Crude oil tentatively resumes uptrend on waning Brexit concerns

<p>Since late last week, the decline in Brexit concerns due to new polls showing resurgent momentum for the Remain camp has had significant consequences for […]</p>

Since late last week, the decline in Brexit concerns due to new polls showing resurgent momentum for the Remain camp has had significant consequences for financial markets. A new-found perception of lower risk ahead of this week’s EU referendum in the UK has led to a sharp relief rally for the previously pressured British pound as well as weaker performance for traditional safe haven assets like gold, yen, the US dollar, and Swiss franc.

In turn, this has increased appetite for riskier assets including equities and crude oil. In the case of oil, a risk-on market environment coupled with a sharp drop for the dollar has helped to boost crude prices for the second consecutive day after the previous week saw a substantial pullback.

For the international crude oil benchmark, Brent crude, this price action has been displayed as a sharp drop and then a rebound off a key uptrend support line last week. This trend line forms a part of a major parallel uptrend channel that extends back to the January lows below $27.

As of Monday, Brent crude has extended last week’s rebound, reaching back above the key $50 level. From a technical perspective, therefore, the five-month bullish trend has been effectively salvaged for the time being. With the UK’s EU referendum only a few days away, however, the near-term directional bias for crude oil could be significantly affected by the outcome of the vote, along with other major financial markets. Of course, oil prices will also be largely dependent upon supply fluctuations and disruptions as have contributed to the rise in prices for the past several months.

While Brent’s uptrend currently remains intact, key fundamental and technical resistance should pose a formidable barrier to much further appreciation, at least in the short-term. Even if price reaches above June’s year-to-date high around $52.50, major resistance resides just above at the $54 price level, which has served to halt Brent’s rise since August of last year. To the downside, any breakdown below the noted parallel uptrend channel could open the way for significantly further losses towards the key $42 support level.

Brent Crude Daily Chart

 

Join our live webinars for the latest analysis and trading ideas. Register now

GAIN Capital UK Limited (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.