Crude futures are recovering to our 2nd tier uptrend line, previously our 1st tier, following a slight surplus in weekly inventories. Crude futures have managed to avoid testing $70bbl after pulling back in reaction to an appreciating Dollar and lower than expect Core Durable Goods Orders data. In addition to the negative DGO data, Japan reported weak export data late Tuesday. Both data releases show consumption may not be improving as quickly as analysts hope, decreasing the amount of crude consumed during the manufacturing and production process. These developments do not bode well for the demand side of the equation. Fortunately for bulls, the supply side improved following the inventory shortage caused by the cash for clunkers program. However, crude futures did experience climbing sell-side activity yesterday, implying there is some weight behind the pullback. It will be very important for crude futures to hold onto our 1st tier uptrend line and their psychological $70/bbl level should the selloff continue. A contraction beneath our 1st tier uptrend line could spell a retest of August lows.
Meanwhile, crude futures should hold above $70/bbl as the GBP/USD and EUR/USD look to consolidate ahead of Thursday's heavy-weight data releases. The U.S. will release Prelim GDP and weekly Unemployment Claims. GDP will be the primary focus. If Prelim GDP comes in lower than expected, we will likely witness crude's pullback take another leg down with the S&P futures. However, a much better than expected number should have the opposite impact. Crude futures certainly have their fair share of obstacles to overcome to the topside, including our 3 downtrend lines and the psychological $75/bbl. If crude futures can climb above our 3rd tier downtrend line crude futures could experience explosive near-term gains. Investors should fasten their seatbelts because the FX markets and gold all indicate increasing volatility over the next 24-48 hours.
Resistances: $71.29/bbl, $71.71/bbl, $72.07/bbl, $72.46/bbl
Supports: $70.71/bbl, $770.32bbl, $69.86/bbl, $69.36/bbl
Psychological: $70/bbl, $75/bbl