Crude futures are recovery from yesterday's pullback in reaction to higher than expected gasoline inventory levels. Investors brushed aside a drop in crude inventories and opted to send crude reeling towards the psychological $70/bbl level. Crude has since stabilized along $70/bbl and is looking to gain back some ground after experiencing a sharp pullback since the beginning of December. Crude futures are deriving their present strength from stability in the FX markets following a strong wave of Dollar appreciation. The Dollar is weakening across the board and the USD/JPY is heading higher, indicating investors are putting some money back into the risk play. However, it remains to be seen whether stability in the likes of the EUR/USD and GBP/USD will result in noteworthy gains, or if we are simply witnessing a condition of oversold markets in a downtrend. That being said, investors should keep an eye on the Dollar and monitor its ability to extend losses from present levels. Despite crude reacting to supply levels yesterday, the futures remain inextricably tied to the value of the Greenback since these investment vehicles are negatively correlated. Meanwhile, investors should also keep an eye out for China's Industrial Production data release during tomorrow's Asia trading session. Stronger than expected Industrial Production data could improve the outlook for crude's aggregate demand, allowing the futures to add onto today's strength. On the other hand, disappointing data from China could result in more broad-based risk-aversion, dragging crude back towards $70/bbl in the process.
Technically speaking, crude has multiple downtrend lines bearing down on price, meaning the futures have a negative inclination at this point in time. Crude futures also face topside technical barriers in the form of 12/8 and 11/26 highs along with the psychological $75/bbl level. As for the downside, we've installed a new uptrend line running through intraday lows. That being said, if our 1st tier uptrend line doesn't hold, we could see a retracement towards September lows. The futures do have a few technical cushions separating present price from these September lows, including the psychological $70/bbl level along with October lows.
Resistances: $71.55/bbl, $72.04/bbl, $72.49/bbl, $72.89/bbl, $73.46/bbl, $73.82/bbl
Supports: $70.65/bbl, $70.32/bbl, $70.03/bbl, $69.66/bbl, $69.24/bbl, $68.74bbl
Psychological: $70/bbl, $75/bbl, October and September Lows
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