Crude oil correction in play, but momentum could slow down!
Crude oil prices continued to push higher, now steady above the $47 handle. However, price action has shown that Crude oil could face stiff resistance near the $53 handle in the near term.
The rally in Crude oil was largely due to the weakness in the US dollar seen since the past three weeks. The commodity managed to shrug off stockpiles data which continued to show that Crude oil inventories were well stocked. The geopolitical unrest in Libya, another oil-producing nation further added to the bullish bets on Crude oil.
The 4-hour chart of Crude oil shows the updated chart where we notice the price promptly reversing from the main resistance levels at 54 and 53.7 levels. The major support is now established near 47.81 and 47.24 levels ahead of the short-term resistance near 49.69 levels.
A dip to 49.69 could essentially put the bullish bets on the table with the first price point coming back to the resistance above at 54 levels. However, should we see a break below 49.69, Crude oil prices could eventually dip lower to the 47 regions, which would result in scaling back of the bullish bets on crude oil.
The daily charts for Crude oil give a cleaner picture. We firstly notice that a price broke out of the major falling trend line and the current price action looks to be testing the breakout level. In this view, we expect the declines in Crude oil to stall near 49 or 48 levels, following which we expect a rally towards the previous reversal high at $54. In this long-term view, be our break above 55.35 and a potential support level being formed near 55.35 and 54 could raise the long-term Crude oil target towards 65.94 levels.
A shift in the sentiment could, however, come should prices fail to hold above $48, wherein the longer term monthly charts point to an eventual decline towards $39 handle.
With the major risk, the FOMC meeting minutes done with, the US dollar is likely to continue its gradual decline for the coming week. Fed Chief Janet Yellen will be giving her testimony to the US Congress later in February, on the 24th and 25th, which is when we expect to see some more volatility in the US Dollar. However, with GDP picking up across the globe, the uptick in economic activity should provide support for further consumption of Crude oil which should in effect help the commodity.
Traders and investors should however not lose sight of the fact that Crude oil is effectively in a downtrend and if we assume the current rally to be a correction, then 75.29 and 63.47 form the 38.2% and 61.8% Fibonacci levels, which should be kept in mind.
