Crude Oil Week Ahead: Oil Drops Ahead of FOMC Risks

Article Outline

• Key Events: Chinese PMI, Inventories, FOMC, and US Advance GDP
• Technical Analysis: US OIL 3-Day Time Frame
• TA Tip: Candlestick Pattern Psychology

Chinese Economic Update

Following a positive week for the Chinese economy, the People’s Bank of China maintained the 1-year loan prime rate at 3.1% and the 5-year LPR at 3.6%. This move aims to shield the Yuan from further weakness against the US Dollar and address challenges arising from US policy shifts.

The Manufacturing and Non-Manufacturing PMI indicators are set to be released on Monday, with expectations that they will comfortably remain above the 50-expansion threshold. Meanwhile, developments surrounding tariffs and negotiations between the US and China remain in focus, as they will play a crucial role in determining the sustainability of China’s economic uptrend and its potential impact on oil demand in 2025.

Monetary Policies vs. Trump’s “Drill, Baby, Drill” Agenda

The Federal Reserve’s first policy meeting of 2025 will take place this Wednesday, with markets expecting the Fed to extend a rate hold. This neutral stance reflects persistent inflation concerns, as well as the economic uncertainties tied to Trump’s policies.

Trump’s evolving stance on tariffs and his push for increased oil production continue to weigh on crude oil prices, adding bearish pressure to the market. The Fed’s updated economic outlook, coupled with these political shifts, could trigger heightened volatility risks this week.

Technical Analysis: Quantifying Uncertainties

Crude Oil Week Ahead: 3-DAY Time Frame – Log Scale

Source: Tradingview

Crude oil’s broader bearish trajectory remains intact, with a 3.7% decline last week pushing prices toward the $74 zone. Notable support levels to watch are between $72 and $68.

Bearish Scenario: A drop below $72 could see oil trapped within a strong three-month consolidation zone, with the four-year support range between $64 and $68 coming into play. A sustained break below $64 would confirm a longer-term downtrend, potentially targeting $55 and $49.

Bullish Scenario: Upside risks could materialize if oil climbs above the $80 mark, shifting the chart's tone to bullish. In this case, resistance levels at $84, $89, and $95 would come into focus.

Technical Analysis (TA) Tip: Candlestick Psychology

Crude Oil 3 Day and Weekly Time Frames

Source: Tradingview

Analyzing candlestick patterns across multiple time frames, particularly the daily and weekly charts, provides insights into market sentiment. In crude oil’s case, the following bearish candlestick patterns are worth noting:

Shooting Star (Weekly Time Frame): The extended upper shadow reflects an inability to sustain recent highs, while the small body near the lower end of the range indicates bearish bias in the trend.

Bearish Engulfing (Weekly Time Frame): A large bearish candle dominates the previous week’s session, signaling strong bearish sentiment when the weekly close is below the pattern’s borders.

Gravestone Doji (3-Day Time Frame): This doji pattern, characterized by aligned open and close levels at the bottom of the range, highlights a failed attempt to maintain higher levels, further reinforcing bearish sentiment.

The significance of these patterns increases when aligned with other indicators, such as momentum oscillators or their position within the broader price trend. In the case of crude oil, the overbought relative strength indicator levels alongside broader chart pattern borders are supporting the candlestick signals.

Written by Razan Hilal, CMT

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