Crude Oil May Have Bottomed on Central Bank Actions

WTI Crude Oil 4H chart 12:00PM EDT 7/5/2012

WTI crude oil price continued the reversal that started last week after the EU summit paved the the way for a risk rally from 77.30. So far this week, the rally has extended to almost 89.00. This rally is in-line with expectations of central bank action. The BoE for example added £50 billion to its Asset Purchase Program (QE), making the total £375 Billion. The ECB cut the benchmark rate from 1.0% to a historical low of 0.75%, also reducing the deposit rate to 0%. Even the People's Bank of China reduced its benchmark rate to 6% and deposit rate to 3%.

While the EUR and GBP were pressured, commodities and commodity currencies remained resilient.

Oil was held below 89.00, but the 4H chart shows a market that is starting to establish bullish momentum. The 4H RSI reading has been held under 60 as a reflection of bearish momentum, but this changed this week with the RSI pushing back above 70. For the very short-term, there is a sign of exhaustion in a bearish divergence, but overall, we can now expect the market to have turned from bearish to sideways if not bullish.

The daily chart shows where we might find the resistance above 89.00. A consolidation period around the same time in the summer last year saw resistance at 90.60. This is just above the 90.15, 38.2% fibonacci retracement of the 2012 March-June bear run.

It should also be noted that despite the current rally is not necessarily just a correction against the March-June bear market. The 200-day SMA has been flat and thus represents a sideways market. We may very well be starting a bull cycle for the second half of the year. A break above that 90.60 area might add to this Q3-Q4 bullish case, especially with further prospect of central bank actions.

WTI Crude Oil Daily chart 12:00PM EDT 7/5/2012

Fan Yang CMT is the Chief Technical Strategist, trader, educator and a of the main contributors to FXTimes - provider of Forex News, Analysis, Education, Videos, Charts, and other trading resources.

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