Crude futures are returning earlier gains after failing to break through the psychological $70/bbl level following much better than expected Retail Sales data. The optimistic Retail Sales data is an encouraging development for battered U.S. consumption. A recovery in Retail Sales implies an improvement in broad based consumption, lifting the price of crude. However, the positive impact from the outperformance of U.S. data is being countered by a collapse in the GBP/USD. BoE Governor King delivered another monetary shock today (refer to GBP/USD analysis), sending the Pound sharply lower against all of its major crosses. The negative performance of the GBP/USD is dragging on crude since it is a dollar-denominated commodity. On the other hand, it is encouraging to see the EUR/USD and gold holding steady despite the Cable's negative performance. Therefore, investors may opt to hold crude above our 1st tier uptrend line for the time being. However, should crude drop below our 1st tier uptrend line, we could witness a heightened immediate-term selloff since it connects through previous September lows.
Friday's selloff come on a surge in sell-side action, signaling investors are beginning to prefer the downtrend. Meanwhile, crude futures are stuck in the August trading range. OPEC stated publicly that it is comfortable with the $68-$72/bbl range. Hence, investors aren't eager to send crude outside of this zone. However, our trend lines are gradually closing in on price, meaning crude futures will likely need to make a more concrete directional decision sooner or later. We are witnessing multiple inflection points today, implying volatility has the opportunity to rear its head in the next 24 hours. Meanwhile, investors should keep a sharp eye on activity in the Dollar to see whether the Euro and Yen can extend their gains against the Greenback. A combination of a weak Dollar and further positive performance in the S&P futures would provide a positive catalyst for crude and help counteract present weakness. We will maintain a neutral outlook on crude until the futures either break free of our 1st tier uptrend line or 3rd tier downtrend line. Since our 1st tier uptrend line is more vulnerable, the downtrend is favored for the time being.
Resistances: $69.39/bbl, $69.67/bbl, $70.03/bbl, $70.39/bbl, $70.94/bbl
Supports: $68.48/bbl, $68.11/bbl, $67.74/bbl, $67.38/bbl, $66.92/bbl