Trading position (short-term; our opinion): Short positions with a stop-loss order at $65.23 are justified from the risk/reward perspective.
On Thursday, crude oil extended losses as bearish supply data continued to weigh. Rising greenback weighed on the price as well. Thanks to these circumstances, light crude lost 0.73% and hit a fresh multi-month low. Will we see the commodity below $48 in the coming days?
Yesterday, the U.S. Department of Labor showed that the initial jobless claims in the week ending July 18 dropped by 26,000 to 255,000, beating analysts’ expectations for a 1,000 drop. In this environment, the USD Index bounced off session’s lows and came back above 97, making crude oil less attractive for investors holding other currencies. Additionally, Wednesday’s disappointing weekly data on U.S. oil inventories continued to weigh on the price, which resulted in a decline to a fresh multi-month low of $48.21. Will we see the commodity below $48 in the coming days? (charts courtesy of http://stockcharts.com).
From today’s point of view, we see that although crude oil moved little higher after the market’s open, oil bulls didn’t manage to hold gained levels, which resulted in a reversal and decline. With this downswing, light crude extended losses below the previous lows and hit a fresh multi-month low of $48.21, which means that lower values of light crude are just around the corner.
How low could the commodity go in the coming days? We believe that the best answer to this question will be the quote from our last commentary:
(…) If crude oil declines under the above-mentioned support zone, the next downside target for oil bears would be around $47.05-$47.55, where the Apr 10 low (in terms of an intraday and opening prices) is. If it is broken, crude oil will likely test the lower border of the support zone created by the 76.4% and 78.6% Fibonacci retracement levels (around $46.72-$47.17).
Before we summarize today’s alert, we would like to draw your attention to the current situation in the USD Index as the greenback is one of the major factors, which affected the price of the commodity in recent weeks.
Looking at the daily chart, we see that the USD Index moved lower and re-tested not only the black dashed line (based on the Apr 13 and Jul 7 highs), but also the black rising line based on the Jun 18 and Jul 10 lows (which serves as an additional support at the moment). What impact did it have on the greenback? The USD Index bounced off this area and came back above 97, which suggests higher values of the index – similarly to what we saw in mid-Jul (back then, the dollar moved sharply higher after a drop to analogous lines). Therefore, if we see such price action and the U.S. dollar moves higher from here, it will likely translate to lower prices of light crude as a rising greenback makes the commodity less attractive for buyers holding other currencies.
Summing up, crude oil moved lower once again, hitting a fresh multi-month low and making our short positions even more profitable. Yesterday’s decline confirms that the downtrend remains in place, suggesting lower values of the commodity in the coming days (especially when we factor in sell signals generated by the weekly indicators and the current picture of the USD Index).
Very short-term outlook: bearish
Short-term outlook: bearish
MT outlook: mixed with bearish bias
LT outlook: mixed with bearish bias
Trading position (short-term; our opinion): Short positions with a stop-loss order at $65.23 are justified from the risk/reward perspective. We will keep you – our subscribers – informed should anything change.
Thank you.
Nadia Simmons
Forex & Oil Trading Strategist
Przemyslaw Radomski, CFA
Founder, Editor-in-chief
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