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Chart Of the Day Updates:
Oil at $75.00
Oil is currently trading above the $75.00 per barrel area for the first in 2009, which may be the key for move towards the next levels around the $77 and $82 areas, if investor optimism for crude demand continues to increase in-line with the global economic expansion story.
“If oil prices approach $80 over the coming weeks then the U.S. currency will become even weaker against the majors if the current inverted correlation holds at such high levels”, said Grega Horvat, Snr. Currency Strategist at TheLFB.
“The U.S. dollar may then lose the most against the Canadian dollar, where the pair could once again reach the $1.00 level”, Horvat added.
Oil is priced internationally in Usd denominations, as are all internationally traded commodities, therefore a long oil position automatically creates a short Usd position, and vice versa. The question will be whether oil can move through near-term resistance at the same time that the dollar index is hitting major support areas.
The last time that the dollar index hit 75.00 as support the market bounced things higher and drove the dollar towards the 82.00 price point. At that time the Usd/Oil correlation was loosened, and there is very little reason to think that the same thing could not happen again.
Countries with natural reserves of oil, that are priced already in Usd’s, are moving away from also holding Usd paper (Treasury bills or dollar notes) as their currency reserve.
Why have dollar reserves in the ground and in the bank vault too? If the Usd depreciates, both of the reserves do too. Saudi Arabia has started a move to Euro Paper, and most other oil exporters are beginning the re-alignment process as well.
The USD/CAD will be directly affected by the amount of oil the U.S. has in inventory, something that will be revealed on Thursday at 10:30 EDT. The U.S. imports the majority of its oil from Canada, so a lower than expected inventory number may mean crude oil prices will rise, as will the Canadian dollar.
A higher than expected inventory number may see oil come down in price along with a weakening of the Canadian dollar as the $75 resistance area forces a reality check on speculative interest.
Elliott Wave view
Weekly chart trend: Mixed. Main price points: 33, and 74.90. Looking for: Wave 1) top
Oil prices have reached new highs over the last few sessions, which means that the black wave 1) top is not done yet. The 38.2% retracement level of wave B distance looks like a magnet right now that could be reached over the next few trading days. In this zone traders may be looking for a turning point into a corrective wave 2), especially once the lower support line is taken out.
Daily chart trend: Long. Main price points: 68.00, and 82. Looking for: Wave V
On the daily chart traders will be looking for a new wave count after prices broke through the critical $74.90 resistance area recently. The technical read looks to be a triangle in a blue wave IV position, something that has been developing since June.
This new wave count now signals a technical path higher, towards $82 per barrel with wave V leg of an extended black 1. This looks solid only if the $68.00 support is able to hold the next reversal test. Any break of this critical zone and the lower support-line will signal that the top of the black wave 1) has already been reached.
4 Hour chart trend: Long. Main price points: 68.00, and 74.90. Looking for: Move higher
On the four hour chart the $74.90 high is being tested, where any long break-out will allow for another leg of higher prices in the current wave V. The wave V, of an extended black wave 1), is an impulse wave, which means it needs to be sub-divided by five smaller waves.
As such, traders should not get bearish on this commodity until the market comes out with five clear waves (red labels) up, from the $68.00 wave IV lows.
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