Crude oil reversal in play?

On Tuesday, crude oil lost 0.22% as a stronger U.S. dollar weighted on the price. In this way, light crude reversed, invalidating the breakout above an important resistance line. What does this show of weakness mean for the very short-term picture?

Yesterday, the U.S. dollar moved higher as positive housing and consumer confidence data supported the currency. The Commerce Department reported that core durable goods orders (without volatile transportation items) increase 0.1% in April, missing expectations for a 0.3% increase. Despite this disappointing data, U.S. durable goods orders rose 0.8% in the previous month, beating expectations for a 0.5% fall. Additionally, the Conference Board reported that its consumer confidence index rose to 83.0 this month from 81.7 in April, while the Standard & Poor’s/Case-Shiller house price index rose 12.4% in March from a year earlier, above expectations for a gain of 11.8%.

A stronger dollar makes oil a less attractive commodity on dollar-denominated exchanges, which is bearish for the commodity. Therefore, an increase in the U.S. currency pushed light crude below $104. Despite this drop, crude oil reversed and erased some losses. Which technical factor supported the price? Let's see:

From this perspective, we see the situation hasn’t changed much, as crude oil still remains below the blue resistance line based on the recent highs (the upper border of the triangle). Therefore, what was said yesterday is up-to-date:

(…) If this line holds, we will likely see a pullback and the nearest support will be the 50-week moving average (currently at $100.80). However, if oil bulls do not give up and push the price above the resistance line, we will see further improvement and an increase to a fresh 2014 high.

(…) the last week’s increase materialized on relative small volume, which questions the strength of oil bulls. On top of that, the RSI approached the level of 60. We saw similar reading in April and also earlier in March. Back then, such readings preceded declines. Therefore, if history repeats itself once again, we may see a correction in the coming week (or weeks).

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