Crude Oil Ends Seven-Month Winning Streak While EU Stocks Suffer

Oil, Equities Outlook:

• CAC 40 falls below prior psychological support, DAX, FTSE and STOXX extend losses
• Crude Oil experiences its first monthly decline since November last year – OPEC+ agrees to increase supply by 648,000 barrels per day in August
• Inflation, interest rates and recession fears remain at the forefront of sentiment

Inflation and Recession – Doom and Gloom Drives European Equities Lower

Consumer spending has remained rather robust since the beginning of the year, despite rising costs that continue to jeopardize economic growth.

With the inflation narrative taking a drastic turn since November last year, the large amount of fiscal stimulus that flowed through markets since the onset of the Covid-19 pandemic has left Central Banks with ballooned balance sheets and limited power to extend Quantitative Easing (QE).

As the primary objective for the ECB (European Central Bank), Fed (Federal Reserve) and the BoE (Bank of England) shifts towards driving inflation back towards the 2% target (through contractionary monetary policy), the probability of a recession has increased, driving equities lower.

Following on from yesterday’s decline, the DAX (German 40), FTSE (UK 100) and Euro STOXX Index continue to slide while the CAC 40 leads the way with a 2% decline, driving prices below prior psychological support turned resistance at 6,000 with further bearish momentum opening the door for 5,750 (March low)

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Source: Refinitiv

CAC 40 Daily Chart

Source: TradingView, Chart by Tammy Da Costa

Crude Oil Falls After Seven Consecutive Months of Gains

Meanwhile, as the Russian invasion of Ukraine shows no sign of ending anytime soon, oil and energy prices are expected to remain elevated for a prolonged period of time, weighing on consumers and business’ alike. Although this may result in reduced demand for oil and gas, supply constraints may continue to support the upward trajectory for Crude.

After seven consecutive months of gains, Crude oil has experienced its first monthly decline in June, with WTI and Brent ending Q2 at around $108 and $116 respectively.

For WTI, key Fibonacci moves continue to provide both support and resistance, with the recent weekly candles hovering around the $108 psychological level. For bullish continuation to prevail, prices will need to climb back above $114 which could potentially allow for a retest of $120.

US Crude (WTI) Oil Weekly Chart

Source: TradingView, Chart by Tammy Da Costa

Meanwhile, further selling pressure could see WTI falling back towards the $103 Fib level with the next big level of support holding at the Feb low of $87.46.

US Crude (WTI) Oil Daily Chart

Source: TradingView, Chart by Tammy Da Costa

— Written by Tammy Da Costa, Analyst for DailyFX.com

Contact and follow Tammy on Twitter: @Tams707