Forex Trading Library

Crude Oil Technical Preview for 4th February

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Crude oil starts its corrective rally. $55 likely to be the key price level to watch

Just as the declines in Crude oil last year were sharp and swift, the correction that the markets noticed this week was of similar nature. As Crude oil lifted off from the lows of 43.56, the question on everyone’s mind is how far and how long will this correction in Crude oil go on for.

The correction in Crude oil prices has now given rise to some mild bullish chatter. The most ironic of all coming from OPEC Chief Abdulla al-Badri, who was apparently quoted on saying that the markets have already witnessed a bottom in Crude Oil futures as well as the probability that Crude oil could rally as much as up to $200. While maintaining that OPEC would not cut production, al-Badri’s bullish view on Crude Oil is apparently justified by the fact that the oil markets are self correcting as major oil companies have already started deep spending cuts, which would effectively result in lower production and thus support prices.

Another news piece that has been doing rounds and probably one which falls into the “speculative” category is the rumor that Saudi Arabia has been playing with the idea of higher oil prices as leverage over Russia in a bid to stop Putin from supporting the Asad regime in Syria. While such news items undoubtedly need to be taken with a pinch of salt, the technical analysis for Crude oil shows that the correction was well over due.

Crude Oil Technical Analysis

The first chart below shows the Crude oil futures on the daily time frame, where upon break of the rising wedge/triangle, Crude oil futures were targeting the previous low between $41 – $37. While price managed to drop as much as $43.56, the bullish reversal has been quick to say the least.

The correction in Crude oil, as we see it, and as can be seen in the chart below, shows that the first resistance level coming in at $55.35. While it will be a close call to see if prices will reverse at this level, we do know for a fact that should the resistance at 5535 give way, we could expect a further rally potentially targeting the previous

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Switching to the H4 charts, we notice the clear support and resistance levels, with the most recent price action showing a spike to the resistance level between $54 and $53.70. In the very short term, we could expect to see a drop, potentially towards $49.70 levels, which if is successful in providing a base for the prices, we could see a close into the $54 – $53 price zone. A close above this level will see Crude Oil futures likely to target the next resistance/support level at $64.40.

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While it will be a hard call at this point in time to speculate whether Crude Oil will indeed rally back towards $100 and potentially towards $200, we believe that staying with the trend is the best option with the price zone of $53 – $55 being critical towards dictating short term moves in Crude Oil.

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