Finally, we’re seeing some positive price action in the dollar index following a local double bottom in the futures, achieved last week. The candlestick patterns over the last three trading sessions provide strong confirmation that the trend should resume its upward ascent. As of this morning, the futures are sitting right at the 78.6% retracement from March’s high at 95.25. We’re targeting a move up to the 50% level at 97.5. We anticipate this move should help push bond yields higher still and begin to weigh on crude prices. However, given the difficulty in predicting bond trends, and the strong coiling pattern developing in crude, we think the move lower in crude should be outsized. Thus, we prefer to set-up for a swift move lower in oil.
Since the move up in May, we’ve seen oil implied volatility fall off a cliff, and price action consolidate.
This has been especially strong over the last week. Intraday swings have shrunk, and volatility at the 2:30pm NYMEX close has also nearly disappeared. We believe this coiled spring should be resolved much lower from here, in the area of 55.30 – 55.60, corresponding with the 50% retracement and 78.6% extension levels.