Oil lifts on strong drawdown

20 October, 2016

 

It's been a surprising day today with the crude oil markets as they continue to find themselves facing a large amount of volatility in the wake of OPEC trying to cut a deal of production rates, but also the recent figures out from the US which paint an interesting picture. US crude oil inventories dipped to -5.25M on the back of a stronger demand for oil. This has cast the spotlight back on oil all together as it shows that the US despite showing some recent surpluses is back in the territory of seeing strong drawdown's again compared to more recent times. Coupled with the recovery of the US market and retail and labour markets looking much stronger it seems inevitable that we could see further drops in US oil reserves, which at one point were hitting record highs.

Technically speaking oil has been in a bearish uptrend for some time, but recently it had stalled as the USD looked to strengthen further and as markets were waiting on OPEC to produce tangible results that could affect the momentum of oil. Right now we are seeing oil sit around the weekly resistance level of 51.53 and it's likely we will continue to see strong pressure around this level as the market bulls are looking to break out after being contained for some time. After this major level the next long term resistance level could be found at 61.58. In the long run I would anticipate that these levels to certainly hold back momentum as they are weekly levels.

The Australian dollar managed to push higher today on the back of USD weakness, and as Chinese data came in around what was expected; bar industrial production y/y which came in at 6.1% (6.4% exp). The feeling is that the AUD can perform in the current marketplace and today's bullish lift is showing the way, despite the large amount of economic data and uncertainty at present. In the next few hours employment figures are due out and many are expecting to see a slight rise in unemployment levels, as underemployment coupled with a worsening economy continue to play havoc for the economy. A positive employment change in recent times has been categorised by a dip in full time work and a large rise in part time work, which has flow on effects for the economy in the long run.

Looking at the AUDUSD on the charts, the break out today was strong through the main level before touching resistance at 0.7733. The next level of resistance above this is 0.7754 and it's unlikely the AUDUSD can push through here unless we see a big change in the current employment figures and a drop in the unemployment rate. The real question will be if we see another wave lower, if so it's unlikely to be strongly bearish, as the most recent wave was quite bullish in nature.


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