Technical Analyst, Saxo Bank
Summary: Oil futures forming bottom and reversal patterns indicating a rebound. Gasoline selling pressure weakening. Henry Hub rebound facing strong resistance. Correction in Dutch Gas could under way before uptrend resumes. Carbon Emission rangebound in tighter and tighter range. Break out could be imminent
Yesterday Brent Crude oil spiked below Key support at $96.75 and the 0.618 retracement of the December to March bull market, ending the day forming a Hammer candle (open and close price at almost same price and a long shadow/wick at the bottom). IT signals a reversal in the market and if today ends on a higher note i.e. forming a bullish candle we could see a strong bounce in Brent over the next few days, possibly weeks.
Divergence on RSI supports this picture. If RSI closes above its falling trendline it just adds to the rebound scenario. A rebound that could take Brent back to test the rising (black) trendline and the 0.618 retracement around $113.48
If Brent closes below yesterday’s low at $94.53 it will demolish this rebound scenario and Brent is likely to drop to the 0.764 retracement at around 85.76. Minor support at 90.12
WTI Crude oil spiked below key support at 92.93 rebounding from the 0.618 retracement at 90.71 forming a Hammer candle similar to the one on Brent oil. It was the second day with Sellers and Buyers fighting about the power and it seems like the buyers are to regain power after a couple of weeks with selling pressure.
A bullish day today and especially if WTI closes above 98.20 there is strong indication of buyers are back in control. A control that can take WTI to test the rising (black) Trendline between 107 and 111.
If sellers manage to push WTI to close below 90.61 bear trend will most likely resume and take WTI down to around 81.31
Gasoline downtrend seems to be near exhaustion. There is divergence on RSI supporting the view of downtrend weakening. However, currently no bottom and reversal pattern meaning still risk of a test of key support at 298.67. However, if RSI closes above its falling trendline AND above 40 threshold it is a strong indication of a trend reversal.
Henry Hub Gas has rebounded strongly but met overhead resistance at $6.84. A close above is needed for further upside and confirmation of uptrend. If Henry Hub closes below $6 the Natural Gas contract is likely to re-test of support and lows at $5.32.
Dutch TTF Gas is testing its lower rising trend line. A close below challenges the uptrend. If Dutch gas closes below €152 the trend has ended and likely to reverse.
However, no divergence on RSI indicates higher prices are likely.
Carbon Emission is trading in a Symmetrical Triangle like pattern. Break out is needed for direction and could be imminent. If breaking out to the downside a move to the lowest level at €77.38 in the triangle is likely but could drop to support at 75. Bullish breakout and Carbon Emission prices should test the peak of the triangle at 92.75 but is likely to move higher.
However, the theory and history of Triangles tells us that after a breakout, prices can move the same distance of the peak to trough of the triangle i.e. €15.37, illustrated by the vertical arrow. That price difference should be added or subtracted to the breakout price. Since we do not know the price at breakout just yet we cannot determine the potential price targets.
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Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.
As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.
Amid AI and obesity drug excitement, equities see varied prospects: neutral on overvalued US stocks, negative on Japan due to JPY risks, positive on Europe. European defence stocks gain appeal.
With the economic slowdown, quality assets will gain favour, especially sovereign bonds up to 5 years. Central banks' potential rate cuts in Q2 suggest extending duration, despite policy and inflation concerns.
Commodities poised for rebound. The "Year of the Metal" boosts gold and silver, copper awaits rate cuts. Grains may recover, natural gas stabilises. Gold targets $2,300-$2,500/oz, copper's breakout could signal growth.