Investment Idea

Will the oil price stick to its falling trend?

Carlsquare Vontobel.jpg
19/01/2023 | 1 min read

As oil is traded in USD, the strength of the USD compared to the investors' local currency is affecting the purchasing power.

For example, suppose the USD strengthens against the euro. In that case, European buyers' purchasing power is reduced, lowering the demand and thus putting pressure on the oil price, and vice versa and all else equal. On the other hand, as illustrated in the chart below, the USD is currently weakening against the euro. That should add support to the oil price.

EUR/USD, daily one-year chart

Source: Infront and Carlsquare. Note: Past performance is not a reliable indicator of future results.

The Brent oil price, shown in the charts below, is trying to break up above MA100 and the short, falling trend. Also, note how MACD has generated a buy signal.

Brent oil price (USD per barrel), one-year daily chart

Source: Infront and Carlsquare. Note: Past performance is not a reliable indicator of future results.

However, in the weekly five-year chart, it can be seen that oil is facing resistance around its current levels – resistance in the form of falling MA20 and the falling trend line:

Brent oil price (USD per barrel), weekly five-year chart

Source: Infront and Carlsquare. Note: Past performance is not a reliable indicator of future results.

Going back to the EUR/USD chart, a negative divergence between the EUR/USD and MACD can be seen. That implies that a trend shift in the EUR/USD could occur, thus being a red flag that should be closely monitored. A change in the EUR/USD may cause the oil price to stick to the falling trend.

The full name for abbreviations used in the previous text:

EMA 9: 9-day exponential moving average

Fibonacci: There are several Fibonacci lines used in technical analysis. Fibonacci numbers are a sequence of numbers in which each successive number is the sum of the two previous numbers.

MA20: 20-day moving average

MA50: 50-day moving average

MA100: 100-day moving average

MA200: 200-day moving average

MACD: Moving average convergence divergence


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