Big rally in crude

Ahead of last night’s announcement from the Fed, front-month WTI briefly dipped below $68 to hit its lowest level since June this year. This also saw crude slip deeper into a band of support marked by a lower level around $67.50. This continues to hold, and yesterday we saw a sharp bounce from here. All dollar-denominated commodities got a lift from the sell-off in the greenback which followed from an unexpectedly-dovish Federal Reserve message. Could this mark the end of the crude oil sell-off? Or is this simply a knee-jerk reaction to the Fed announcement which will fade as quickly as it appeared? It’s difficult to say. On one hand, borrowing costs have come down, as has the US dollar, but otherwise there’s no real change in the fundamentals in that supply is plentiful and outstripping demand. But on the other hand, the supply/demand dynamics are old news while the increased prospect of lower interest rates next year is new. If traders feel that crude is looking oversold, then the bounce we’re now seeing may turn into something more significant.

On the daily chart, prices are retesting the upper end of the downward-sloping trend channel. We’re also seeing the MACD start to flatten. Next week could be decisive in establishing where we’re heading next.