Crude Oil prices fell slightly after the strong rally yesterday sparked by ECB’s rate cut and Draghi’s talk of negative deposit rates. Strangely, WTI futures (which the chart price is based on) did not rally significantly when Draghi made his speech, but rather price rallied during midday US trade, lagging S&P 500’s futures rally by 1 full hour. However, looking at yesterday’s News docket, there doesn’t seem to have any other strong reasons that could have pushed prices up so significantly other than the aforementioned ECB event.
It seems that Crude Oil traders were suddenly hit with clarity after seeing US Stocks rising and Yields falling, it almost feels like traders were being uncertain about what to do, whether and then a moment of genius came over and they decided to go with risk flows, which allowed price to rally almost $3 a barrel more. What we learnt from this is that the underlying sentiment is still bearish, and that ECB’s negative rates option may not be so risk positive as we thought it is. Therefore it is also not surprising to see price unable to break above the resistance band (marked by the top 2 blue dotted lines), with bears taking over and forming a slight descending Channel in the process.
From a technical perspective, Stochastic readings suggest that a bear cycle is currently underway, which may be confirmed should price break below 93.1 (preferably 93.0) which will most likely be in line with Stoch readings trading below interim troughs of 2nd May. Price may find interim support around 92.0 and 91.0, with Channel bottom below 90.0 being the ultimate bearish objective.
Daily Chart is also equally bearish, with Stoch reading peak still not invalidated, though an interim trough may be forming within the Overbought region should price remain elevated. Past few days price actions can also still be considered as forming the right handle between 92.0 – 94.0 as a fractal twin of the left handle between 5th – 12th April. If the right handle pattern holds, we should expect price to seek out 92.0 eventually, which is kind of in line with the Stoch’s peaking signal. However, the fractal nature also means that price can still break up higher above 94.0 to reach perhaps even 95.0 without invalidating the right handle formation, just as how price managed to touch 90.0 just 2 days ago. With that in mind, traders should be extra careful when entering their positions as interpretation of directional movements right now may be sketchy at best.
On the fundamental front, ECB’s Nowotny has come out today and clarify that negative deposit rates will almost certainly not happen in the immediate future, and that market has interpreted Draghi’s comments wrongly. USD/JPY has came down slightly on this and so did US stock index futures. As price rallied strongly during midday US trade, it remains to be seen how US traders may interpret this news when the stock market opens later. Couple this with today’s NFP data, Crude Oil is expected to trade wildly as we approach the end of the week, without providing fresh directional indication. Not a good day for the faint hearted but perhaps seasoned scalpers/ short-term swing traders may find this a perfect day.
USD/JPY Technicals – Draghi’s Negative Rate Talks Pulling Bulls Up
AUD/USD – Mute Response from Better Producer Price Index
EUR/JPY – Right Back Within Wedge After ECB’s Rate Cut
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