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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 / 09 June 2015 at 14:37 GMT

Something is stirring in crude oil

Technical Analyst / Saxo Bank
Denmark
  • RSI trend line change often precedes price change
  • North Sea oil may be providing a directional cue
  • Brent bearish breakout could see a test of $50/b

oil
Going with the flow: oil may be shrugging off its sluggishness at last. Photo: iStock 

By Kim Cramer Larsson

Crude oil appears rangebound at the moment and has been thus for the past month or so. But looking a bit closer it seems to be trading in a descending triangle formation. If this is the case we can already now talk about what might happen after a breakout.
 
Sometimes we see a break of trend lines on the relative strength index before we see it on the price graph so keep an eye on the falling trend line on RSI. There was a minor divergence on the peak in early May but that doesn't mean we can't see a new high in oil, higher than the May peak that is. 

Also look out for the base line breaking above the trigger line on the MACD indicator. If we see a bullish break out then the move afterwards would usually be limited to roughly half of the difference between the peak and the horizontal line. In this case it is $6 and the potential move after a bullish break would be $3 added to the price at the breakout. Not much, but maybe just enough to test the 200-day moving average for the first time in almost a year. 

If the breakout is bearish statistically the move could be larger – a horizontal support line is usually stronger than a falling/rising one. However, approximately two-thirds of the time the breakout (from a descending triangle) is actually bearish, according to the internationally acclaimed charting expert, Thomas Bulkowski. 

A bearish breakout could see crude oil dropping to test $50. 
Crude oil Daily

Source: Saxo Bank. Create your own charts with Saxo Trader click here to learn more


Brent oil is perhaps providing the directional cue. it has drawn almost a similar pattern and is currently testing the falling upper trend line. Also on RSI it seems to break out in a bullish fashion. Lets see where it ends today – it's poised to move towards $70 and the 55-day moving average seems to offer some support. 

Brent is positioning for a leap with a bullish breakout – but will it succeed?
Brent Crude daily
Source: Saxo Trader 

– Edited by Clare MacCarthy

Kim Cramer Larsson is a technical analyst at Saxo Bank

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