Crude Oil - A Slight Move Higher Has Not Reversed The Bearish Trend / Commodities / Crude Oil

At last, crudeoil moved a bit higher, so you might be asking yourself if the trend hasreversed or is this just a pause before the moves continue.

In short, wethink the latter is much closer to the truth.

The fact remains that in a global andhyperconnected economy such as today, no market can sustain completeindependence of the rest of the world. Crude oil, as the most versatilemarketplace commodity, is not excluded from that reality.

Namely, the two markets that the black goldoften looks up to the most are stocks and currencies. In today’s analysis, we’ll focus on the latter.

The black goldupswing has been relatively modest, and parallels with a similar pause in theUSD Index. To validate this, let’s take a look at the following charts for moredetails.

Crude oil hasbarely corrected the 38.2% of the most recent decline, which already includestoday’s pre-market move higher. However, this is quite far from a game-changermove.

In reality, thismove higher resembles the brief early-March pop-up higher that preceded one ofthe sharpest declines that we saw over the past decades. The precedingdecline's size was broadly similar as well, which only adds to the likelihoodof this rally becoming a slide.

And what aboutthe USD Index? Well, in recent times, the USDX and crude oil moved in theopposite directions.

In particular,this month’s decline in crude oil corresponded to USD’s rally.

Therefore, if theUSD Index is resting, an eventual pause in oil wouldn’t be surprising as well.

As a matter offact, that’s precisely what the USD Index has been doing for the last severaldays. It’s been moving lower, at approximately the same pace at which thedeclining medium-term resistance line is descending.

In other words,once the USDX finally does rally – even just a tiny bit – it’s likely to breakabove this important resistance and thus – rally much higher. After all, that’swhat tends to happen after significant breakouts.

Would this indeedrepresent a major breakout? Of course. This line already stopped the USD rallyin early July, so it was verified as something that should be considered. Thefact that the USDX was unable to rally above it earlier this month is yetanother proof.

So, the bigquestion is - how does the above translate into crude oil action? Well, itindicates that the decline is likely to resume quickly, and that the profits ofour short positions will grow further.

Let’s not forget that the aforementionedhappened right after crude oil failed to rally above the 61.8% Fibonacciretracement and the early-2020 lows. The strong resistance stayed on – despitethe positive influence that the general stock market should have had on theblack gold. This means that the current move lower does indeed “have legs” –it’s not just a brief breather.

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Nadia Simmons
Forex & Oil Trading Strategist
PrzemyslawRadomski
Founder, Editor-in-chief

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