A strong dollar likely to limit any gains in oil and gold
WTI Crude has staged quite a good rally over the last two weeks having fallen from $107.73 in June of last year to a low of $42.03 in March. In fact we have spent the first quarter of this year stabilising, as you can see in the chart below.
From a low of $42.03 we rallied in seven out of eight sessions to reach $42.48. If you are a follower of our daily reports you will know that we had the $52.20–$52.40 area as strong resistance. You can see from the chart below that this is purely down to the early March high coupled with the 61.9% Fibonacci level at $52.51.
You can see the big red cloud also did its job of limiting any gains. As I write we are just sitting on a two-week trendline, as you can see in the chart above, and, being oversold in the very short term, we may just get a little recovery into the middle of this week. However it seems unlikely this short-term trendline will be able to support for too much longer and a break below $48.50 this week could signal further selling pressure to target $46 and perhaps as far as $44.30 in the short term. I have drawn a trend channel going back to the beginning of February and it looks like we could continue to trade sideways in the coming weeks, possibly months, ahead. The upper trendline is in the $52–$52.50 area and bulls will need to see the price settling above here if they are going to be able to push the price higher into the summer months. Unless this happens the outlook is neutral-to-negative and of course a break below $42 spells trouble for the price of oil. It could signal that the consolidation phase is over and resumption of the bear trend has begun.
One of several reasons that oil has been under such pressure is likely to have been the strength of the dollar over the same period. Gold has no doubt suffered with the strength of the dollar over the same period and has seen quite similar price action to oil in the last two weeks at least, with another strong bounce back from $1142.86. We saw seven consecutive sessions of higher prices but the very strong gains did not last and we saw the price of gold top out at $1219.40.
I have to admit that it was a bit of a surprise to see gold through $1205–1208 last week. I had expected the 38.2% Fibonacci and 100-day moving average to do its job as resistance as the price became overbought. The Saudi attacks in Yemen seemed to create a couple of hours of panic on Thursday morning, before the market came to its senses and settled down. You can see the following day the $1205 level did its job and since then we have sunk back to support at $1181/1180. Again, as I write the market has become oversold in the short term and we may see a bounce back into the middle of this week. However a bounce in a bear trend is always just a good selling opportunity.
There is no denying that the longer-term trend for gold, since September 2011 at least, has been negative and, at this stage, there is nothing to indicate this trend is changing.
Jason Sen – Technical Analyst & Trader
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