Crude oil prices are at a critical juncture after the U.S. dollar hit a one-month high against the euro and a 12-year high against the yen as traders looked for safe haven on fears that Greece might default and on worries that the Fed might be closer to raising interest rates.
Yet, with many fear trades, those fears are most likely overblown and there are some technical signs that perhaps that fear play may have played itself out. That means that oil may have a chance to bounce back assuming it can get help from inventory data from The Energy Information Administration if traders don't freak out too much about the big selloff in the Chinese stock market.
The Shanghai Composite got wacked after rallying for seven straight days, falling 6.5% overnight is it biggest sell-off in 15 years. The Shenzhen Composite, China's tech index, fell 5.5%. It seems the market reversed as it seems that China is moving to curb 'irrational exuberance" as stock brokers under pressure from the government are raising margins as the Chinese central bank took liquidity from commercial banks. There were also reports that China's sovereign wealth funds sold its stakes in two state-owned banks.
Yet, despite this turmoil, the currency market seems more focused on this ongoing Greek financial tragedy. Technically, it looks like the Euro selloff has run its course giving the dollar a chance to sell-off and give the chance for oil to rally. Of course, we will still have to get through inventory data. The American Petroleum Institute offered a mixed outlook by reporting a bigger build in oil inventory but a drop in gasoline inventories. The American Petroleum Institute, reported a surprise 1.3-million-barrel rise in U.S. crude stockpiles for last week but a 3.6 million barrel drop in gasoline supply.
One bearish and one bullish, so bring on the EIA.