Crude oil tentatively resumes uptrend on waning Brexit concerns
James Chen, CMT June 20, 2016 9:00 PM
<p>Since late last week, the decline in Brexit concerns due to new polls showing resurgent momentum for the Remain camp has had significant consequences for financial markets. A new-found perception of lower risk ahead of this week’s EU referendum in the UK has led to a sharp relief rally for the previously pressured British pound as well as weaker performance for traditional safe haven assets like gold, yen, the US dollar, and Swiss franc.</p>
Since late last week, the decline in Brexit concerns due to new polls showing resurgent momentum for the Remain camp has had significant consequences for financial markets. A new-found perception of lower risk ahead of this week’s EU referendum in the UK has led to a sharp relief rally for the previously pressured British pound as well as weaker performance for traditional safe haven assets like gold, yen, the US dollar, and Swiss franc.
In turn, this has increased appetite for riskier assets including equities and crude oil. In the case of oil, a risk-on market environment coupled with a sharp drop for the dollar has helped to boost crude prices for the second consecutive day after the previous week saw a substantial pullback.
For the international crude oil benchmark, Brent crude, this price action has been displayed as a sharp drop and then a rebound off a key uptrend support line last week. This trend line forms a part of a major parallel uptrend channel that extends back to the January lows below $27.
As of Monday, Brent crude has extended last week’s rebound, reaching back above the key $50 level. From a technical perspective, therefore, the five-month bullish trend has been effectively salvaged for the time being. With the UK’s EU referendum only a few days away, however, the near-term directional bias for crude oil could be significantly affected by the outcome of the vote, along with other major financial markets. Of course, oil prices will also be largely dependent upon supply fluctuations and disruptions as have contributed to the rise in prices for the past several months.
While Brent’s uptrend currently remains intact, key fundamental and technical resistance should pose a formidable barrier to much further appreciation, at least in the short-term. Even if price reaches above June’s year-to-date high around $52.50, major resistance resides just above at the $54 price level, which has served to halt Brent’s rise since August of last year. To the downside, any breakdown below the noted parallel uptrend channel could open the way for significantly further losses towards the key $42 support level.
Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. 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 or sale of any currency or CFD contract. 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. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. 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.
Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to Forex.com or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.