Oil Price Forecast – Oil Stops Falling, Providing Barely a Glimmer of Hope for the Bulls

Crude oil tested critical support of $49.30 yesterday and held, reaching a low of $49.46 before turning up. Today, price reversed higher off the low and exceeded yesterday’s high. Currently, oil is up $0.53 or 1.07% to $50.14.

Federal Reserve Testimony

Earlier in the day the U.S. dollar index firmed to a new trend high before reversing and pulling back once Federal Reserve Chairman Jerome Powell began to deliver his semiannual testimony to the U.S. Congress. A higher dollar tends to put downward pressure on oil and other commodities.

Powell says that the U.S. Fed is closely monitoring the impact from the coronavirus outbreak on the U.S., as well as the global economy. So far, it has not caused the Fed to change their outlook on monetary policy, he says. Powell testifies again on Wednesday, starting at 10:00am EST.

Will Support Hold?

It remains to be seen whether the $49.30 swing low will remain as support. Today’s price action (move above yesterday’s high) so far indicates that it might. Nevertheless, a decisive rally above the most recent swing high of $52.16 (7-day high) is needed to provide some confidence that oil might continue to strengthen. At this point, the trend remains down on the weekly, daily, and 1-hour time frames.

Potential Double Bottom Reversal

Yesterday’s low creates a second possible bottom for oil, with the first being five days ago at $49.30. Therefore, a break above the $52.16 swing high will also give a bullish trigger for a breakout of a double bottom trend reversal pattern. This would provide greater confidence that the reversal would hold for a tradeable bounce, if not more than that.

If the double bottom breakout does occur, then a variety of potential targets and resistance zones can be looked at. These are marked in the enclosed 2-hour chart. Specifically, we should give a little more attention to price zones identified by more than one method or measure. Those price levels would be around $55.60, $57.40, and then $59.40.

Bottom Reversal Target

In addition, we could also include the measuring objective from the double bottom. The target from the pattern would be approximately $55.02, slightly lower than the price levels mentioned above.