Crude futures found support in our 1st tier uptrend line Wednesday as the Dollar weakened and the S&P futures rallied past 1000. Crude managed to avoid any technical pullback in the process, and has climbed back above its psychological $70/bbl level. However, there remains immediate-term downward pressure in the form of previous August highs and our 2nd and 3rd tier downtrend lines. Meanwhile, our 2nd tier downtrend line is colliding with our 2nd tier uptrend line, corresponding with the inflection points taking place in the GBP/USD, EUR/USD, USD/JPY, and gold.

Hence, though markets are relatively calm right now, we believe the week could end in volatile fashion. A pop above our 3rd tier downtrend line could result in a quick retest of previous 2009 highs. As for the downside, crude has returned to the safety of its August 3rd
-11th trading range. Crude futures also have our 1st tier uptrend line and Wednesday lows to fall back on. Since the EUR/USD, GBP/USD, and S&P futures have more of an upward inclination for the near-term, if there is a breakout in crude we anticipate it could be to the upside.

Investors brushed aside yesterday’s higher than expected weekly crude inventories along with weaker than expected industrial production data out of the EU. Crude futures are also exerting incredible resilience today considering disappointing employment and consumption data normally have a noticeable impact on crude. Crude futures continue to consolidate and strengthen regardless of the data, likely due to the optimistic report from the IEA concerning future demand. The IEA’s positive outlook on global demand counters the cautious report from OPEC earlier this week. Investors are also buying into the concept of a global economic recovery, exhibited by the S&P’s bid to stay above 1000. Therefore, it seems crude is trading more on the global economic outlook than present supply and demand fundamentals. Hence, investors should keep a close eye on the S&P’s behavior around 1000 as well as the Dollars ability to depreciate further against the Euro and Pound.

Price: $71.24/bbl

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