Crude Oil Drops but Holds Support as Momentum Remains Negative

Crude oil prices tumbled but held support levels on Tuesday as markets focused on the impending contagion stemming from Italy’s woes. The dollar moved higher which weighed on crude oil prices which are quoted in dollars.  Its clear that the Fed will continue to normalized but at a slow and steady rate.

Technicals

Crude oil prices tumbled on Tuesday continuing to decline for the 5^th straight trading session but held support near an upward sloping trend line that comes in near 65.50.  A break of this level would lead to a test of the April lows at 61.61.  Resistance is seen near the 10-day moving average at 70.71.  Momentum is negative as the MACD (moving average convergence divergence) index recently generated a crossover sell signal. This occurs as the MACD line (the 12-day moving average minus the 26-day moving average) crosses below the MACD signal line (the 9-day moving average of the MACD line). The fast stochastic is printing a reading of 13, below the oversold trigger level of 20. The RSI has yet to reflect and oversold condition printing a reading of 37.

St. Louis Fed dove Bullard said it’s hard to raise rates

The dollar gained traction as St. Louis Fed dove Bullard said it’s hard to raise rates by a large margin and get too far out of line with the global situation if the BoJ and ECB are pursuing accommodative policy. Speaking earlier from Tokyo, Bullard also said the Fed has enough tools and policy options to respond the next time the U.S. falls into recession. He didn’t want to prejudge what the Fed will do at its next meeting in June, but it is his view that the Fed should not proceed with additional rate hikes unless economic data surprise to the upside. Bullard still regards inflation as a bit low and because the U.S. policy setting is possibly at neutral means the Fed should be cautious.

Eurozone M3 money supply growth accelerated

Eurozone M3 money supply growth accelerated to 3.9% year over year from 3.7% year over year in the previous month. The uptick was in line with expectations, but the focus as usual was on the counterparts and in particular loans to the private sector. The growth rate of loans to households held steady at 3.0% year over year, as an acceleration in consumer credit growth counterbalanced a slight deceleration in the growth rate of loans for house purchases. More importantly for the investment and growth outlook was the fact that loans to non-financial corporations rose 2.4% year over year, up from 2.2% year over year.