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Fundamentals

During the Asian session on Tuesday (July 25), WTI crude oil fluctuated in a narrow range, currently trading around $78.6 / barrel, which was mainly due to the expected tight supply and the increasing demand in summer.

Against the backdrop of OPEC+ production cuts, the market expects supply to tighten. In addition, the market has presumed broadly that the Fed will raise its target range for benchmark interest rates by 25 bps on Wednesday which will be the last rates hiking this year. Combined with strong demand expectations, these factors leading to a higher oil prices. Currently, the bear trend in macro is gradually fading, with the weaker crys for recessions in the market. Meanwhile, as the market gradually trading with tighter supply, a sharp acceleration process is likely in the coming weeks.

Data: The US preliminary Markit manufacturing PMI came in at 49 in July, recovering to the three-month top unexpectedly, higher than the expected at 46.2. While the preliminary service PMI in July was 52.4, which is the lowest since February this year. As a reslut, the market will retreat slightly to 54.0 from the final value of 54.4 in June. The stickiness of price pressure remains a major issue. The Eurozone's preliminary July manufacturing PMI fell to 42.7, which is well below expectations, with that of Germany fell below 40. Therefore, expectations of a rate hike by the European Central Bank has weakened.

Technical Analysis

Trading at the daily timeframe, US crude oil surged after a brief oscillation yesterday. After breaking through the pressure around 77- 77.3, oil prices kept rising and then tested the 79.2 resistance. Finally, the daily chart closed another white body, which were the third consecutive one. The price was also holding above MA5, MA10 and MA20. At the same time, all moving averages were running upward and the MACD indicator was also a wide golden cross. Currently, the bullish trend still take the lead, it is better not to guess the top. From the perspective of the daily structure, it is understandable that US crude oil continued to close up, which is not only possess the technical support, but also meet the demand of the general fundamental direction. The strong pull to around 79.2 was also the expected resistance. However, such a sharp price pull in the short term will accumulate great demand for a pullback, which will inevitably seem unhealthy. In the short term, as a dense area for early trading, the upper 79-79.3 area may bring some short-term resistance. However, from a medium- to long-term perspective, US crude oil will unlikely pause the rise here. Therefore, the medium- to long-term expected target will test the resistance around 82-83.  

At present, the price slightly bullish, which is completely dominated by market sentiment and will make trading more difficult. Aggressive traders can try to go short with small positions first, referring to the 79-79.3 area. The stop loss is set at the 79.5 line, and the first target to take profit is at 77.8 line, where the position can be reduced and the stop loss can be moved to break even. The second target is to look at the 77.3 line. If the price can retrace to around 77.5 during the day, aggressive traders can consider taking small long positions. The stop loss is set below 77.3, and the take profit target is to look at the 79 line.  

Trading Recommendations

Trading Direction: Short

Entry Price: 79.200

Target Price: 77.500

Stop Loss: 79.600

Support: 77.800/74.500

Resistance: 79.300/82.500