• Contact Us
  • Homepages
Most Forex
  • For Beginners
  • Strategies
  • Technical Analysis
  • Product Reviews
  • News
  • Videos
No Result
View All Result
  • For Beginners
  • Strategies
  • Technical Analysis
  • Product Reviews
  • News
  • Videos
No Result
View All Result
Most Forex
No Result
View All Result
Home Technical Analysis

Crude Oil Price Forecast: Drops from Resistance to Trend Support

Forex Tips by Forex Tips
December 21, 2020
in Technical Analysis
0
25,000 The Critical Level to Watch
189
SHARES
1.5k
VIEWS
Share on FacebookShare on Twitter


Crude Oil Price Forecast Overview:

  • After a strong run through the first three weeks of the month, crude oil prices have pulled back sharply ahead of the holidays.
  • Concerns that the new strain of coronavirus emerging from the UK has introduced a new bout of uncertainty into markets, boosting volatility and sinking crude oil prices.
  • Recent changes in retail trader positioning gives us a mixed bias towards crude oil prices.

Crude Oil Prices Follow Risk Trends

After a strong run through the first three weeks of the month, crude oil prices have pulled back sharply ahead of the holidays. Down by over -5% earlier, crude oil prices have followed broad risk trends throughout the day, tracking movements in both global equity markets and energy-sensitive currencies like the Canadian Dollar. Concerns that the new strain of coronavirus emerging from the UK has introduced a new bout of uncertainty into markets, boosting volatility and sinking crude oil prices.

But with calming tones from executives at pharmaceutical companies involved in the development of the coronavirus vaccines, suggesting that the recent mutation won’t reduce the efficacy of the vaccines developed by Pfizer/BioNTech and Moderna, it’s too soon to say that the latest news won’t come to pass. Indeed, with the holiday season in full swing, the pullback in crude oil prices may be in part spurred – exacerbated – by early end-of-year profit taking.

Oil Forecast

Oil Forecast

Recommended by Christopher Vecchio, CFA

Get Your Free Oil Forecast

Crude Oil Price Technical Analysis: Daily Chart (December 2019 to December 2020) (Chart 1)

Crude Oil Price Forecast: Drops from Resistance to Trend Support - Levels for Crude Futures

In the last update, it was noted that “if crude oil prices were to make any more gains, breaching 46.26 could trigger what could be a quick trip higher into the area between 48.66 and 49.31, which proved to be a meaningful turning point in February and March during the initial coronavirus pandemic selloff. Coupled with the knowledge that significant overhead supply sits on the sideline, any gains into the 48.66 and 49.31 would be seen as the absolute point for profit taking for bulls.”

At the end of last week, crude oil prices closed at 49.43 (where the weekly begins for this week). From my perspective, that we’ve seen a pullback in crude oil prices makes total sense, insofar as key resistance was reached ahead of a holiday period; there are sound technical reasons for profit taking, regardless of the news flow.

To this end, the crude oil price selloff has stopped at a familiar trend level, the daily 13-EMA, which has held up on two prior occasions in December thus far. Daily MACD continues to trend higher in bullish territory, while daily Slow Stochastics remain overbought. Achieving key topside targets in the recent bullish breakout attempt may dictate a period of digestion for crude oil prices, not a meaningful bearish reversal.

Oil Volatility Up, but Sideways in General

Crude oil prices have a relationship with volatility like most other asset classes, especially those that have real economic uses – other energy assets, soft and hard metals, for example. Like how bonds and stocks don’t like increased volatility – signaling greater uncertainty around cash flows, dividends, coupon payments, etc. – crude oil tends to suffer during periods of higher volatility.

Heightened uncertainty in financial markets due to increasing macroeconomic tensions decreases theoretical demand for energy. The latest news of a new strain of the coronavirus emerging in the UK has introduced a new bout of uncertainty to markets, energy or otherwise.

OVX (Oil Volatility) Technical Analysis: Daily Price Chart (December 2019 to December 2020) (Chart 2)

Crude Oil Price Forecast: Drops from Resistance to Trend Support - Levels for Crude Futures

Oil volatility (as measured by the Cboe’s gold volatility ETF, OVX, which tracks the 1-month implied volatility of oil as derived from the USO option chain) was last spotted trading at 42.76, its lowest level since mid-September. Oil volatility remains far below the yearly absolute high (incidentally the all-time absolute high) set on April 21 at 517.19, and still considerably below the yearly closing high (incidentally the all-time closing high, also established on April 21) at 325.15. Oil volatility has jumped to its highest level since December 2.

The 5-day correlation between OVX and crude oil prices is -0.78 while the 20-day correlation is -0.60; and one week ago, on December 1, the 5-day correlation was +0.67 and the 20-day correlation was -0.61. The relationship between crude oil prices and volatility remains historically weak, however: the 20-day correlation is at its least significant reading since August 11.

IG Client Sentiment Index: Crude Oil Price Forecast (December 21, 2020) (Chart 3)

Crude Oil Price Forecast: Drops from Resistance to Trend Support - Levels for Crude Futures

Oil – US Crude: Retail trader data shows 44.26% of traders are net-long with the ratio of traders short to long at 1.26 to 1. The number of traders net-long is 8.26% higher than yesterday and 14.10% lower from last week, while the number of traders net-short is 13.15% lower than yesterday and 6.82% lower from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests Oil – US Crude prices may continue to rise.

Positioning is less net-short than yesterday but more net-short from last week. The combination of current sentiment and recent changes gives us a further mixed Oil – US Crude trading bias.

— Written by Christopher Vecchio, CFA, Senior Currency Strategist





Source link

Share76Tweet47

Related Posts

Trying to Hold Top of Important Long-term Structure

S&P 500, DAX 30 & FTSE Technical Forecast for Next Week

by Forex Tips
January 16, 2021
0

Indices Technical Outlook:S&P 500 trending higher in channel formationDAX price action putting support to the testFTSE could be in...

Euro Perched at Key Support as US Dollar Looks to Make a Comeback

Will EUR/USD, EUR/AUD Weakness Last?

by Forex Tips
January 16, 2021
0

EURO WEEKLY TECHNICAL FORECAST: NEUTRAL The Euro has weakened broadly over the last few trading sessions. In fact, recent...

Gold Price & Silver May be Weak Near-term, but Remain Long-term Bullish

by Forex Tips
January 16, 2021
0

Gold/Silver Technical HighlightsGold price may continue to sag in the near-termLong-term charts show a healthy correction in bull marketSilver...

XAU/USD May Rise as 200-MA Holds Firm

by Forex Tips
January 15, 2021
0

Gold Price Technical Forecast: BullishThe formation of a 10-year Cup and Handle pattern suggests that the long-term outlook for...

Euro subdued ahead of ECB Minutes

Deeper Setbacks Take Foot in EUR/JPY, EUR/USD Rates

by Forex Tips
January 15, 2021
0

Euro Forecast Overview:The Italian government is on the verge of failing, while the Dutch government collapsed two months prior...

Load More

Categories

  • Crypto Strategies
  • Currency
  • For Beginners
  • Forex News
  • Forex Trading Tips & Strategies
  • Investment
  • Technical Analysis
  • Videos
Forex Pulse Detector

Categories

  • Crypto Strategies
  • Currency
  • For Beginners
  • Forex News
  • Forex Trading Tips & Strategies
  • Investment
  • Technical Analysis
  • Videos

Newsletter

  • Home
  • Contact
  • Privacy Policy
  • Store

© 2018 Forex Blog

No Result
View All Result
  • Contact Us
  • Homepages

© 2018 Forex Blog.