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Today's edition of the Saxo Morning Call features the SaxoStrats team discussing the continuing weakness of the US dollar as commodity prices recover ground and in the wake of key US equity indices hitting all-time highs Thursday.
Article / 29 October 2015 at 12:45 GMT

Is Brent crude oil really heading for $35?

Technical Analyst / Saxo Bank
Denmark
  • Oil is trading in a sideways range
  • RSI divergence indicates the end of the selloff
  • We're unlikely to see those sub–$40 prices after all
oil
 The picture is getting brighter for crude oil. Photo: iStock

By Kim Cramer Larsson

There were many signs over the summer that oil would drop below $40 and hit the $30–$35 level. But that picture has changed somewhat. It's not that it's turned all bullish but there are some indications that prices below $40 might not be in the cards after all.
 
Lets start with taking the bigger picture on a weekly chart. 

We have many time talked about the massive selloff in Q3 and Q4 2014 after the symmetrical triangle breakout. Now it looks like it could have concluded a fifth and final wave slightly below the third. The low came with a bullish engulfing candle and divergence on both RSI and MACD.
RSI, which is still showing bearish sentiment, seems to have formed a new symmetrical triangle pattern and a breakout of the two trend lines will most likely indicate the direction the following months. 

Breakout ahead on the Brent crude oil chart:
Brent Crude weekly
Source: Saxo Bank

Currently Brent crude oil is trading in a range between mid $40s and mid $50s. A bullish breakout of the indicated range on the chart and we could either see Brent above $60 trying to push towards $70 whereas a close below $46.40 most likely will lead to a test of $40.

Not much help from RSI or MACD other than RSI is indicating bearish sentiment  it was just below $40 Thursday so I would sit on my hands until one of the horizontal lines have been broken.

Brent Crude daily
 Source: Saxo Bank

On WTI crude oil the range seems to be between $42 and $50. The 200-day moving average which seems to act as a resistance illustrated by the rejecting a couple of weeks ago is flattening and a close above could turn the mood to bullish.  

A close above 50-day and the 200-day moving averages there is room for a moved towards $60.

A break below the Thursday low at around $42.50 and WTI crude oil is on its way towards $30-35 ie. the 2008 low.  
Crude oil daily
 Source: Saxo Bank

— Edited by Clare MacCarthy

Kim Cramer Larsson is a technical analyst at Saxo Bank

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