Crude Oil, likely to test $55.35
Crude Oil prices have started to turn the corner after prices stalled near $62.50 highs and subsequent failure to break higher ground. A break of the minor trend line, which we view as a short term guiding trend line was also broken with current day’s price trading near $57.28, below the minor support/resistance level at $58
Further continuation to the downside will see a test towards $55.35 which marks the longer term broken resistance and one which could be tested for support. The price level at 55.35 will be critical in the aspect that a break lower could start to see further gradual declines in Crude Oil with the next support coming at the neckline of the inverted head and shoulders pattern.
The fact that prices turned around just shy of the major resistance at $63.4 through $65.9 could add some validation that we could see the support at $55.35 support prices. The daily charts do not give out many clues in terms of the short term price action but we do recognize the bearish candlesticks formed earlier near the highs of $62.50.
From the weekly charts, we mentioned the small bodied candlesticks being printed near the highs of $62.13 and last week follows a second week of a similar price action. This week’s candlestick however is currently shaping out to be bearish and if this trend continues, we could see a possible dip to $53.48 on the weekly time frame and test to the lower median line.
To the upside, there is not enough room for Crude Oil prices to rally as, despite a break above $62.13, the longer term falling trend line is likely to act as resistance.
The weekly charts also point to the possibility that a dip to $53.48 will mark a retest of the break out of the smaller or short term falling trend line. If this test of support is successfully, we could anticipate another attempt towards $62.13 and this time with a more decisive close at the level.
As such, readers should bear these levels in mind. A close outside the lower median line could spell bearish price action which could see a drop towards $48.87
Finally, the 4-hour chart shows how price entered a strong sideways pattern between 62 and 58.66 with a break out to the downside, a few candles ago. A retest to 58.66 could offer a good opportunity to trade Crude Oil to the downside with a target to $54.37 or to $53.48 (from the weekly chart) as the most likely support level that could be tested.
In regards to the fundamentals, there hasn’t been much change in terms of supply and demand. However, the US Dollar Index staged a strong comeback yesterday and ahead of the FOMC minutes, CPI data due this week; it would be hard to anticipate the move in the US Dollar Index. Next week, the first quarter GDP estimates will see a second revision which is expected to post a negative print however, therefore in the medium term, we expect to see the US Dollar continue its declines, which should in turn help support Crude Oil prices.