In this post, we will look at the outlook for crude oil and 2 x petro currencies against the USD – USD/CAD and USD/NOK.
Has risen nearly 60% from November lows as speculators buy on the view of a strong global recovery and as a proxy trade against stock market strength. USD weakness in the period has also been a factor in helping crude oil strengthen. The rise has pushed crude oil too far too fast and we have overshot the supply and demand fundamentals. There is no tightness of supply and on the demand side, traders are discounting strong demand when demand is actually weak.
We are looking for crude oil to top out and if it does it will weigh on the petro currencies the Canadian Dollar and the Norwegian Krona. The USD is oversold and overall we have the biggest short position in the USD since 2011 which means limited downside and the potential for a big rally. Despite the market calling for a big decline in the USD this year, it hasn’t sold off hard to the downside and in terms of USD/CAD and USD/NOK, we are trading above daily chart lows.
We think the risk to reward on USD longs is attractive on strength. Below are the key levels to watch in terms of crude oil, USD/CAD, and USD/NOK.
Crude Oil Weekly Chart
on the chart below we can see the strong rise in crude oil and we see 60.00 as major resistance – if we were to break above the level we would look for a failed breakout stop behind second level resistance if crude oil breaks lower longer term we would expect it to go to 40.00. In terms of the shorter-term picture let’s look at the daily chart…
Crude Oil Daily Chart
in the last 3 days, we have 3 low volatility candles all red and we think the buying is exhausting volumes are dropping which could warn of a breakdown. If we break nearby support we would expect moves to 52.00 then 48.00.
USD/CAD
The USD is holding nearby support and if we were to break out to the upside we would expect follow-through buying and stop protection could be behind support level 1. If were to break first support we would view the CAD as a buyback through the level with a stop behind daily chart lows. To correct the USD’s oversold condition we would expect it to run up to 1.3200.
USD/NOK
The USD this week moved down to test daily chart lows and we have now bounced from support. If we break back above nearby resistance we would expect a move up to the 9.00 level to correct the USD’s oversold condition.
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