Although trading off intraday lows, crude futures have been hit hardly by today's broad based strength in the Dollar and Yen. Furthermore, the S&P futures have sunk beneath 1100 and our 1st tier uptrend line. As a result, we are witnessing a broad-based risk aversion stemming from news out of Dubai that Dubai World needs to restructure a portion of its debt. Dubai's debt problems have reignited investor uncertainty and doubt surrounding the vitality of the global economy recovery. Such uncertainty is confidence in the risk trade, thereby dragging crude futures lower as investors question the outlook for aggregate demand. However, stepping back from today's selloff, the question becomes whether we are witnessing a limited setback or the beginning of a more protracted downturn. As a result, more weight will likely be placed on next week's wave of economic data.
In terms of crude, last week's large drop in unemployment claims is a positive development for aggregate consumption, possibly increasing demand for crude. However, the improvement in unemployment was countered by weaker than expected durable goods data. The setback in durable goods implies fewer cars on the road, thereby reducing consumption of crude and having a negative impact on price. The mixed economic data placed crude futures in a vulnerable position, and this week's news from Dubai has tipped the glass, so to speak, extending crude's pullback. Meanwhile, investors should monitor the EUR/USD's ability to stabilize above our uptrend lines as well as the S&P's ability to mitigate intraday losses and hang within striking distance of 1100.
Technically speaking, although crude is sliding further from our trend lines, the futures could find supports in the form of 10/9 lows, $70/bbl, and the September trading range as a whole. Therefore, it appears as though crude could have a solid support system waiting in the wings. As for the topside, crude faces multiple downtrend lines and the $75/bbl psychological level could begin to serve as a technical barrier.
Resistances: $76.03/bbl, $76.78/bbl, $77.58/bbl, $77.99/bbl, $78.38/bbl, $78.95/bbl
Supports: $74.19/bbl, $73.88/bbl, $73.24/bbl, $72.88/bbl, $72.30/bbl, $71.92/bbl
Psychological: $75/bbl, $70/bbl