Crude oil, iron ore showing signs of life ahead of China data dump

Financialisation of crude oil and iron ore means you need to pay attention to price action as much as fundamentals
Having fallen to YTD lows, both markets look like they may have bottomed in the near-term
China industrial production, property construction data released this weekend

Overview

If you purely focus on the fundamentals of crude oil and iron ore, you’d be rightly feeling bearish. Both look oversupplied relative to demand in the near-term, with the added threat of a more pronounced global economic slowdown. However, fundamentals and direction don’t always agree in these increasingly financialised markets, meaning you should arguably put just as much emphasis on price action to guide your investment decisions.

WTI crude oil long setup

WTI crude oil has behaved exactly as you’d expect after slicing through long-running uptrend support on big volumes, dribbling lower after a failed back-test of the level. Rallies were sold into, as demonstrated by the long topside wicks of some of the daily candles, eventually finding a floor at $65.26.

While undeniably bearish, the price action has been more constructive recently. After being bought off the lows on Tuesday below $66, the same price action was seen on Wednesday, likely contributing to the bullish candle that printed Thursday.

One look at the daily tells you there’s decent two-way flow around $69, as demonstrated by the price action around the level over the past two weeks. Now that it has cleared the level, it increases the probability we may see an extension higher.

Those considering taking on the long trade could buy around these levels with a stop below $69 for protection. Targets include $71.50 and former uptrend located just above. If the price were to break back above the latter, $73.52 would be the next logical target.

If the price were to break to reverse back below the $69, the near-term bullish bias would be negated.

Momentum is starting to show signs of turning bullish, with RSI (14) looking like it may break the downtrend it’s been in since late August. MACD has yet to confirm, although it looks like it’s starting to flick higher towards the signal line.

SGX iron ore setups around $95.40

SGX iron ore sits in a similar position to crude with the price in a clear downtrend but some evidence it may have bottomed. The downside wicks on the daily candles below $91, accompanied by decent volumes, suggests a battle between bulls and bears was waged over the past week, with the recent price action pointing to bulls gaining the upper hand.

RSI (14) has broken its downtrend with MACD confirming the bullish signal, pointing to a shift bearish momentum. Given that and recent price action, traders should be on alert for a potential break above resistance at $95.40. If it were to go, longs could be established above the figure with tight stop below. The initial target would be around $99, the current location of the 50-day moving average and downtrend dating back to May. If that level were to break, it could lead to a far greater extension of the rebound.

If $95.40 were to hold firm the trade could be flipped, with shorts established beneath the level with a tight stop above. $90 would be one target with longer-running support at $89.30 the next after that.

Chinese industrial production and fixed asset investment data for August will be released on Saturday, including information on steel production and property construction. With pessimism elevated, it would have to take a terrible outcome to deliver a true downside surprise. It also leaves room for upside if the data suggests extreme pessimism is not warranted.

-- Written by David Scutt

Follow David on Twitter @scutty

How to trade with City Index

You can trade with City Index by following these four easy steps:

Open an account, or log in if you’re already a customer

• Open an account in the UK
• Open an account in Australia
• Open an account in Singapore
Search for the market you want to trade in our award-winning platform
Choose your position and size, and your stop and limit levels
Place the trade

This report is intended for general circulation only. It should not be construed as a recommendation, or an offer (or solicitation of an offer) to buy or sell any financial products. The information provided does not take into account your specific investment objectives, financial situation or particular needs. Before you act on any recommendation that may be contained in this report, independent advice ought to be sought from a financial adviser regarding the suitability of the investment product, taking into account your specific investment objectives, financial situation or particular needs.

StoneX Financial Pte. Ltd., may distribute reports produced by its respective foreign entities or affiliates within the StoneX group of companies or third parties pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed to a person in Singapore who is not an accredited investor, expert investor or an institutional investor (as defined in the Securities Futures Act), StoneX Financial Pte. Ltd. accepts legal responsibility to such persons for the contents of the report only to the extent required by law. Singapore recipients should contact StoneX Financial Pte. Ltd. at 6826 9988 for matters arising from, or in connection with the report.

In the case of all other recipients of this report, to the extent permitted by applicable laws and regulations neither StoneX Financial Pte. Ltd. nor its associated companies will be responsible or liable for any loss or damage incurred arising out of, or in connection with, any use of the information contained in this report and all such liability is hereby expressly disclaimed. No representation or warranty is made, express or implied, that the content of this report is complete or accurate.

StoneX Financial Pte. Ltd. is not under any obligation to update this report.

Trading CFDs and FX on margin carries a high level of risk that may not be suitable for some investors. Consider your investment objectives, level of experience, financial resources, risk appetite and other relevant circumstances carefully. The possibility exists that you could lose some or all of your investments, including your initial deposits. If in doubt, please seek independent expert advice. Visit www.cityindex.com/en-sg/terms-and-policies for the complete Risk Disclosure Statement.

ALL TRADING INVOLVES RISKS. LOSSES CAN EXCEED DEPOSITS.

City Index is a trading name of StoneX Financial Pte. Ltd. (“SFP”) for the offering of dealing services in Contracts for Differences (“CFD”). SFP holds a Capital Markets Services Licence issued by the Monetary Authority of Singapore for Dealing in Exchange-Traded Derivatives Contracts, Over-the-Counter Derivatives Contracts, and Spot Foreign Exchange Contracts for the Purposes of Leveraged Foreign Exchange Trading. SFP is also both Derivatives Trading and Clearing member of the Singapore Exchange (“SGX”). SFP is a wholly-owned subsidiary of StoneX Group Inc.

The information provided herein is intended for general circulation. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. You should take into account your specific investment objectives, financial situation or particular needs before making a commitment to invest, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit. No representation or warranty is given as to the accuracy or completeness of this information. Consequently, any person acting on it does so entirely at their own risk.

The information does not represent an offer of, or solicitation for, a transaction in any investment product. Any views and opinions expressed may be changed without an update. To understand the risks and costs involved, please visit the section captioned “Important Information” and the “Risk Disclosure Statement”.

The information herein is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation.

StoneX Financial Pte. Ltd. 1 Raffles Place, #18-61, One Raffles Place Tower 2, Singapore 048616. Tel: 6309 1000. Co. Reg. No.: 201130598R.

This advertisement has not been reviewed by the Monetary Authority of Singapore.