The wave of US dollar buying on Tuesday caught many market participants unaware and sent a wide range of asset markets to multi-month and multi-year extremes. The incessant USD buying was sparked by heightened fears that the world’s largest economy may be nearing, or is even in, a recession as economic growth slumps. The Federal Reserve’s late to the party response to tackling inflation of hiking interest rates at a record pace and level has slammed the brakes on economic activity. US Q1 GDP contracted at an annualized rate of 1.6% and the closely watched Atlanta Fed’s GDP Now measure shows Q2 US GDP contracting by 2.1%. If this is the case, the US would be in a technical recession.

China remains in the grip of a zero-covid policy with the city of Xi’an the latest victim of a lockdown. The city, home to 13 million, has been shut down for seven days due to the spread of a virulent version of the Omicron variant.

The price of Brent Crude is stable in early turnover after trading in a wild 10% range on Tuesday. After opening near its high for the day, oil sold off sharply later in the session and touched a multi-week low of $100.30/bbl., before making a partial recovery. There is a zone of support between $95.60/bbl. and $100.80/bbl. made up of a cluster of prior swing lows and this area should hold any further short-term sell-off. In the longer term, however, any further signs of global economic weakness could see oil drop below $90/bbl. for the first time since February this year.
 

Brent Crude Daily Price Chart

(Click on image to enlarge)

If we look at US Crude Oil, IG retail trade data show 68.48% of traders are net-long with the ratio of traders long to short at 2.17 to 1. The number of traders net-long is 38.60% higher than yesterday and 39.12% higher from last week, while the number of traders net-short is 41.64% lower than yesterday and 44.17% lower from last week.

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

What is your view on Crude Oil – bullish or bearish?

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