“What goes up will eventually come back down” perfectly describes oil’s explosive movements since the start of 2020.
After initially rallying on geopolitical tensions during the early parts of January, WTI Crude and Brent have both taken a painful beating over the past few weeks. Rising concerns over Asian economic growth and oil demand weakening from the coronavirus outbreak in China sent oil prices tumbling to levels not seen since November 2019 below $55 on Thursday. WTI Crude has depreciated more than 5% this week and almost 10% since the start of the year!
The path of least resistance for oil prices will most likely point south for the time being due to a host of factors. China is the world’s largest energy consumer, so essentially a drop in demand due to slowing economic growth should negatively impact oil markets. Another theme weakening oil is the mighty Dollar. General uncertainty and unease could force investors to maintain some distance from riskier assets with safe-haven destinations like the Dollar, Japanese Yen and Gold becoming attractive hotspots.
If uncertainty over US-China trade ends up making an unwelcome return, this could be the knockout blow that sends oil prices crashing towards $50.
From a technical standpoint, WTI Crude is under intense selling pressure on the daily timeframe with prices trading around $55.32 as of writing. A breakdown below $54.80 should encourage selloff towards $53.70. Should $54.80 prove to be reliable support, Oil prices could rebound towards $57.60.
ECB meeting another snoozer
In other news, the European Central Bank left monetary policy unchanged as widely expected.
The Euro fell to a seven-week low below 1.1040 at after European Central Bank President Christine Lagarde struck a slightly more dovish tone than some expected during the press conference. Moving forward, the EURUSD is likely to bounce within a wide 150 pip range until a fresh directional catalyst is bought into the picture.
Technical traders will continue to closely observe how the EURUSD trades around 1.1050. A decline towards 1.1000 could open a path towards 1.0879 in the medium to longer term.
Commodity spotlight – Gold
Gold held gains on Thursday, finding comfort around $1565 after the European Central Bank left monetary policy unchanged.
Appetite towards the precious metal should remain supported by growing fears over the coronavirus outbreak in China. The general uncertainty is likely to accelerate the flight to safety with Gold seen testing $1580 in the short term. Should $1555 prove to be an unreliable support level, prices could slip back towards $1545.