So here we are sitting on the cusp if the June seasonal date and most traders and investors are thinking and reacting to the update by Bernanke. The US Federal Reserve is sending a hawkish message of the case for sustaining the record stimulus levels into the US economy.
The markets dived in that notion which could be seen as strange on two fronts. Firstly the notion of less stimulus means that the economy is slowly improving, secondly nothing lasts forever. So in turn the markets must start to acclimatize to the new normal of a reduction in stimulus.
You may ask why as a commodities trader one needs to understand the effect of a broad reaching economic concern like this. The simple correlation is to the US dollar, if the US stops printing and pumping cash into the economy then the US dollar may in turn start to strengthen and then of course that has a flow on effect to commodities as they are priced mainly in US dollars.
Chart 1 shows the recent price action on the US dollar. The market action shows support and potentially now resistance on the 50% point or 81.67. The test for the US dollar now will be can it break back above and retest the yearly highs in May.
Chart 1 – US Dollar Index Daily Bar Chart
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The flow on to crude oil is that we are placed at an important junction in terms of price resistance.
Chart 2 shows the recent highs clustering around the multiples of the $9.75 low. The multiples of $9.75 marked in orange have played a significant role in major lows and highs. The current price action is sitting on top of this and acting as support.
Chart 2 – CL-Spot1 Daily Bar Chart
Click to Enlarge
The test for this market now will be what time harmonies exist with this price action. A quick check of the 20 June high shows some time by degrees harmony and some repeating time frames around the all-important 161 number. There has also been a repeating 76 day count in the market that is been working very well.
Any support at these prices would support the notion of higher prices and a break back down under $97.50 with a rising US dollar could confirm a retreat across man of the worlds commodities.
Good Trading
Aaron Lynch