Crude futures are hovering just beneath our 3rd tier downtrend line, potentially the last trend-oriented technical barrier separating the futures from new 2009 highs. Of course crude would need to deal with previous 2009 highs and its psychological $75/bbl level. However, we feel our 3rd tier downtrend line could serve as a foretelling indicator since it runs through June 11th and 30th highs. Crude launched above all of our previous trend lines yesterday after weekly crude inventories plunged and caught investors off-guard. However, we have a muted reaction to this number since we believe it's directly related to the ‘cash-for-clunkers' program, likely a temporary stimulus. Our belief is reinforced by much better than anticipated manufacturing data releases this week. The boost in manufacturing has been needed to meet the jump in demand for automobiles in reaction to the ‘cash-for-clunkers' program. The ramp up in production coupled with the cross-country transportation required for vehicle deliveries is likely the driving force behind the surprise inventory deficit, and should bleed over into the next few releases.
Regardless of what the cause might be behind the large consumption of crude, the futures are on the brink of a breakout. Investors are looking for further depreciation of the Dollar against the Pound and Euro as well as a 1000+ S&P. The combination of the two would likely be more than enough to send crude higher due to this week's drop in supply. However, there are downtrend forces at work in all of the aforementioned correlations, constraining crude's upward mobility. However, crude's momentum is clearly shifting to the upside following this week's activity. All the Dollar-based commodity needs is more conductive participation across the marketplace. As for the downside, crude futures have several technical cushions waiting nearby, including our 2nd and 3rd uptrend lines along with the upper-band of its psychological $70/bbl trading range. Investors will be keeping a close eye on the EU's PMI data tomorrow along with U.S. Existing Home Sales. Positive data could drive the Euro and equities higher while helping crude deal with its topside barriers.
Resistances: $72.76/bbl, $73.21/bbl, $73.56/bbl, $73.81/bbl, $74.24/bbl
Supports: $72.35/bbl, $72.14/bbl, $71.68/bbl, $71.35/bbl, $71.01/bbl
Psychological: $70/bbl, $75/bbl