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Summary: The upcoming release of non-farm payroll data may have a significant impact on the later trends in crude oil prices today, as unexpected data could influence expectations of a Fed interest rate hike. The current market expectation is for an increase of 180,000 jobs, compared to the previous gain of 150,000 jobs. A stronger figure could reignite tightening hopes and exert pressure on risk assets such as crude oil.

Fundamentals

WTI crude oil is currently supported by a larger-than-expected decrease in inventories reported by the Energy Information Administration (EIA) earlier this week. The inventory decreased by 4.6 million barrels, exceeding the anticipated 1.3 million barrel reduction, indicating a strengthening demand situation.

The primary focus in financial markets today is the US November non-farm payroll report, eagerly anticipated by investors assessing the possibility of an economic "soft landing." The soft landing hypothesis suggests that the labor market is cooling sufficiently to dampen inflation, paving the way for the Fed to begin lowering interest rates next year without posing a significant threat to the overall economy.

The market anticipates the non-farm payroll report to show a reacceleration of job growth in November from 150,000 in October to 180,000. The unemployment rate is expected to remain steady at 3.9%, with average hourly earnings expected to increase by 0.3% on a month-over-month basis. A stronger-than-expected figure could revive tightening hopes and put pressure on risk assets like crude oil.

Recent labor market data has shown signs of cooling. The ISM Manufacturing Employment Index decreased from 46.8 to 45.8, while the ISM Services Employment Index slightly improved from 50.2 to 50.7. ADP employment rose by 103,000, almost unchanged from the previous month's 106,000. The four-week moving average of initial jobless claims rose from 213,000 to 221,000. Additionally, the latest JOLT report indicated a decline in the ratio of job vacancies to unemployed workers to 1.34, the lowest level since August 2021.

The non-farm payroll report indicating a balanced labor market condition could reignite a bullish market and exert new selling pressure on the US dollar. However, predicting the market's reaction to deviations from this ideal scenario is challenging. The US dollar interrupted its rise from 102.46 to 104.23, primarily due to substantial selling of the USDJPY. Currently, further upside is expected to be moderate as long as the minor support level of 103.06 is maintained.

In the crude oil market, WTI crude prices rebounded on Friday but lacked the strong recovery seen after the previous sharp declines. This suggests a weakening position of OPEC+ in providing support. Additionally, the surge in US production to historic highs and lackluster crude oil import data from some Asian countries indicate one clear trend: ample oil supply. This abundance is well-reflected in the price structure of the two major crude benchmarks.

Technical Analysis

WTI crude oil recently broke below the range support of around $72.50, signaling a potential retest of the previous support levels. The Fibonacci retracement tool highlights additional levels where bearish intervention may occur.

The 38.2% Fibonacci level aligns with the breached range support, and this support level may now act as resistance, potentially holding firm near $73.00. A more substantial correction might reach the 50% Fibonacci level at $74.24 or the 61.8% Fibonacci level at $75.51, corresponding to the 100 SMA dynamic turning point.

In a more pessimistic scenario, resistance for the current rebound could halt around $71.10.

Regarding moving averages, the 100 SMA being below the 200 SMA suggests the path of least resistance is downward, indicating that resistance is more likely to hold than be breached. However, the gap between technical indicators is gradually narrowing, reflecting a slowdown in bearish momentum.

The stochastic oscillator rising from the overbought zone suggests bullish pressure may intensify and persist until bullish strength wanes. The RSI is also trending higher, indicating bulls are regaining dominance. Stronger upward momentum could potentially push WTI crude oil back toward the range resistance near the 200 SMA dynamic turning point ($78.00).

In summary, as emphasized earlier, the current rebound is unsustainable, and resistance for the ongoing rebound could halt around $71.10, signaling further downside potential in the market. In terms of trading strategy, a cautious approach is advised (as shown in the chart), with a focus on minimizing risk rather than aggressively pursuing long positions.

Trading Recommendations

Trading Direction: Long

Entry Price: 69.50

Target Price: 75.60

Stop Loss: 65.80

Valid Until: 2023-12-22 23:55:00

Support: 70.17, 68.35, 66.93

Resistance: 70.18, 72.39, 73.69