Oil holds gains after OPEC+ cut but remains around recent highs

Oil prices are consolidating after the early week surge in the aftermath of the OPEC+ announcement. The decision to cut output has proven to be very controversial, much like the two million barrel reduction in October, but just like that, there’s no guarantee it will lead to dramatically higher prices.

In fact, at this stage crude is only trading around the highs of the last four months and it’s tested these levels on a number of occasions. A break above here could be a bullish signal but at this point, we are still seeing plenty of resistance. Recent stress in the banking system has led to weaker economic expectations and lower interest rate forecasts and the cut could simply be a response to that.

At this point, the only thing that’s clear is that OPEC+ has no appetite for Brent prices below $80 a barrel. That could make any future foray below there challenging as the group has now shown not only will it cut production, it will do so without warning. That is clearly the message they wanted to send.

Gold edging ever closer to record highs

Gold smashed through $2,000 on Tuesday as the latest JOLTS data showed openings declining and significantly so, in one of the first signs of the labour market cooling. It’s still very early days but the data will be a little encouraging for the Fed, especially if paired with a softer jobs report on Friday.

We’ve heard a number of announcements of mass layoffs in tech and banking in recent months but that hasn’t yet been reflected in the data and it could be that we now start to see slack appearing. It comes at a good time as the Fed could do with a reason to pause the tightening cycle and the response we saw in yields and gold yesterday suggests investors believe it may now get that.

For gold, it’s only traded at this level on two days ever so that doesn’t leave much guidance in terms of technical levels, beyond the all-time highs around $2,070. A weaker jobs report on Friday could see that tested, especially in what will likely be extremely thin trade given the bank holiday.

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Based in London, Craig Erlam joined OANDA in 2015 as a market analyst. With many years of experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while producing macroeconomic commentary. His views have been published in the Financial Times, Reuters, The Telegraph and the International Business Times, and he also appears as a regular guest commentator on the BBC, Bloomberg TV, FOX Business and SKY News. Craig holds a full membership to the Society of Technical Analysts and is recognised as a Certified Financial Technician by the International Federation of Technical Analysts.

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