Crude futures are hanging just below our previous 3rd tier downtrend line after posting a solid recovery from our 1st tier uptrend line. Crude futures picked themselves up after Friday's selloff on large volume following broad-based depreciation of the Dollar coupled with the S&P breaking through 1050. Investors returned to risk in the aftermath of better than expected global economic data. The most positive catalyst for crude futures was the impressive showing in Core Retail Sales on Tuesday. Improvement in consumption helps raise the outlook for present and future demand for commodities such as crude. As for the supply side, the U.S. reported another large inventory shortage for the third time in the past four weeks. The dramatic drop in supply combined with a brighter outlook for demand warrants crude trading towards the top of its trading range.
Economic data will be relatively light until Wednesday's flood of EU PMI data. The EUR/USD, USD/JPY, and gold are all trading around heavy resistances/supports along with strong psychological levels. We are anticipating consolidation mixed with profit taking in crude's aforementioned correlations for the next few session. Therefore, crude futures may lack the positive catalyst required to send them beyond August highs and the psychological $75/bbl in the immediate-term. Hence, we may witness crude continue to trade within OPEC's $68-$72/bbl comfort zone until we receive some more econ data. On the other hand, if the S&P futures ascend towards 1100, this would likely help drive crude towards our new 3rd tier downtrend line. A break above our 3rd tier downtrend line would indicate fresh 2009 highs around the corner. As for the downside, crude futures now have a wealth of supports in our 1st and 2nd tier uptrend lines along with the highly psychological $70/bbl level.
Resistances: $73.02/bbl, $73.33/bbl, $73.55/bbl, $74.06/bbl, $74.54/bbl
Supports: $72.28/bbl, $72.01/bbl, $71.62/bbl, $71.27/bbl, $70.94/bbl
Psychological: $70/bbl, $75/bbl