Plunging oil pushes back the all-important first Fed hike - etoro Tips & Picks

OIL prices dipped further in the Asian session overnight yesterday, with US crude trading around $42 a barrel. A report from some investment banks has argued that we could well see oil trading lower still from these levels. A lot of technical traders point to the fact that we could be looking towards $35 per barrel if we solely consider the chart, however the truth is that it is the fundamental risk that is the greatest.

Demand for oil, which goes up during the late summer months, is already at its seasonal peak and, with production showing no signs of slowing down and Opec reluctant to act, the signs do not look good for those expecting a bounce. China is another big issue for the oil price. Last week’s currency intervention and lacklustre output numbers show that demand is also being hit from the very places a safe oil price often relies on. Overall, oil is now looking at the $40 level with an eye on breaking it, with $35 the only technical level of support below that.

So where next for oil prices? The black gold is dominating global markets, and has almost become one of the major sticking points for the Fed when gunning for the all-important rate hike.

With so much significance being put on the next decision from the Fed, the oil market’s dominance is likely to continue. And with China output issues driving the price lower, for me, it is further confirmation that we will not see a US rate hike until the new year.

James Hughes is chief market analyst at eToro.

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DECLAN FALLON @FALLOND

Holiday volatility has been in full swing for the last couple of weeks, but the S&P 500 is coiling towards a decision point.

Above lies a congestion of supply between 2,100 and 2,110. Below is the 200-day moving average (at 2,076), which has tempted buyers so far.

All of this action is contained within a larger trading range bound by 2,050 and 2,130. Which side will prevail?

Volume action has favoured bears and the MACD is on a “sell” trigger, so the easier path looks down. Buyers may perhaps be best served waiting for a decisive break of 2,110 on volume, to force shorts to cover.

City A.M.'s opinion pages are a place for thought-provoking views and debate. These views are not necessarily shared by City A.M.