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Abstract: WTI crude oil has fallen for four consecutive days due to several factors. However, perhaps the only factor that could move oil prices higher at this point is a falling USD.

Fundamentals

Affected by many factors, WTI crude oil fell for four consecutive days. First of all, the USD is recovering, and after Russia indicated that OPEC+ was prepared to further reduce production in the first quarter of 2024, demand concerns offset supply concerns, and oil prices fluctuated. The current price of WTI crude oil is US$72.72, down 0.1.5% in the day.

As we all know, the biggest factor in the current decline in crude oil prices is that the intensity of production reduction has not reached market expectations. At the same time, the only factor that crude oil prices want to go higher seems to be the weakening of the USD. As a part of risky assets, the current crude oil price is still affected by the strength of the USD.

After testing the low level of 102.47 on August 11, the U.S. Dollar Index (USDX) showed a short-term upward trend. As the market continues to increase bets on the Fed's interest rate cuts, the USDX will likely continue to fall.

Following disappointing October employment data and a slower-than-expected slowdown in inflation in the same month, Fed Governor Waller has further fueled expectations of a massive rate cut next year. Waller said early last week that if the decline in inflation continues for several months, they may begin to reduce policy rates, which is the first time that Fed officials have discussed the possibility of rate cuts.

The latest blow to the USD came from Federal Reserve Chairman Powell, who said that the risk of the Fed slowing down the economy excessively and the risk of not raising interest rates enough to control inflation have become more balanced. Although he did not close the door to further interest rate hikes when necessary, and was obviously more hawkish than Waller, the market may interpret his remarks about balancing risks as confirming the end of this austerity movement and being encouraged to make interest rate cuts.

On the economic front, investors just got November ADP employment data. The data shows lower than expected. Last month, the number of private sector employees increased by 103,000, and the number of employees was revised down in October. The U.S. companies reduced their recruitment scale in November, and manufacturers reduced their jobs, which further proves that the labor market is cooling down. Since then, the reaction of the USD has remained stable, supported by the fact that ADP employment has remained above 100,000.

The market now expects Friday's non-farm payroll data to be stronger, which in turn may suppress the Fed's hope of tightening policy.

However, leading indicators such as manufacturing PMI readings indicate that recruitment shrank again in November. In this case, the pessimistic official employment data may indicate that the Fed may stay put for a longer time, which may be negative for the USD and favorable for commodities such as crude oil.

Please note that the stronger-than-expected ISM Services PMI came in at 52.7 versus the market's general expectation of 52.2, signaling a stronger pace of growth and faster job growth this month.

Technical Analysis

Despite mixed technical indicators, WTI crude oil is still testing the bottom of a key range around US$71.00, but could also rebound to resistance at any time.

The 100 SMA is still below the 200 SMA, indicating that the path of least resistance is to the downside, or that support is more likely to hold. In this case, crude oil prices could rally to the same height as the rectangle pattern, i.e. rebound space of around US$6. Please note that the price is below both SMAs; therefore, these may also act as dynamic resistance levels around US$75.00.

Stochastic seems ready to pull higher from the oversold zone so that a rebound could be in the offing. Bullish divergence can also be seen as the oscillator has a higher low and the price has a lower low.

Similarly, the Relative Strength Index is starting to move higher from oversold territory, suggesting that bullish momentum may be about to return. Both oscillators have plenty of room to move higher before reflecting overbought conditions or bears' exhaustion. It is recommended to set the foundation.

Trading Recommendations

Trading direction: Long

Entry price: 68.50

Target price: 77.78

Stop loss: 65.80

Deadline: 2023-12-18 23:55:00

Support: 70.17, 68.35, 66.93

Resistance: 70.18, 72.39, 73.69