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Crude Oil Analysis for the Week of October 17, 2011

Last week December Crude Oil surged to the upside after confirming the previous week’s closing price reversal bottom at $75.15. Although the move was impressive, the main trend remains down until the last swing top at $90.96 is violated. Minor Gann angle resistance at $87.96 may slow down the rally, but once this angle and the main top are cleared, traders should look for a rally into the major downtrending Gann angle from the $115.45 top at $91.75.

Based on the main range of $115.45 to $75.15, the first upside objective is the retracement zone of this range at $95.30 to $100.16. Should the rally stall, traders should look for a near-term correction to the uptrending Gann angle at $83.15.

Crude oil price movements

Crude Oil started the week with a strong rally. This was a continuation of the move which began with a bottom on October 4 and continued with an acceleration to the upside on October 5 after the EIA reported much lower than expected supply. Additional buying pressure came from the shift in sentiment due to talk of a recapitalization plan for European banks. This news helped trigger a sharp rally in the Euro, weakening the U.S. Dollar and making dollar-based commodities more attractive.

After a couple of days of sideways trading action, crude oil was once again on the defensive following this week’s EIA oil inventory report. The report showed that oil supplies rose 1.34 million barrels to 337.6 million. This was well above the estimate of an 800,000 barrel increase. This news triggered a profit-taking break as traders decided that holding long contracts in front of Friday’s U.S. retail sales report may not be worth the risk. Additionally, many traders thought the news coming out of the Euro Zone regarding the bank recapitalization plan was too speculative at this time.

Friday’s news that U.S. retail sales were better than forecast, sent crude oil short traders scrambling for cover driving prices more than 3% higher. Long traders also entered the market as the report served as a sign that perhaps the U.S. economy was too strong to fall into another recession. Traders had been waiting for a signal from consumers that all was well with the economy and this report may have been the catalyst needed to encourage traders to commit to the long-side once again.

With the fundamentals signaling a possible turn in the economy, look for traders to attempt to turn the main trend higher on the weekly chart with a rally through $90.96. Although the economy appears to be improving in the U.S., traders should still pay close attention to the developments in Europe. So far talk of recapitalization has been driving up demand for risky assets, however, there is going to come a point when investors are going to ask for a concrete plan of attack. A failure to come up with a hard plan within a reasonable amount of time could knock the wind out of the sail of this current rally in crude oil.

Factors Affecting Crude Oil This Week:

• Euro Zone Bank Recapitalization:  With this plan to recapitalize the Euro Zone banks gaining traction, investors are going to begin to ask for more details. This will include the timing of the plan as well as the amount of money pledged to get the banking sector back in shape. Traders have experienced the long drawn out negotiations of the Greek debt crisis so their patience has been worn thin. In addition, traders what to see that a solid plan is in place, meaning enough capital has been pledged to avoid this problem from resurfacing in the near future. Any signs that this plan has hit a snag could weaken the Euro as well as demand for risky assets. There is still a crisis in confidence going on so traders are likely to overact to any bad news.

• U.S. Economy:  Last week’s retail sales report was good news for the U.S. economy, but traders are questioning how much of an impact this news would have had if there weren’t positive developments in Europe. Traders want to see a series of positive U.S. economic reports before declaring the thought of another recession officially dead. Better than expected U.S. economic reports will likely soften the blow of any negative developments in Europe, but should not make them go away completely.

• Supply and Demand:  Increased demand is likely to mean that the economy is improving since this indicator usually discounts future events. A greater than expected decrease in supply can turn the crude oil market sharply higher as seen recently when the October 5 report exceeded pre-report estimates.

By. FX Empire

FXEmpire.com is the Forex flagship site of the FX Empire Network. The FX Empire Network provides readers with the most expert and most timely technical analyses, fundamental analyses and news-pieces; this in order to empower them to make for themselves the best possible financial decisions. The FX Empire Network’s other flagship sites include: StocksEmpire.com and CommoditiesEmpire.com.

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