Support for Trade War Selloff Eyes
Crude oil prices merged after a sharp decline in technical resistance, and opened the door to try again August turn low
Crude oil prices fell over 1.5% in the last week in the chopped trade. I noted early last Tuesday that crude oil prices were showing signs of weakness as volatility rose amid the continuing uncertainty in the US and China about the war trade when Jackson Hole broke. Certainly, the expectation of execution came as bearish fundamentals adapted to a technical backdrop that pointed to the possibility of sustained sales pressure.
CRUDE OIL PRICE CHART: DAILY TIME FRAME (DECEMBER 20, 201[ads1]8 TO AUGUST 23, 2019)
Chart created by @RichDvorakFX with TradingView [19659014] The recent week's decline in crude oil prices appears to repeat the commodity's broad symmetrical triangular pattern that has emerged so far this year with price action coiling into a tighter wedge between higher lows and lower elevations. Still, Wednesday's hard rejection of the $ 57.00 price zone – a consecutive resistance level offered by the 38.2% Fibonacci retracement level of the oil's 55% rise from the December 2018 fluctuation – highlights the bearish crude oil trading price. Crude oil prices falling below the midpoint of the aforementioned bullish leg highlight the dramatic sales pressure recently exerted on the commodity. This comes amid increased Sino-American tensions as the trade war rages on.
Evidence of a declining bullish outlook for crude oil prices from a technical standpoint is also suggested by the faded RSI as the indicator dipped below 50 and appears to continue its overall trend lower since April. Furthermore, the struggle to regain the 50-day and 200-day simple moving average can hold the lid on any rebound attempt.
CRUDE OIL & OOL VOLATILITY INDEX PRICE MAP: DAILY TIME FRAME (AUGUST 20, 2018 TO AUGUST 23, 2019)
Diagram created by [19659012] @ RichDvorakFX with TradingView
For almost all risk components such as crude oil and stocks, an increase in market volatility typically has an inverse relationship with price trading. Crude oil volatility, measured via Cboe's oil price volatility index (OVX), continues to creep higher. That said, the recent spike in OVX – due to China's retaliation rates and Trump's response to Twitter – may point to the market's heightened degree of uncertainty and risk aversion, thus suggesting further weakness in crude oil prices going forward.
CRUDE OIL PRICE CHART: 4-TOUR TIME FRAME (JULY 29, 2019 TO AUGUST 23, 2019)
Chart created by @RichDvorakFX with [19659014] TradingView
In the scenario where markets are in turmoil with bearish price action carried over to next week, crude oil may continue to crumble under pressure from macro headwinds. The commodity trading area since the end of July offers technical levels of confluence around 38.2% and 23.6% Fibonacci retracement levels, which can be looked at for potential buoyancy areas. While there may be a rebound against the $ 55.00 in cards, upside progress is likely to be short-lived as crude oil prices are heavily armed lower. As such, the path to least crude oil resistance next week could be a reconsideration of the weakest month to date low below the $ 51.00 price level.
– Posted by Rich Dvorak Junior Analyst for DailyFX.com
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