USOil has more upside potential; stagflation threatens

  • USOil
    (${instrument.percentChange}%)

Oil Technicals

Oil prices have appreciated as the tensions between Russia and Ukraine have intensified. The chart on the left below shows the USOil weekly heikin ashi chart. These candles are trend-following indicators and are trading in USOil's strength zone, between the upper blue and red bands. I.e., the two trend-following systems are reinforcing one another. The weekly RSI is within regular readings, implying that there is still potential scope for more upside before registering as overbought. The chart on the right below shows the H4 timeframe for USOil. Price is moving towards the critical R1 pivot, which is also price resistance (red shaded horizontal). The stochastic is over 80, suggesting a solid underlying momentum. If the stochastic rolls around, the momentum may be waning. However, the H4 RSI is also within normal levels, showing no signs of exuberance. This means that the stochastic may maintain its upper quintile (blue rectangle). If so, this bullishness has the potential to drive USOil higher and above the critical confluence resistance at R1.

Stagflation Threatens

Yesterday, Russian forces were ordered into two breakaway regions of eastern Ukraine, triggering fears of further military action. Russia was the largest supplier of natural gas and oil to the EU in 2021, supporting energy prices. This confounds an already tight energy market, with oil prices already appreciating by 20% for this year. Given the current high inflation levels, policymakers will be concerned, especially since higher costs on the supply side are significant contributors to stagflation – a policymaker's nightmare.

Featured Image by John R Perry from Pixabay

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Russell Shor

Senior Market Specialist

Russell Shor joined FXCM in October 2017 as a Senior Market Specialist. He is a certified FMVA® and has an Honours Degree in Economics from the University of South Africa. Russell is a full member of the Society of Technical Analysts in the United Kingdom. With over 20 years of financial markets experience, his analysis is of a high standard and quality.

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