USDCAD’s Failed Breakout Attempt Hinges On Next Crude Oil Price Move

Crude Oil prices have spent the past few weeks lingering around an important technical area, running into the trendline from the February 2016 and May 2017 swing lows – an area, once broken in November 2018, that signaled the ‘flush’ in markets.

Crude Oil Technical Analysis: Daily Price Chart (February 2016 to April 2019) (Chart 1)

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Accordingly, a break in oil prices around 64 could be a trend defining area for the coming months: failure to continue the rally here would suggest that oversupply concerns may be becoming more prominent on traders’ minds now that the June OPEC cut expiry is around the corner; or success rallying here would indicate that near-term concerns about tightening supply due to sanctions on Iran or a military coup in Venezuela are driving sentiment.

Crude Oil Technical Analysis: Daily Price Chart (April 2018 to April 2019) (Chart 2)

(Click on image to enlarge)

In the very near-term, even as oil price battles with their former trendline support (now resistance), it’s still holds that the predominant trend direction remains pointed to the topside. Price has been well-supported by both its daily 8- and 21-EMAs, having closed above the former every session since March 11 and the latter every session since February 12. To this end, Slow Stochastics have been in bullish territory since January 12. Until these conditions change, there’s little reason to think that price won’t keep riding momentum higher. A close below the daily 8-EMA would give reason to shift the bias from bullish to neutral; only below the daily 21-EMA would a bearish bias become appropriate.

IG Client Sentiment Index: Crude Oil Price Forecast (April 30, 2019) (Chart 3)

Oil - US Crude: Retail trader data shows 49.8% of traders are net-long with the ratio of traders short to long at 1.01 to 1. The number of traders net-long is 3.7% higher than yesterday and 18.1% higher from last week, while the number of traders net-short is 14.2% higher than yesterday and 1.4% lower from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests Oil - US Crude prices may continue to rise. Traders are further net-short than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger Oil - US Crude-bullish contrarian trading bias.