Brent Crude – Are We Due a Correction?

Last week, I wrote a piece when Brent crude was testing the July lows and threatening to break below the 89-day simple moving average (Brent Crude – Key Support Coming Under Pressure). Since then the level has broken and we now find ourselves trading around that next major support level.

Brent Daily

How Brent behaves here could offer strong insight into how oil is going to play out in the coming weeks, as a break below the 200 and 240-SMAs and a major prior level of support and resistance would be a very bearish move. This could trigger another significant move to the downside.

Given that we’re now on our sixth consecutive losing day, I wonder whether the bears still have it in them to force such a significant break on this occasion. Should we see it, it would be send yet another strong message.

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The stochastic and MACD histogram on the 4-hour chart, below, both suggest that the move is losing momentum during the most recent lows. Should we see some profit taking at this level, it could prompt a correction in Brent, which would bring two levels into consideration.

Brent 4hr

The first, if we’re looking at a shallow correction, is around $44.75-45, a recent level of support and resistance and the 38.2% retracement of the move from 12 July highs to the current lows (assuming of course we have reached a low – this could be adjusted if new lows are made).

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The second, and possibly more likely, is around $45.50-45.75, last week’s major support and the 50% retracement of the above move. Should we see a reversal off one of these levels, it could be followed by another attempt to break below the 200 and 240-SMAs.

A break of these now, or following a correction, could see Brent head back towards another major zone of support and resistance around $35.65-36.75 in the coming months. The next important level of support though could appear around $40-41.

Craig Erlam
Based in London, England, Craig Erlam joined OANDA in 2015 as a Market Analyst. With more than five years' experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while conducting macroeconomic commentary. He has been published by The Financial Times, Reuters, the BBC and The Telegraph, and he also appears regularly as a guest commentator on Bloomberg TV, CNBC, FOX Business and BNN. Craig holds a full membership to the Society of Technical Analysts and he is recognized as a Certified Financial Technician by the International Federation of Technical Analysts.