Euro Rally, Cheaper Dollar Likely to Lead Crude Oil Higher – Crude Oil June 29,... |
August Crude Oil is trading higher this morning as traders are anticipating a favorable outcome to the Greece austerity vote. A favorable vote is expected to drive the Euro higher and the Dollar lower. A cheaper Dollar should translate into higher commodity prices, thus driving up demand for crude oil.
Although traders anticipate a rally in the Euro, no one is certain how high it will rally given the good news because much of the move may already be priced into the market. Following the initial thrust in the Euro, the single currency is expected to run into key retracement and resistance areas which could reverse the intraday trend.
A rally in the Euro whether it is short-term or long-term will mean that investors will put risk back on. This will be supportive for the crude oil market. Like the Euro, crude oil may be susceptible to a quick reversal down should fundamental and technical conditions shift suddenly.
In addition to the anticipated moves in the Euro and the U.S. Dollar, traders will also be watching supply and demand figures from the U.S. Energy Dept. This weekly report is expected to show a decline in stocks which could be supportive for the market.
Today is also the start of the Strategic Petroleum Reserve auction. This auction features the 60 million barrels of oil that the U.S. and its allies pledged to release into the open market over the next 30 days. Although last week the market reacted to the news by driving crude oil sharply lower, it looks like this week that cooler heads have prevailed and the market settled into a sideways-to-higher trade.
Clearly the focus this week is on the austerity vote in Greece rather than the supply and demand fundamentals of the oil market. Once again traders are reacting this morning as if the austerity measures will pass. This means that the risk trade is back on and that oil price are trading firmer. The key will be what to do if the rally stalls and begins to correct.
Technically, a new main bottom has been formed at 89.61. This doesn’t mean a change in trend to up, however. This will only take place when the swing top at 95.70 is crossed.
Besides the swing top at 95.70, a 50% price at 94.98 and a downtrending Gann angle at 95.02 are key resistance points.
Since all of these prices are clustered tightly together, expectations are that a breakout above this area could trigger many stops, creating a potentially volatile situation.
About the author: Commodities Mansion Analyst - James Hyerczyk
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