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WTI Crude Oil Price Forecast: Hello, $50!

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Talking Points:

An Erosion of oversupply has become the theme of the Oil Market in 2016. While there is still pain being felt on the business side, the momentum that comes with being ‘the only game in town,’ has brought Oil above $50 for the first time since October.

The risk-on sentiment (global stocks and commodities remaining supported) has frustrated investors and traders that bought in (few would blame them) to the financial Armageddon 2.0 scenario that appeared to be playing out in the first two months of the year. For those that fear we’ve gone too far too fast, that’s fair, but it doesn’t appear to be worth shorting on that alone given the sustainability of momentum despite retail positioning.

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On Wednesday, the EIA inventory data and Cushing Stock depletion helped to confirm recent sentiment that there are large draws on current supplies. This fundamental development has aligned with disruptions of supply in Nigeria to support price now around $50/bbl.

Wednesday’s EIA numbers came in at a 4.2m bbl decline in crude stockpiles. Thankfully, the disruptions in Crude from the Canadian Wildfires don’t appear to be long-lasting as Canadian oil-sands facilities that workers evacuated last week due to wildfires are being allowed to prepare for the restart. However, Nigerian conflict continues to reduce overall supply, and there has been no definitive word from the folks at Doha about increasing supply to take advantage of $50 Oil, though they most assuredly are.

Key Support Resistance Levels from Here (Visual Map Below)

WTI Crude Oil Price Forecast: Hello, $50!

Looking at the chart, since bouncing off the $43 level to piercing $50/bbl on Thursday morning, the market appears determined to buy dips toward multi-day lows despite the retail crowd’s intentions (shown below). The recent low worth focusing on appears to be near the Weekly Pivot, which is close to $48 and appears to be a good support to favor staying long or at least, not to pay attention to getting short until it breaks.

Below $48, is the May low of ~$43/bbl. A break below would not only take out two key levels of support but the price channel (Blue) that we’ve traded higher in since Mid-February would also be broken. Breaking out of a multi-month price channel is a helpful way to see there is a change in behavior that might indicate the Bull move is over, or at least a larger retracement is under way that could have us test the ~35/bbl region, which houses 61.8% Fibonacci retracement of the February-May Range.

Price hit new 2016 highs today. Therefore, current resistance is the confluence of the Weekly R2 Pivot, the 100% Fibonacci Expansion taken from the April Opening Range Low, and the October High. This range encompasses $50.90-51.09/bbl. Beyond there, price looks only to be targeting higher, and other hard resistance levels appear arbitrary at best.

While $50/bbl is a good psychological level that may still hold, there is a potential that the risk-on rally in 2016 has benefited commodities the most. This environment may mean that Oil could easily get bid-up well through $50 on money moving from not only risk-off assets to Oil but also from lower performing risk-on assets like stocks. Either way, the layers of support should be watching to hold Oil up on its way to and possibly through $50/bbl.

Contrarian System Warns of Further Upside As of 5/26/16

“The market can stay irrational longer than you can stay solvent.”

John Maynard Keynes, (attributed), English economist (1883 – 1946)

WTI Crude Oil Price Forecast: Hello, $50!

In addition to the technical focus around multiple support-zones, we should keep an eye on retail sentiment, which favors more upside price action. Further upside is currently aligned with our Speculative Sentiment Index or SSI for now.

The ratio of long to short positions in the USOil stands at -3.38 as 23% of traders are long. Short positions are 15.1% higher than yesterday and 15.1% above levels seen last week. Open interest is 14.3% higher than yesterday and 10.6% above its monthly average. We use our SSI as a contrarian indicator to price action, and the fact that the majority of traders are short gives a signal that the USOil may continue higher. The trading crowd has grown further net-short from yesterday and last week. The combination of current sentiment and recent changes gives a further bullish trading bias.

