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Talking Points:

• Crude Oil Technical Strategy: exit long on break below $47/bbl
• EUR/USD inverse correlation to USOIL (-.83) favors USOIL downside
• Libya’s restarts field as US production remains high adding pressure to oil prices
• IGCS shows Oil – US Crude maintains a bearish contrarian trading bias

Crude Oil has a lot going in its favor, but the sellers keep coming, and they may make their mark in May. So far, in April, we have heard that OPEC is likely to extend the production curb another six months to bring the stockpiles below their 5-year average. We have also received another wave of risk-on support from the first-round election in France going “as planned,” with Macron getting a seat at the table for the May 7 election. However, Oil continues to spill as news of more production despite OPEC’s efforts seem to be adding more weight to the market outlook. Even Wednesday’s EIA report showed one of the largest draws on the year (3.6m bbl), but reports of refinery demand kept the sellers in control.

Many traders have had their eyes on two moving averages on two different time frames. First, the 200-DMA has earned its fame as marking key turning points in Crude over the last few years during the Crude Bear Market. Traders looking to step back from the day-to-day noise have found guidance in looking to price in relation to the 55-week moving average. The 200-DMA sits at 49.05 followed by the 55-WMA at $48.49.

Naturally, this could set up for volatility in Crude that takes the market’s focus back down toward $40/bbl. A weekly close below the 200-DMA and 55-WMA could cause a wash-out in institutional positioning that has been supporting the Crude market for weeks. Most option action is focused on in the $55 call, $45 puts range setting up an expected relatively low-vol strangle trade. However, a breakdown below the lower-end could cause a sharp move lower that is worth watching given how the commodity market appears to be diverging further from the equities market that sits at/ near all-time highs. For me, a break below $47.11 would open up a clean bout of downside from a technical perspective.

Lastly, I’ve spoken about the potential for EUR/USD to charge higher if the USD cannot sustain a rally. On the chart below, you can see an inverse correlation (one market rises to see the other likely fall) of -0.8 on EUR/USD. Therefore, if the EUR/USD tradeis able to push higher, we could soon see WTI push lower as well.

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Chart Created by Tyler Yell, CMT

Crude Oil Sentiment:

Oil – US Crude: As of April 27, retail trader data shows 75.3% of traders are net-long with the ratio of traders long to short at 3.05 to 1. In fact, traders have remained net-long since Apr 19 when Oil – US Crude traded near 5073.6; price has moved 4.4% lower since then. The number of traders net-long is 14.2% higher than yesterday and 59.7% higher from last week, while the number of traders net-short is 2.0% lower than yesterday and 31.3% lower from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests Oil – US Crude prices may continue to fall. Traders are further net-long than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger Oil – US Crude-bearish contrarian trading bias.(Emphasis Mine)

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Shorter-Term US OIL Technical Levels: Thursday, April 27, 2017

For those interested in shorter-term levels of focus than the ones above, these levels signal important potential pivot levels over the next 48-hours.

Written by Tyler Yell, CMT, Currency Analyst Trading Instructor for

DailyFX.com

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