UK Oil At Bottom of Channel
- UK Oil has seen great volatility as it rallied strongly from around $55 in Feb to around $71.88 on the back of covid vaccine news and an overall positive outlook to the global economy as talks of reopening emerged. Then came the OPEC meeting where they agreed to increase production, albeit by a small notch. This was enough to shake the confidence in oil and caused it to correct back to around $61.50 in early April.
- Since then market consolidated and formed a textbook triangle pattern from which it broke up. Market then came back to test the resistance-turned-support level around $64.80 and formed a double bottom pattern, from which it again broke upwards and drifted towards the $68 level where it saw some resistance. Prices fluctuated around that zone, retraced, and then proceeded to test $70.50 levels.
- Joining the two new highs and moving this upper channel line down to the most recent new low, we form a channel (in green). As of now, prices have just tested this bottom channel. Further, it had just peeked above the gray line which can be seen as a downward channel line on a lower timeframe.
- Bulls may await a double bottom pattern and enter a long position on the break of the neckline. As patterns do not always occur perfectly, we may see a double bottom with a higher low which could also be seen as an inverse heads and shoulders pattern. Traders however may still initiate a long position on the break of the neckline with a target to retest $70 levels.
- One point to take note however is the possibility of relaxed Iranian sanctions by the US which would come with improvements to their nuclear agreements (and its compliance). If sanctions are relaxed, it could unleash pent up crude oil supply from Iran which would increase supply and hence cause prices to come off. In that case, bears may seek to enter a short position should UK Oil trade below the most recent low. Not only does this form a new recent low, it also means price has broken the lower channel line firmly. Bears may seek to put their target levels at the next resistance-turn-support level.
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