Tuesday, November 10, 2015

A near-term 'theory' about crude oil (USO), crude oil index ($XOI) and the U.S. dollar ($USD)

I started out with the aim of writing about commodities but got engrossed in the interplay of two indexes and an ETF all related to crude oil.

The first chart to be examined is the crude oil index $XOI. I've noted previously that the crude oil index $XOI has been in a bearish ascending wedge since August and today made contact with the lowermost support line. If this is part of a five wave ascent we should see it fall to around 1167 before turning back up. I've drawn in what this ascending channel may look like but any breach of the lowermost channel line and we'll need to re-think this forecast.
USO, the crude oil ETF, is not mimicking the trend established by $XOI very well because of the influence of the American dollar . If the American dollar goes down we could see USO rise to just over $16.00 for a second hit on our inverted triangle near-term. Long-term however this pattern should break to the downside. 
The U.S. dollar is a little overbought at the moment but having begun a tear to around $1.08 over the long-term I believe an expected short term retracement will only be to about $0.97 before turning back up again.
All of this fits with a view held by some (including myself) that the long-term rise in the American dollar will be bearish for commodities and emerging markets.