The heightened recessionary fears that have significantly impacted the demand outlook for oil have firmly gripped investor sentiment. The negative demand outlook has seen the WTI Crude Oil Futures (NYMEX: CL) shed most of the gains and are on course to close a third week in the red after declining 10.64% for the week with the crucial NFP report still due to close the week.
The market fears that in the central banks’ fight to lower the persistently high inflation prevalent in their respective economies, the central banks might have tipped the global economy on a path towards a potential recession. Following the 25-basis point rate hike by the Fed yesterday, the ECB interest rate decision later today and the US NFP report tomorrow will be in the spotlight.
The 4H chart shows that the bears have enjoyed sustained dominance over the bulls since the mid-April high, pulling the price to the 17-month low of $63.64/BLL. The recessionary fears could continue to weigh down the oil futures following the Fed’s 25-basis point hike, with the ECB widely expected to follow suit later today. Therefore, the bears would have to sustainably push below the 78.60% Fibonacci retracement level, which has offered near-term support, if the bears look to test the $67.54/BLL. A sustained break below $67.54/BLL would bring the $64.89/BLL support level into play.
However, the rejection of the 78.60% Fibonacci retracement level would bring the golden ratio and the 50-day moving average (50-EMA) into play. The 50-EMA has offered significant resistance to any bullish attempts at a rally, and the bulls would need to successfully push towards the $74.30/BLL and $75.79/BLL resistance levels.
With the oil futures still weighed down by the demand outlook fears ahead of the economic indicators from the US and major global economies, a possibility could exist that the bears’ dominance could be extended in the short term. Therefore, a trading opportunity could exist as the price action breaks below the $67.54/BLL support level towards $64.89/BLL.
Sources: TradingView, Reuters, Trading Economics.
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