Rebounding US Dollar Exerts Downward Pressure On Crude

Andreas Thalassinos
Andreas Thalassinos

25.3.2024

Despite a more-than-anticipated decrease in crude oil stockpiles, the commodity closed the week at $81.222 per barrel. 

Overview

Despite a more-than-anticipated decrease in crude oil stockpiles, the commodity closed the week at $81.222 per barrel. However, it was unable to mount an upward rally due to concerns over weakening demand, declining economic indicators in Europe pointing to contraction, persisting geopolitical tensions, and delays in US interest rate cuts. As a result, crude oil prices failed to surge despite the inventory data, as a rebounding US dollar exerted downward pressure on it amid geopolitical events and concerns about global demand.

Technical Analysis

Since March 11, the price of crude oil has shown an upward trajectory, bouncing off a trough at 76.834, which was influenced by economic and geopolitical events. The price chart on the 4-hour timeframe has displayed a progression of successively higher peaks and troughs, resulting in a rally that reached 83.568. Subsequently, the formation of a Bearish Harami candlestick reversal pattern alerted for the possibility of a downward bias, which led to a downward retracement, putting a temporary halt to the rally. Additionally, the identification of a failure swing to the downside reinforced the downward bias and opened the way for declining prices. In particular, the peak at 82.331 failed to move higher than the previous peak of 83.568 and fell below the trough of 81.272, hence indicating a downtrend. The 50-period Moving Average and the Momentum oscillator support the downtrend scenario. Specifically, prices are trading below the Moving Average line, and the Momentum registers values below its baseline.

Potential Downside Targets

If the bears manage to maintain control of the market, traders may consider the following potential downside targets: 

80.628: The initial target represents the 161.8% Fibonacci extension of the failure swing, traced by the trough at 81.272 up to the peak of 82.331.

80.201: The next potential target can be calculated at the 50.0% retracement level of the recent upward movement ranging from 76.834 to 83.568.

79.559: The third potential price target is 79.559, which corresponds to the 261.8% Fibonacci extension of the recent failure swing.

78.746: The fourth price objective can be identified at the peak that was marked on March 12

.Fundamentals  

The following economic events, along with the prevailing market sentiment, provide valuable insights into the factors that shaped the direction of Crude Oil last week:

Last week, the Energy Administration Information released its latest report, which showed that the commercial crude oil inventories in the US (excluding those in the Strategic Petroleum Reserve) have decreased by 2.0 million barrels compared to the previous week. The current US crude oil inventories now stand at 445.0 million barrels, representing a decline of roughly 3% below the five-year average for this time of the year.

Note that if the crude inventories increase is greater than expected, it indicates a weaker demand and a decline in crude oil prices. Similarly, if the decline in inventories is less than expected, it also shows a decrease in demand and can lead to a decline in prices.

On the other hand, if the amount of crude oil held in inventories increases less than anticipated, it implies an increase in demand, which typically leads to a rise in oil prices. The same can be said if a decline in inventories is more than expected.

However, the more-than-anticipated decrease in crude oil inventories did not provide sufficient Momentum for oil prices to register an upward surge.

The next announcement of the Crude Oil Inventories is set for Wednesday at 15:30 GMT.

On Wednesday, the Federal Reserve announced that it would maintain US interest rates at a 25-year high while it continues to evaluate their impact on curbing inflation. Following a two-day conference, the Fed declared that rates would remain unaltered at 5.25% to 5.5%, where they have been stable since July. However, the Fed hinted that it still plans to decrease rates three times this year.

Furthermore, the latest release of S&P Global's Flash Composite PMI indicates steady business activity growth in the US towards the end of Q1. However, the pace of growth was slightly lower than in the previous survey period. While services activity weakened, manufacturing production grew the fastest in almost two years. Job creation rate picked up, and firms remain optimistic about business activity. Inflationary pressures are increasing, with input costs rising at the quickest rate in six months and firms increasing their selling prices to the largest extent since April last year.

Conclusion and Considerations

In conclusion, the current trajectory of the crude oil market on the daily timeframe remains upward. However, in the 4-hour timeframe, a bearish reversal signaled the very beginning of a downtrend. Traders must stay up-to-date on the latest geopolitical and economic developments, trade wisely, and closely monitor market trends to optimize investment returns and mitigate probable risks and losses.

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Andreas Thalassinos
Andreas Thalassinos

Andreas Thalassinos is a recognized authority in the financial markets and world renowned for his expertise in algorithmic trading. He is a Certified Technical Analyst and highly respected lecturer in the education of traders, investors, and financial markets professionals. Thalassinos has played a key role in the development of education within the industry, training tens of thousands of traders of all skill levels. Traders value his seminars and workshops for the rich content, his passionate, charismatic, and lively presentations.