Brent Crude looks vulnerable on the weekly charts...

Both the major crude oil contracts are trading higher today despite the lack of any significant data from Asia or Europe, and the stronger dollar. Today’s gains therefore appear to be almost entirely driven by supply factors after Libya’s el-Feel oilfield was shut yesterday, resulting in a drop of 150 thousand barrels of crude output. Most of the country’s oil ports, including El Sharara, which has an output capacity of about 340,000 bpd, have been shut due to the on-going protests from the rebels. As well as Libya, there are concerns about future demand for Russian oil as their involvement in Ukraine has led to retaliatory response from the EU which along with Ukraine have agreed to reduce their energy dependence from the former Soviet Union. Meanwhile the rallying copper prices in response to the diminishing Chinese demand concerns, is also helping boost the sentiment.

Last week, Brent managed to hold above a long-term bullish trend line which came in just below the $105.50 mark. As a result, financial speculators may have abandoned some of their bearish positions in the London-based contract. However the upside has so far been fairly limited, in part due to the sheer number of resistance levels seen ahead which may have discouraged some of the bullish speculators from entering the market for now. The $107.50 level, for example, has already been tested unsuccessfully twice in as many days. Even if $107.50 is broken, more resistance is seen around the 50 and 200 day moving averages of approx. $108.00 and $108.50, respectively. Some traders may therefore be waiting on the side-lines until either some or all of these resistance levels are broken before joining the bulls, or the join bears if the key $105.40 support is taken out.

Yesterday saw WTI crude oil manage to hold its own above the 50-day moving average support of $99.30 after initially running into resistance at $100.25 – a level which was formerly support. The US oil contract is again pushing towards that high today, with a potential test of the 200-day average at $100.40 also looking increasingly likely. However, even if it breaks above the 200-day average, the upside could potentially be capped by the $100.70-$101.00 resistance range, which was previously support.  Meanwhile if WTI starts to head lower once again and potentially close the session below the 50-day moving average ($99.25), then we could well see another leg lower in the price of US oil over the coming days.

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The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase of sale of any currency. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

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EURCAD Momentum trade

Aus/Nzd perfect Swing set up

A ‘text book’ perfect swing trade occurred on the audnzd daily chart at the close of last weeks trading. A old support level acting as new resistance, lining up nicely with the mean value created the perfect hot spot for shorting. The rejection candle setup seen prices weaken quite aggressively into a critical monthly support level.
This is a good area for sellers to consider liquidating their short positions as the market is now testing monthly lows. These prices have been respected as the market floor for the last decade. Right now we’re watching for strong bullish price action signals to manifest themselves here to confirm buying pressure and confirmation of a potential long setup.
Be cautious of bearish traps if the market does dive below the level, it could very well be classic price trap

Is China losing control?

The concerns surrounding China at present are double-pronged.

The issue of the build-up of mis-directed and excessive lending over recent years had never been far from the headlines. But there is also the real economy issue, namely to what degree the economy is slowing and how manageable this slowdown is for the authorities. The data releases overnight have brought more concerns on the second front, with industrial productions and retail sales both falling short of expectations. There was a notable impact on FX, with the yen proving to be the main beneficiary and allowing USDJPY to move lower for a third consecutive session.

The dollar weakness was also helped by stronger than expected labour market data in Australia, powering the Aussie back above the 0.90 level. For China, the question is whether the authorities are in control of the slowdown, or if it starts controlling them.

As the consequences of excess lending start to feed through, the risks of the latter scenario increase. The Chinese Premier was sounding more flexible on the 7.5% growth target overnight, stressing that it is ‘about’ 7.5%. Such comments have increased the perception that the authorities are more concerned and preparing the ground for growth to fall short of expectations.

The other standout in overnight trade had been the single currency. Yesterday’s move above the 1.39 level initially came after comments from German finance minister Schaeuble, but found further support in overnight developments. As we mentioned earlier this week, there are relatively solid signs that China is diversifying currency reserves away from dollars and the single currency is benefitting from this. The 1.40 level is now looking within sights.