Analysis of today’s events:
The fed decided to cut the benchmark rate .25% as was expected. The dollar did not show much reaction to the news, reflecting the fact that this was already priced in. The Fed did express concern about rising food prices and inflation overall which leads one to believe that rate cuts may stop in order to strengthen the dollar.
How this affects crude oil:
The weaker dollar has been one of the primary causes for the increase in crude oil prices as well other commodities over the last 2 years or so. A stronger dollar will slow down the current bull market dramatically as dollar-priced commodities get more expensive for non-dollar currencies.
Crude Oil Technical Analysis:
Looking at the one chart we can see that crude went from about 100 to a high of 120 before the pullback last few days. On 4/29 crude met support at 115 before slightly rebounding. Today (4/30) it broke through the 115 level and went as low as 113.8 before closing at around 115. This suggests that 115 may be a local resistance level as long as this pull back is occurring. Next level to watch is 112.50 (which also happens to be a Fibonacci level) and then about108.8. It would not be surprising to see prices range between 115/118 and 109 before breaking out again on the upside. Long term fundamentals have not changed for crude oil and natural gas and the trend is still bullish long and medium term. Its also interesting to note that RSI signaled an overbought level even as prices fell today which is a sign that price may fall rather sharply and quickly through these level once the buying pressures dies down.
2 comments:
That was spot on. We are in a long-term commodity bull market driven by the rules of supply and demand, as seen in food and fuel shortages of late. The rising dollar will affect the market to the downside in the short-term; however, market economics are intact. I.e. we have to refine crude into gasoline to meet demand for summer driving season putting upward pressure on prices.
We have to see some short covering today in the energy complex after the falloff this week. If there is none, that could mean a change in the "traders mindset" staying short going into the weekend.
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