Key Levels Over the Next 48-hrs As of Monday, May 26, 2016

WTI Crude Oil Price Forecast: Hello, $50!

T.Y.

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EURUSD Weekly Technical Analysis: New Month, More Weakness

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What’s inside:

  • EURUSD broke the ‘neckline’ of a bearish ‘head-and-shoulders’ pattern, April trend-line
  • Resistance in vicinity of 11825/80 likely to keep a lid on further strength
  • Targeting the low to mid-11600s with more selling

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Coming into last week we pointed out the likelihood of finally seeing a resolution of the range EURUSD had been stuck in for the past few weeks, and one of the outcomes we made note of as a possibility was for the triggering of a ’head-and-shoulders’ pattern. Indeed, we saw a break of the ’neckline’ along with a drop below the April trend-line. This led to decent selling before a minor bounce took shape during the latter part of last week.

Looking ahead to next week the euro is set up for further losses as the path of least resistance has turned lower. Looking to a capper on any further strength there is resistance in the 11825-11880 area (old support becomes new resistance). As long as the euro stays below this area a downward bias will remain firmly intact.

Looking lower towards support eyes will be on the August low at 11662 and the 2016 high of 11616, of which the latter just happens to align almost precisely with the measured move target of the ‘head-and-shoulders’ pattern (determined by subtracting the height of the pattern from the neckline).

Bottom line: Shorts look set to have the upperhand as a fresh month gets underway as long as the euro remains capped by resistance. On weakness, we’ll be watching how the euro responds to a drop into support levels.

For a longer-term outlook on EURUSD, check out the just released Q4 Forecast.

EURUSD: Daily

EURUSD Weekly Technical Analysis: New Month, More Weakness

—Written by Paul Robinson, Market Analyst

You can receive Paul’s analysis directly via email bysigning up here.

You can follow Paul on Twitter at@PaulRobinonFX.

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Euro Bias Mixed Heading into October, Q4’17

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Euro Bias Mixed Heading into October, Q4'17

Why and how do we use IG Client Sentiment in trading? See our guide and real-time data.

EURUSD: Retail trader data shows 37.3% of traders are net-long with the ratio of traders short to long at 1.68 to 1. In fact, traders have remained net-short since Apr 18 when EURUSD traded near 1.07831; price has moved 9.6% higher since then. The number of traders net-long is 15.4% lower than yesterday and 16.4% higher from last week, while the number of traders net-short is 0.4% higher than yesterday and 10.5% lower from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests EURUSD prices may continue to rise. Positioning is more net-short than yesterday but less net-short from last week. The combination of current sentiment and recent changes gives us a further mixed EURUSD trading bias.

— Written by Christopher Vecchio, CFA, Senior Currency Strategist

To contact Christopher Vecchio, e-mail cvecchio@dailyfx.com

Follow him on Twitter at @CVecchioFX

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British Pound Reversal Potential Persists Heading into New Quarter

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British Pound Reversal Potential Persists Heading into New Quarter

Why and how do we use IG Client Sentiment in trading? See our guide and real-time data.

GBPUSD: Retail trader data shows 38.2% of traders are net-long with the ratio of traders short to long at 1.62 to 1. In fact, traders have remained net-short since Sep 05 when GBPUSD traded near 1.29615; price has moved 3.4% higher since then. The number of traders net-long is 0.1% higher than yesterday and 13.4% higher from last week, while the number of traders net-short is 10.6% lower than yesterday and 18.3% lower from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests GBPUSD prices may continue to rise. Yet traders are less net-short than yesterday and compared with last week. Recent changes in sentiment warn that the current GBPUSD price trend may soon reverse lower despite the fact traders remain net-short.

— Written by Christopher Vecchio, CFA, Senior Currency Strategist

To contact Christopher Vecchio, e-mail cvecchio@dailyfx.com

Follow him on Twitter at @CVecchioFX

To be added to Christopher’s e-mail distribution list, please fill out this form

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