On Tuesday, crude oil gained 0.48% as a weaker dollar and ongoing concerns over tensions between Russia and Ukraine weighted on the price. Thanks to these circumstances, the price of light crude climbed above $100 once again. Did this show of “strength” invalidate any of bearish technical factors that we noticed in the previous week?
Yesterday, before the market’s open, the U.S. dollar moved lower after positive euro-zone economic data. Although, the euro zone's service-sector PMI came in unchanged at 53.1 (in line with expectations), retail sales rose 0.3% in March, beating expectations for a 0.2% contraction. Additionally, later in the day, the greenback extended losses after official data showed that the U.S. trade deficit narrowed to $40.38 billion in March, from $41.87 billion in February, while analysts had expected the trade deficit to narrow to $40.30 billion in March.
As is well known, a weaker greenback makes oil an attractive commodity on dollar-denominated exchanges, which is bullish for the commodity. Therefore, a sharp decline in the U.S. currency pushed light crude above $100. Despite this improvement, another expected increase in U.S. oil supplies capped gains and sent the price lower. How low? Let's see (charts courtesy of http://stockcharts.com).
From the weekly perspective, we see that the situation remains unchanged and crude oil is still trading below the lower border of the triangle, the psychological barrier of $100 and the 50-week moving average. Therefore, the bearish scenario from our Oil Traing Alert posted on Wednesday is still up-to-date:
(…) if the commodity extends losses and drops below the psychological barrier of $100, we will likely see further deterioration and a drop even to around $95, where the medium-term support line (based on the June 2012 and January 2014 lows) is. At this point, it’s worth noting that the CCI and Stochastic Oscillator generated sell signals, which suggests that another attempt to move lower should not surprise us.