Oil continues to be a disappointment on the charts for the bull market, after recent strong gains many had believed the market had turned and been sucked into going long again. However, the recent global uncertainty and the strength of the USD have put pressure on the market yet again and lead to sharp falls and a push down to the $40.00 a barrel. For many this is bear territory and it has been lead in part by the recent surprise surplus in crude oil inventories in the US, which came in strong at 1.67M (-2.13M exp). The previous 9 readings had shown a drawdown in oil inventory levels, but this new surplus has lead in part to many thinking it may have just been a blip and we could be into further weakness as supply is still not drying and oil production is still looking to ramp up further in the long run with a sluggish global economy.
On the charts oil continues to flirt with the psychological level of dipping below the $40.00 a barrel mark, but so far support has held up firmly here for the market. Generally speaking the trend is your friend and in this case it very much is as oil shows no signs of giving up to the bears at present. Below this level the market is aiming for other major support levels at 37.69 and 35.87. I would expect if it can close below this key level we may see a rush down to the 37.69 level over the course of a few days, I wouldn’t be surprised to see oil keep momentum and push 35.87 if market conditions warranted it.
The Australian dollar will be one of the main things to watch this week as the RBA statement is due out shortly and many are predicting a rate cut from 1.75% to 1.50%. This in turn could lead to a drop in the value of the AUDUSD on the whole, but also before this we have trade balance data and building approvals which will set the tone for the day and fire the market up with volatility in the lead up to the rate change. It will also give the Reserve Bank of Australia another chance to talk down the exchange rate as it continues to battle the AUD running up the charts against major pairs and inhibiting the economic recovery back at home in the domestic market.
The AUDUSD has started to slip down the chart as pressure builds and markets start to price in a rate cut on the charts. Support levels at 0.7517 and 0.7472 are likely to be prime candidates for further falls in the market, I would also expect in the long run that the 50.00 fib level will likely be a prime candidate for support and may even be a tipping point for the market to exit in the event of a rate cut.