Chart Advisor: Breaking Down Brent Crude Oil

Articles From: Investopedia
Website: Investopedia

By Foram Chheda, CMT

1/ Crude Oil Tests 200-Week MA

2/ Short Term Expectations From Crude Oil

3/ Precious Metal Stays Relatively Stronger

4/ What to Expect From XAUUSD?

5/ DXY Finds Support. Will It Hold?

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1/ Crude Oil Tests 200-Week MA

The week remained particularly weak for Brent Crude Oil. The commodity declined for the seventh week in a row as it lost yet another 3.85% on the weekly basis. From the most immediate swing high of $95.35, the Brent has come off over 20% from that point. 

From a technical perspective, crude has tested the important support of 200-week MA which is placed at 74.04. This was the point from where the commodity showed a mild technical rebound before closing at $75.84. 

2/ Short Term Expectations From Crude Oil

Undoubtedly, the 200-week MA which is currently at 74.04 can be expected to act as a strong support at Close for the Brent Crude unless of course meaningfully violated. The commodity can be expected to show some signs of stability and a technical rebound cannot be ruled out.

This technical rebound, if and when it occurs, is likely to stay capped and limited in its extent. The commodity may find stiff resistance in the confluence zone of 10-week MA and the 40-Week MA which exists between 83.87 and 82.12. The crossovers of 10-, and 40-Week Mas have always had their impact on the price trajectory of the commodity. With these MAs moving towards a negative crossover (this would happen when the 10-Week MA will cross below 40-Week MA), the upsides and technical rebounds may find strong resistance here. Any violation of the 200-Week MA will make the commodity incrementally weaker.

3/ Precious Metal Stays Relatively Stronger

Brent Crude has had its phases of relative outperformance and underperformance when compared to Gold (XAUUSD).  

When the Crude Oil was compared against the precious metal, the Relative Strength Line (RS Line) is seen in a falling trajectory. The outperformance of the Oil against Gold peaked in the middle of 2022; since then, over the past year and a half, Brent Oil has been evidently underperforming the Gold. There is no wonder the precious metal has done well against Oil over the same time period.

4/ What to Expect From XAUUSD?

Gold (XAUUSD) has had a great year so far; the precious metal has gained 9.75% on a YTD basis. The last week also saw the precious metal marking a lifetime high of $ 2152 after which it retraced. Presently, the levels of 2070-2090 offer resistance the precious metal. In fact, since 2020, this zone has been tested four times. The long-term monthly chart shows that this zone has been tested over nine times. The most recent attempt to break above this has failed; this zone continues to remain a stiff resistance area for Gold. 

On the weekly chart, the 10-week MA has crossed above the 40-Week MA. Gold may stay stable and largely buoyant with the zone of 1960-1980 offering good support. We can fairly expect the precious metal to maintain its relative strength against Brent crude and perform well of the immediate short term.

5/ DXY Finds Support. Will It Hold?

The Dollar Index (DXY) has been weak following the Fed taking a pause with the interest rate hikes. The committee meets next on December 12 for the next Fed meeting and on December 13, they are largely expected to maintain a status quo. The DXY has a support at 103-103.40 levels; if this is violated again, it may get weaker and this may turn out beneficial for commodities and metals.

Originally posted 11th December 2023

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