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Dollar surge hits crude

Last updated 7/20/2012 10:05 AM ET (GMT -5) 0 Comments - Add your comment

**I will be away for the next three weeks, returning on Monday 13th August. But my colleague Fawad Razaqzada will provide a daily commentary on oil in my absence. Please sign up to Fawad's emails by going to the "Markets News Alerts" box on the right hand side of the FX360 homepage. Thanks for following me and see you later in August**

Crude pulled back sharply in early trade today after previously closing at its highest levels since late May. But so far, both Brent and WTI have only given back part of yesterday’s gains. A pull-back looked on the cards following the length and extent of the rally since June. Crude oil prices have surged over the past month. The benchmark Brent contract is up around 20% since hitting a multi-year low in late June. While oil is still some way off the high seen back in March, the rally has caught many investors off-guard. In fact, both contracts have now closed higher for five days on the trot. Some long-side profit-taking seems reasonable ahead of the weekend, and a sharp rally in the US dollar today provided the catalyst. But the question now is whether this is simply a period of consolidation or the beginning of a more protracted sell-off? Technically, if Brent can hold around the $106 level for a few days (and WTI hold above $90) then oil could build a base from which to rally further. But if the sell-off gathers strength, then speculative buyers will look to close out and go short, driving prices lower. Fundamentally, traders are keeping a close eye on events as they unwind in Syria and elsewhere. The escalation of hostilities in Syria still has the potential to expand beyond the country’s borders, and this is a great cause of concern. On top of this, Iran is also threatening retaliation as its economy comes under severe strain from the imposition of US and EU sanctions. Tensions have mounted after a fatal suicide bombing of a bus carrying Israeli tourists in Bulgaria. Israel has accused Iranian-backed terrorists for the attack.

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About The Author

David Morrison has worked in financial markets for over 25 years. He joined GFT in February 2009 to deliver commentary and research for derivatives products. Before then David had been instrumental in setting up two spread betting companies, managed trading desks, and implemented and ran successful risk-management strategies.

He has appeared on Bloomberg, Reuters, and Sky TV, and is widely quoted by financial newswires. He has written numerous articles covering economics and trading strategies using fundamental and technical analysis.

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