Crude Oil Rallies after Supply Drop

February Crude Oil futures finished higher on Wednesday. After reaching a low last week at $91.24, the market has consolidated, setting up the possibility of a retracement back to $96.00 to $97.12. The catalyst behind today’s strength was a stronger-than-expected oil report.

On Wednesday, the U.S. Energy Information Administration reported that crude supplies fell by a more-than-expected 7.7 million barrels for the week-ended January 10. According to Platts, analysts were looking for a decline of 1.6 million barrels. The market was also underpinned by an American Petroleum Institute report which showed a drop in 4.1 million barrels.

A stronger dollar and stock market tends to put pressure on February Gold futures. The stronger dollar helped influence gold because the metal is dollar-denominated. A stronger Greenback tends to pressure gold because it makes it more expensive for foreign traders, leading to a drop in demand. The rally in the stock market helped encourage those who used long gold positions as a hedge against a break in equity prices.

The EUR/USD fell sharply on Wednesday. The break was fueled by a German report which showed slower growth in the fourth quarter. German economic growth expanded by only 0.4% in 2013 after increasing 0.7% the previous year. The Forex pair accelerated its break after a report showed manufacturing in the New York region expected this month. U.S. producer prices showed an increase, but the report came out as expected.

The GBP/USD also finished lower on the heels of the strong Empire State survey. The technical picture is also beginning to look bearish. Today’s sell-off has placed the Sterling in a position to take out the last swing bottom at 1.6337. A trade through this level with conviction will change the main trend to down.

Later today, investors will get the opportunity to react to the latest Fed Beige Book. This report could help boost the dollar late in the session if it shows growth in all Fed regions. This report will be released at 2:00 p.m. ET. Today’s action seems to indicate that investors believe the Fed has cast aside the weak jobs data from December and may be putting equal emphasis on other growth reports. The rise in interest rates over the past two days indicates that any doubts about the Fed continuing to taper in January have been nipped.