Fundamental Analysis
As traders set their sights on the West Texas Intermediate (WTI) crude oil market's closing bell, fundamental forces loom large.
WTI steadies itself after a recent rally, with Brent crude nearing $79 a barrel, the highest close since December 27, 2023, amidst escalating tensions in the Middle East.
Key Fundamental Factors:
Middle East Tensions: The US has vowed to continue air strikes against the Iran-backed Houthis in Yemen, as tit-for-tat strikes have intensified, raising concerns over the security of global shipping lanes.
US Inventory Levels: A notable decline in US crude stockpiles has been reported, with a 2.5 million barrel drop last week, marking the lowest point since October. This draws attention to the current supply dynamics in the market.
Weather and Production: Freezing weather has impacted US shale production, particularly in the Bakken formation, which might tighten the supply further.
Market Supply Outlook: Despite the geopolitical risks, the International Energy Agency suggests the market appears well-supplied, factoring in output from not just the US, but also Brazil, Canada, and Guyana.
Trading Strategy Amid Geopolitical Ructions
Considering the heightened tensions and supply concerns, the WTI market may witness an uptick in volatility, making intraday trading particularly sensitive to news flow.
However, with sufficient global supply and healthy exports from other producers, the market is attempting to find a balance.
Intraday Forex Signal for WTI – January 19, 2024
Pair: WTI
Pivot Point: 73.69
Market Trend Analysis:
Bollinger Bands: If we had seen a neutral sentiment previously, the recent uptick may suggest potential for a bullish reversal, as prices might be pushing against the upper Bollinger Band.
Moving Averages: WTI's recent movement above a key moving average could be indicating a shift in market sentiment to the upside.
RSI (Relative Strength Index): Should the RSI continue its upward trend and break past the overbought threshold, this would reinforce a bullish outlook.
Trade Direction: From NEUTRAL to cautiously BULLISH
🎯 Targets for Taking Profits if Bullish:
Buy:
1st Target (1st Resistance): Assuming the first resistance is near the recent high, around 75.50.
2nd Target (2nd Resistance): This could be set around the next psychological level, possibly near 76.50.
3rd Target (3rd Resistance): Traders might look towards 77.50 or higher, depending on the strength of the breakout.
❌ Stop Loss Guidelines:
Buy: A stop loss for a bullish position could be placed just below the recent low swing or a significant moving average, suggesting around 73.50 for safety.
Suggestion:
With the updated chart showing a bullish push, traders may consider a long position, eyeing the initial resistance level for profit-taking. It is advisable to keep a watchful eye on the RSI for signs of overextension and adjust stop losses and targets accordingly.
Yesterday's Trend:
The trend appears to have shifted from flat to upward, as indicated by the latest green candlesticks.
Volatility:
Should the Bollinger Bands have expanded with the price move, this would suggest increased volatility and possibly more room for the price to explore the upside.
Closing Week Dynamics
The tendency for profit-taking as the week closes could add to the bearish tilt. Traders might anticipate a potential fall in WTI prices, particularly as investors lock in gains from the recent price surge.
Conclusion
Intraday traders are navigating a complex terrain where technical indicators and significant geopolitical developments intersect.
The escalating Middle East tensions coupled with a draw in US inventories contribute to a cautious yet vigilant trading atmosphere.
With the market weighing these variables, a neutral to bearish stance seems prudent, backed by a strategy that embraces profit targets and a clear stop loss to mitigate risk.
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