Recent market mayhem caused by the coronavirus spread outside China and Oil price collapse. Russia and Saudi Arabia have decided to have an oil war, driving the prices down to gain market share. The lower oil prices are here to stay for a longer time on demand deficiency and supply shock. Late 2015 to April 2016, the demand deficiency dragged the oil price towards $27, which was accounted for 75% retracement from the past high.
Morgan Stanley said, “Demand for oil is set to weaken as a consequence of COVID-19 and associated supply chain disruptions. This combination of increasing supply and softening demand can be considered similar to the aforementioned period from 2H15 into early 2016.”
Since January 2020, the oil prices have fallen more than 45% and have plunged about 60% from October 2018 high but would still need to fall another 15% to make 75% fall like the previous two occasions (2009-2009 and 2012-2016). The lower oil prices could directly impact on loonie and Krone, unfortunately not in the right way. Flipside, JPY outperforms during the bearish oil cycle.
If we look at the technical picture, the longer-term A-B-C corrective structure is pointing to sub-$20 (Monthly chart). On the Weekly chart, the same pattern suggests $15, its 161.8fe.
Three levels to focus on: $27 Parallel support, 75% correction suggest $20, and the corrective patterns suggest $17-15 levels. Overall a drop towards $20-15 will be the buying opportunity.
On Monday, the price traced out a bearish H&S pattern. We tweeted a target of $30, whereas the price made a low of $30.60 levels. We expect the price is going to consolidate between $44-27 scales in the coming days.
Stay calm, and don’t panic.
It’s hard not to panic by all the negative news we’re seeing and hearing. However, we don’t make our best decisions when we panic. Stay calm, take a step back, and lean on our research and guidance. The media is almost certainly being more dramatic than necessary.
It is important to always keep in mind the risks involved in trading with leveraged instruments.
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