Market update: oil prices drop after US employment data lifts USD, FOMC next

Topside surprise in US employment costs stoke USD and the ‘higher for longer’ narrative ahead of FOMC

The Employment Cost Index rose by more than even the most optimistic of analyst predictions, sending the US dollar higher towards the end of the European session. Compensation costs for civilian workers reported by the US Bureau of Labor Statistics rose in the three-month period ending March 2024 by 1.2%, up from 0.9% for the three months ending in December 2023. The data appears in a week full of jobs data before non-farm payrolls takes center stage on Friday.

Economic calendar

The increase in labour costs exacerbate concerns around a reacceleration in price pressures in the US after CPI and PCE measures of inflation revealed hot month-on-month figures. The FOMC is due to release its statement tomorrow evening where is widely anticipated that further acknowledgement of the stubborn prices will emerge. Markets propped up the greenback on the even of the FOMC announcement.

In addition, the Energy Information Agency (EIA) revised total US oil consumption in February to 19.95m barrels per day (bpd), up 425,000 bpd from estimates based on weekly data. This has done little to counter the daily decline at the time of writing.

Brent crude, wit turn lower with key support levels in sight

Brent prices dropped notably on Tuesday afternoon in the European session, sometime after the dollar pushed higher.

Brent crude 5-minute chart

Brent has pulled back in the days following the de-escalation between Israel and Iran, building some momentum to the downside. However, a tight oil market may prevent prices from dropping too fast.

The immediate consideration for bears is the 50-day simple moving average (SMA), followed closely by the psychological $85 level, the 200 SMA and channel support. In the event the confluence zone of support holds, $89 remains as the most significant level of resistance.

Markets will be closely watching the Fed and Jerome Powell at the press conference. Recent moderation in US growth stepped up a gear in Q1 as the economy grew less than anticipated – which runs the risk of filtering into the oil market. However, inflation is the Fed’s more immediate target, meaning the Fed won’t ease policy just because growth trends lower.

Brent crude oil daily chart

WTI trades in a similar fashion to brent, testing the 50 SMA ahead of the $79.77 level which coincides with he 200 SMA. The next level of support emerges at the general area around $77.40 and channel support. WTI continues to trade within the broader ascending channel after the breakout attempt in early April.

WTI oil daily chart

^{This information has been prepared by DailyFX, the partner site of IG offering leading forex news and analysis. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.}