Analysis | September 21, 2021

KTM Commodity Weekly: Higher lows and higher high pattern still intact

Brent crude oil paused the rally on risk aversion mode. Friday, the price lost $1, and the selling extended on Monday too as the dollar continued to bid ahead of the Fed meeting this week.

Strong moves witness on the dollar on the back of Evergrande’s default news. Evergrande is a Chinese property giant who is on the brink of collapse. Opinions have been written on the web for the past few days, but no one could design a destination for this event.

The near-term oil trend cast on this week’s FOMC meeting outcome. We continue to expect that FOMC will signal their tampering plan this week, which could lead to higher dollars towards the maximum stretch at 94.20 and 94.50.

Financial markets are started to think that the widely anticipated announcement “taper talk’ could be imminent this week. On top of this, a hawkish dop plot could send the dollar higher and oil lower.

Commodities are priced in dollar-which means a stronger dollar means weaker commodities. In simple Americans can print US dollars to buy oil, whereas the rest have to be paid in dollars to buy oil.

In case of near-term oil pullback, Federal Reserve’s tampering in Q4 2021 is the only factor that has the strength to bring the oil price down. The rest of the factors like slower economic growth and delta variant could print shallow corrections not significant.

The oil price has been trading above all the moving averages (20,50,100, and 200) on the daily and weekly charts. However, the price has been failed to put the 200MA monthly under its feel. We are sitting at four months in a row battling at the 200MA. A monthly close above could begin a new wave higher towards $80+.

For the past three weeks, we have been writing on the Golden crossover pattern on the weekly chart. Now the bullish pattern is fully established. Based on this, we expect dips would be shallow. Supports are looking at $70, $66.50, and $64.50. A breakdown below $64.50 could open the gateway to $60 levels.

Upside to continue while prices stay above $64, a close below the same is a weak signal.

It is important to always keep in mind the risks involved in trading with leveraged instruments.

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