Crude Oil Breaks Above Resistance, What's Next?

Posted by jbrumley on March 18, 2016 10:53 AM

Crude Oil Starts to Break Through Ceilings

Though it's still not out of the woods just yet, crude oil (USO) prices took a huge technical leap forward on this week, bringing the commodity one step closer to a full recovery. And, in light of  the bulk of the reason for the big gain -- the U.S. dollar's big plunge -- oil may finally be finding more of a tailwind than a headwind.

Crude oil prices rallied strongly on Thursday, reaching $41.28 per barrel - currently up another 1% on Friday. At that price, not only is crude above a mini-ceiling at $40.40 that developed last week, but also above a falling resistance line that extends all the way back to mid-2015.

Crude Oil Chart
31716-crude-oil

The bears still have room and reason to take control again, though.

For starters, there's another minor turbulence point around $43 per barrel that could present a problem, and there's something about the $50 mark the bulls have trouble with.

Even so, the trend is your friend, right up until the point where it isn't, and the trend right now is bullish.

Fanning the bullish flames for oil today (and yesterday) is the pullback of the U.S. dollar. Traders have been buying and re-buying the dollar since 2014, in anticipation of higher interest rates.  While rate hikes remain on the table, Janet Yellen and the FOMC effectively told traders yesterday that it was easing up on its initial plans for interest rate increases this year. Inasmuch as the prospect of rising interest rates in a short period of time had taken the greenback to uncomfortably high values, this week's revelation from the Fed has all those dollar bulls unwinding their position.

With the U.S. Dollar Index back under all of its key moving average lines, hitting a lower major low, and having left behind a string of lower highs, one can't help but wonder if this is the onset of a prolonged pullback; the Fed just said it was in no hurry. If so, it's the first time in a long time crude oil will only have to fight the supply/demand battle instead of battling the strong dollar as well.

US Dollar Index Chart
031716-us-dollar

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