Crude Oil Price Update – Strong Downside Momentum Could Trigger Break into $46.04

U.S. West Texas intermediate crude oil futures are trading sharply lower early Monday after finishing higher on Friday for the seventh straight week.

The headlines are telling us that oil prices are sliding in the early trade because a fast-spreading new coronavirus strain in the United Kingdom is raising concerns that tighter restrictions there and in other European countries could stall a recovery in the global economy and its need for fuel, however, I think the stronger U.S. Dollar is driving down foreign demand for the dollar-denominated asset.

At 03:54 GMT, February WTI crude oil is trading $47.72, down $1.52 or -3.09%.

The greenback is climbing against a basket of major currencies early Monday with investors seeking its relative safety as many countries tightened COVID-19 lockdowns.

Daily Swing Chart Technical Analysis

The main trend is up according to the daily swing chart. A trade through $49.43 will signal a resumption of the uptrend. The main trend will change to down on a move through $45.14.

The minor trend is also up. Monday’s lower-low turned $49.43 into a new minor top.

On the downside, the first support is the long-term Fibonacci level at $46.04.

Daily Swing Chart Technical Forecast

Today’s trade should be all about downside momentum. Some will blame the possibility of new restrictions on the weakness, others will blame the stronger U.S. Dollar. Still others will say we’re looking at profit-taking and position-squaring ahead of the holiday-shortened week.

With the hedge funds excessively long, I’d like to issue a warning that this could turn into a steep decline if the funds decide to liquidate at the same time. It is possible because they follow the “Herd Theory”. When one starts selling, they tend to all start selling.

A steep decline will target the Fibonacci level at $46.04. We could see a technical bounce on the first test of this level, but if it fails then look for the selling to possibly extend into the nearest main bottom at $45.14. If sellers take out this level then the trend will change to down.

The key level that has to hold for longer-term bulls is the 50% level at $42.45.