Crude Oil is Hanging by a Thread
While a falling U.S. dollar (UUP) generally helps boost the price of crude oil (USO), it's not helped much this week. In fact, oil's downtrend has become so well-developed since its early-June peak that if it falls any more, crude could reach an "it's going lower because it's going lower" situation. The last bastion of hope is fighting an ugly battle this and next week.
The chart of crude oil below tells the tale. While the February-through-June runup was nice, the important guideline -- the rising floor (dashed) -- finally buckled last week, allowing a string of lower higher to get even longer. In the meantime, crude has broken below its 200-day moving average line (green) and the 20-day line (blue) has fallen below the 50-day line (purple) for the first since March. It's a lot of technical damage.
Crude prices did find a floor in the mid-$44's, right where they should have. Not only is that where the 100-day moving average line (gray) is, it's where the 38.2% Fibonacci retracement line of the February-June rally is. The precision with which that Fibonacci line has acted as a floor is stark, and should not be overlooked.
This is a last-ditch effort from the bulls if they don't want oil prices to take on an unmanageable amount of water. There's no next-best floor until crude gets to the next Fibonacci line -- the 61.8% retracement line -- at $39.82.
While it's possible crude will bounce out of this funk before it turns into a rut, it's not likely. Although down today, the U.S. dollar is acting as if it wants to move higher again. Make sense, now that the impact of Brexit can start to make a measured rather than knee-jerk impact on that Britain's and Europe's currencies. That headwind will only work against oil prices, not that the bears needed a whole lot more help. We just learned this week that consumption wasn't quite what it was supposed to be last week, and/or the supply was a little more plentiful than anticipated... familiar news at this point.
Bottom line? Beware a break below $44.54.