barrel. If prices breakthrough the $79 per barrel resistance they may continue further towards the upside to $85-90 per barrel. However, prices are likely to resume falling to 2023 lows at $70 per barrel fs they fail to cross the resistance, and it seems they are unable to do so, while the demand side is fundamentally deteriorating amid recession fears.

Saudi Arabia planned its crude prices to average at $80 per barrel in its 2023 budget. With this in mind we may expect some geopolitical turbulence in the Gulf region that may support prices if they continue to go down.

Meanwhile, Federal Reserve’s (Fed) officials have entered a blackout period where they are very limited to speak about monetary issues ahead of the Fed’s meeting on June 13-14. They have missed the opportunity to deliver any comments about the May labour market report which was released on Friday, where Non-Farm Payrolls were reported extremely strong at 339,000, while the unemployment rose unexpectedly to 3.7% compared to 3.4% in April. Thus, investors are looking towards the debt market to provide some clues about further market movements. Surprisingly, the yields on both short-term and long-term debt remain mostly unchanged without any major decline. This may be related to the final resolution of the U.S. debt ceiling issues as President Joe Biden has finally singed the related bill which was approved by Congress last week. The dovish rhetoric of some Fed officials last week may contribute to this issue. If the yield continues to be mostly unchanged by Wednesday, it may be an indication that investors do not believe the monetary watchdog could make a U-turn in its hawkish monetary policy soon.

All-in-all, it would be better to be prepared for a possible downside correction of the stock market as the S&P 500 broad market index has almost reached it technical upside limits. The U.S. Dollar also continues to strengthen. Technically, the S&P 500 index has a rather limited upside potential after a sudden spike above 4280 points was reached on Friday. The nearest support level is at 4140-4160 points.

The oil market is struggling to avoid prices plummeting towards $70 per barrel of Brent crude. However, the recession scenario chances are high in the oil market with downside targets at $40-60 per barrel, which is the recession target. Although prices jumped to $78.28 per barrel on Monday after Saudi Arabia announced its unilateral oil production cuts, they need to go further up above $79 to continue climbing, and it seems that they don’t possess enough passion for it.

Gold prices are moving inside the mid-term upside formation with targets at $2000-2100 per troy ounce that have already been met. But the situation has changed dramatically as the important support level of $1980-2000 per ounce was smashed. Short positions were opened after prices tested the $1970-1980 former support level with targets at $1880-1900 per ounce.

The Greenback has resumed its recovery after a strong labour market report on Friday. It is time to prepare for possible buy opportunities in GBPUSD. But it would be better to get lower price levels on the pair to open long position. Meanwhile, practicing the sit and wait tactic would be a better option.