KTM Commodity Weekly: Doctoring the pitch

Brent crude oil extended its weakness on Monday. It closed the sessions at $42 against its previous close of $43.40. 

Oil prices fell by nearly 5% at the beginning of the week, led by two catalysts. Rising Libya oil output is the first catalyst and second wave of COVID cases is the other catalyst. The second lockdown bring back the lockdown measures, and eventually raises doubts over global economic recovery. Among these factors, we are more concerned about the second wave.

In its Weekly Market outlook, Moody’s Analytics highlighted the risk of the second wave. “The bad news is that we expect restrictions to increase in coming weeks, as new cases and deaths rise across most European economies. Spain and France are now registering over 10,000 new daily cases, making the second wave worse than the first.”

Daily indicators are upbeat, and the price is still trading above 100MA. From the recent high, the price dropped as much as 15% to $39.50, its lowest since June 25, 2020, before bouncing back to $44.

The price action may fall into a range of $39.50, its 23.6% fib to $44 its 200MA. However, the latest price correction and the ongoing range trading suggests that the price is preparing for the next leg higher towards $50 and $52.50 in the medium term.

A weekly close above $46.60 could propel the price towards $50 levels. 

Golden Crossover: According to the daily chart, the key support levels are $39.50, followed by $38.30 and $37.15. If the price moves up, the key resistance levels to watch out are $40.70 and $41.40.

We anticipate a Golden Crossover pattern in the coming days. The 50MA is located at $44.00 and the 200MA at $44.50, a skinny gap. However, will the bullish pattern produce decent gains like what we saw a 7% rally in EURUSD since Golden Crossover?

Well, let’s look at the daily chart again. Recent Golden Crossover was printed in Feb 2020 but failed to produce any returns; instead, the price fell sharply. So, we wait patiently and observe the trend closely.

It is important to always keep in mind the risks involved in trading with leveraged instruments.

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