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  • WTI bulls st back on a stronger Dollar following Fed cut, less dovish than  expected outcome.
  • Bulls capped at 50-week moving average and Fibo resistance.  

The price of oil dropped in the aftermath of the Federal Reserve event while the Greenback rallied to annual fresh highs on the 98 handle in the DXT meeting a high of 98.68.  West Texas Intermediate crude touched a low of 57.90, down -0.50% on the session form a high of $58.79.

However, oil futures ended higher on Wednesday, with U.S. prices up a fifth consecutive session on the back of the government data showing that domestic crude inventories fell for a seventh consecutive week.  The Energy Information Administration on Wednesday reported that U.S. crude supplies declined by 8.5 million barrels for the week ended July 26.

Meanwhile, the Federal Reserve threw a life-line for the Dollar and the main takeaway is that the Fed is watching for development on an economic front, both globally and domestically, mindful of soft US inflation running below target.  

Federal Reserve outcome

  • The interest rate on excess reserves cut to 2.10% from 2.35%.
  • FOMC cuts benchmark rate by 25 basis points (bps); target range stands at 2.00% – 2.25%.
  • To conclude b/sheet reduction in august, 2-months earlier than previously indicated.
  • To roll over at auction all principal payments from holdings of treasury  securities, reinvest all principal payments from agency debt and agency MBS received each month.
  • Principal payments from agency debt and agency mortgage-backed securities  (MBS) up to $20 bln/month will be reinvested in treasury  securities to roughly match maturity composition of outstanding Treasury  securities.
  • Principal payments from agency debt and agency mortgage-backed securities in excess of $20 bln will continue to be reinvested in mortgage-backed securities.
  • Rate cut supports the committee’s view that sustained economic expansion, strong labour market and  near-target inflation. are most likely outcomes but uncertainties remain.
  • As it contemplates the future path of fed funds rate it will continue to monitor incoming info, act as appropriate to sustain expansion.
  • Household spending growth has picked up, but business fixed investment growth has been soft and inflation compensation measures remain low.

WTI levels

Technically, now supported at the 20-week moving average, the price took out the 200-day moving average earlier in the week and shot higher to pierce the 61.8% Fibo of the July swing highs and lows taking on the 58 handle momentarily, scoring as high as 58.79, meeting the 50-week moving average. On a continuation of the upside, oil can rally towards  the 60 handle and double top in the 60.80s. On the downside, a break of 57.90 and the 50% Fibo opens the base of this wee’s stick down at 55.84 and the rising support line of the channel. A break there  opens 54.60, (a prior 61.8% Fibo.).