Long Crude Oil Traders Lighten Up Ahead of Fed Minutes

October crude oil traded lower today ahead of this week’s inventory report and the release of the latest Fed minutes. A slightly better dollar is also exerting negative pressure on the market.

Crude oil is trading lower amid concerns over the timing of the Federal Reserve’s plan to begin tapering its monetary stimulus. Since this action is likely to give the U.S. Dollar a boost, many investors feel this will hurt demand for crude oil.

Later this morning, investors will get the chance to react to the latest weekly inventory data from the U.S. government. This report is expected to show stockpiles declined by 1 million barrels last week. Last night, the American Petroleum Institute reported crude oil inventories fell by 1.2 million barrels last week.

Traders also remain focused on the unrest in Egypt. There primary concern is escalating violence will lead to a disruption in supply. Speculative buying may underpin the market until this situation clears up.

December gold futures are trading lower this morning because of profit-taking and position squaring ahead of the Fed minutes. The stronger dollar is also curtailing upside action.

Gold futures may break further if the Fed provides clarity for traders regarding the start date for its plan to reduce monetary stimulus. Uncertainty and worry have been driving prices higher because gold is a traditional place to park money when there is no clarity. If the Fed lifts the veil of uncertainty today in its minutes, gold could drop further into the close.

The EUR/USD finished lower after a strong surge on Tuesday. Lately the Euro has been strengthening against the dollar because of the improving Euro Zone economy. Some feel the Euro area has ended its recession sooner than expected. Although talk of Fed tapering hurt the EUR/USD from mid-June to early July, the Forex pair has regained all of the loss.

The recent talk of tapering has actually hurt the dollar recently along with a series of sluggish economic reports. Many investors now feel that curtailing the Fed’s monetary stimulus could prevent the economy from gaining traction at a time when the Euro Zone is improving.

The release of the Fed minutes had little effect on the GBP/USD on Wednesday as the Forex pair continue to creep higher. The upside momentum is slowing however, leading some to believe that sellers are waiting near the June top at 1.5750.

Today’s Fed minutes could trigger a breakdown in this market if they indicate the central bank is poised to make a move toward tapering in September. Even though most economists surveyed by Bloomberg believe the central bank will act next month, investors want to be sure before driving the dollar higher versus the British Pound.