The price of spot crude oil failed to breach the $80 resistance level yesterday. Following higher prices for the commodity the price fell sharply on poor economic data and a lack of a rally in equities.
Spot crude oil prices finished the day down at $77.18, after opening the day at $78.90. The price of spot crude oil reached as high as 79.65 before dropping. The commodity has not traded at this high of a price since June 21st. Traders have been targeting the $80 resistance level when the last failed attempt to break the price range occurred.
Yesterday’s release of disappointing U.S. consumer confidence numbers triggered the sell off in the commodity the moment that equity markets began to drop. The CB Consumer Confidence Index reported a weak reading of 50.4 on market expectations of 51.3.
U.S. stocks fell in step with the release and the Dow Jones Industrials Average finished up marginally higher by 0.12%.
Today traders will be eyeing the release of the weekly U.S. crude oil inventories report from the U.S. Energy Information Administration. This report will help identify a consistent trend of a short term drop in crude oil supplies. Previous reports have shown falling supplies in crude oil stocks as refineries have reduced output in light of the global economic slowdown.
Expectations are for a decrease of 1.4M barrels of crude oil. An output on par with economists’ forecasts may help push spot crude oil prices higher to the resistance line at $78.50.
Spot gold prices continue to fall as risk appetite grows and traders seek out assets with higher yields. The commodity is approaching significant technical resistance in the long term trend.
Positive economic data from Europe along with varying data releases from the U.S. has created an environment ripe for risk taking. A rising euro, equity markets, and spot crude oil prices show just how traders are taking on more risk, while shunning safe haven assets. The recent price action of spot gold tells this story well.
Last week’s European industrial new orders surprised the market with a 3.8% rise on expectations of a decline of 0.1%.
British preliminary GDP came out stronger than expected, positing a 1.1% gain on expectations of only a rise of 0.6%.
Despite testimony from Fed Chairman Ben Bernanke that signaled an uncertain outlook for the U.S. economy, U.S. equities rose as the Dow Jones Industrials finished up for the week by 3.24%.
All of this positive info can be seen in the declining price action for spot gold.
The weekly chart shows an evening doji star candlestick pattern has formed, a warning that the long term bullish trend is changing. The top occurred at the record high price of spot gold at $1265. Confirmation of the pattern came the next week with the long red candlestick. Supporting the downward move is a doji candlestick that formed the following week after the evening star pattern.
The sharp downward movement in the price broke through the support level of $1224.70 and looks set to continue to head lower to the next support for the commodity which rests at $1169. This is close to the long term bullish trend line that began in October of 2008.
A close below this line would signal a shift in the long term trend to the downside and a target at the 23.6% Fibonacci retracement level at $1118, followed by the 32.8% Fibonacci level at $1026.
Should the downward price action fail to continue, the targets to the upside would be located at the resistance level of $1224, and the all time high for the price of spot gold at $1265.
The main development yesterday was the appreciating Euro. Following several days on which the Euro dropped against the Dollar and the Yen, the Euro saw a correction yesterday and managed to erase most of its losses.
The Euro correction came following several publications from the Euro-Zone that provided positive signals. These created optimism in the market regarding the Euro-Zone’s recovery potential. Another impact of the positive data was the surging crude oil prices. Crude oil rose to over $79 a barrel yesterday, for the first time in nearly 11 weeks.
However the continuation of these trends are questioned as all eyes are poised to see the Euro-Zones Bank Stress Test Results that are due to be published today. This indicator tries to determine the European Central banks’ ability to sustain a possible crisis, and to estimate its strength in general. Positive results will probably elongate the bullish trend, yet a disappointing data might erase yesterday’s gains.
Here are today’s leading news events:
• 08:00 GMT, German Business Climate – It is a survey of about 7,000 businesses who are asked to rate their current business conditions, and their expectations for the next 6 months. If the end result will beat expectations for 101.5 points, the Euro might be strengthened as a result.
• 08:30 GMT, British Preliminary Gross Demotic Product (GDP) – The GDP measures the change in the value of all goods and services that were produced by the British economy, and is considered to be the broadest measure of economic activity. If the end result will show a rise of over 1%, the Pound might be boosted.
• Canadian Core Consumer Price Index (CPI) – The CPI measures the change in price of goods and services purchased by consumers. It is the leading inflation data, and as such the report tends to have large impact on the market. Analysts forecast that the inflation rate in Canada remained stabile during June. If the end result will be similar, the CAD isn’t likely to be largely affected by it.
The 4-hour chart shows a trading range along with a buy signal that could indicate a rise in spot crude oil prices above the static level that the commodity has seen over the past two months.
Looking at the 4-hour chart for spot crude oil, a trend line has begun on May 25th and shows the appreciation for the pair over with the price action taking place above the trend line. It is a modest uptrend as the slope of the trend line is less than a 45 degree angle, but nevertheless an up sloping trending line.
A minor trend line has been included for when the commodity surged higher on July 7th. Since then the price has risen and dropped back towards this minor trend line and has created an opportunity to go long on the commodity.
When the price fell to a low of $76.15, this was close to the minor trend line. At the same time a bullish cross was forming on the slow stochastic oscillator, providing an a buy signal. The price bounced off of the minor trend line and has since moved higher.
Buying near a trend line can many times be a good opportunity to enter following a pullback in the price. For more conservative traders, a stop can also be placed underneath the minor trend line should the price break lower.
Traders can target the first resistance level (R1) at a price of $78.15. A close above this level would then move the next price target to just below the $80 (R2).
A protective stop can be placed below the support level of $75.65. A close below this level would nullify the minor trend line and the price could then test the next support level at $71.00 (S2) along with the long term trend line.
