Hourly Chart
WTI prices hit a new 5 month low yesterday after speculators drove the USD higher, in the belief that the Fed will taper its current QE program in December. However, this new low is only marginally below the previous low set on 6 November, hence we should not read too much into it. Furthermore, the newly formed low did not manage to inspire a "breakout", with signs of bullish pullback/recovery in play right now.
Stochastic readings are showing a new bullish cycle signal, while price is currently breaking above the soft resistance of 93.65. This suggests that a move towards 94.2 or even higher is possible, especially if we see a full bull cycle from Stochastics.
Daily Chart
However, prices remain heavily bearish from the daily perspective, with yesterday's decline affirming the 95.0 resistance. Stoch readings are currently within the Oversold region, but there is still some space allowance before a trough is formed judging by previous troughs. Hence, we could still see prices heading lower and tag the Channel Bottom before a stronger rebound takes place. It should be noted that this outlook does not invalidate short-term bullish momentum. As prices did not manage to tag the Channel Bottom earlier, the bearish move is still not over, hence all this means is that a short-term bullish recovery may be cut short and price could lower once again.
Today's Department of Energy inventory numbers will be yet another potential bearish driver. But last week's data was actually not as bearish as expected, and there is a chance that the supply/demand conditions will improve once again this week. This notion is confirmed by analysts who expect stockpiles to grow by a mere 0.8 million barrels, much lower than the past 7 weeks-worth of estimates.
Traders will do well to gauge market sentiment by analyzing the post announcement reaction. Should inventory grow higher than expected but WTI prices grow higher as well, this may imply that the market may be pricing in an improving scenario. Conversely, should inventory come in lower than expected and prices head lower by the end of the day, we can take it as a sign that the market remains heavily bearish—which will drive prices lower for now but a shift in fundamentals may be slowly happening as well, giving us an upside risk in the future.
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