Piece written by Tiaan van Aswegen, Trive Financial Market Analyst
With the oil price on track for its most significant weekly contraction since March, the United States Oil Fund (NYSE Arca: USO) has contracted close to 8.5% this week ahead of the highly anticipated Non-Farm Payroll (NFP) report later today. After a sharp selloff in the bond market triggered global growth worries, the fund has been under heavy pressure, with a strengthening greenback not doing much to help its cause. However, the jobs data could be a catalyst to reverse its recent momentum.
The market expects the NFP report to come in at 170K, down from the prior 187K. The CME FedWatch Tool predicts a 78.3% chance of the Federal Reserve keeping rates unchanged at its November meeting. The jobs data could change these expectations, enforcing directional moves in the US dollar, which has been strengthening, as seen below. A temporary retracement in the dollar could boost the fund to end the week on the front foot, but the opposite effect could add to the recent pains. Recently, signals of reduced fuel demand and a larger-than-expected rise in gasoline inventories weighed on the supply tailwinds in the oil market, making the demand environment ever more important as we head into the NFP report.
Technical
On the 1D chart, a recent breakdown of a rising wedge has sustained, with the price looking for support below the 50-SMA (blue line) at $73.49. With volumes remaining elevated, this momentum could continue, but with a crucial data release later today, the volumes could subside until the information becomes available.
If the NFP report weakens the dollar, the fund could use this support at $73.49 to bounce toward resistance at $75.17 and $76.10, the 50% Fibonacci retracement level. The 50-SMA acts as additional resistance at this level, making it challenging for the price to sustainably move toward $77.35 and $79.37, where it could meet the 25-SMA (green line) resistance.
However, if the release of the NFP report supports the continuous strengthening of the dollar on more hawkish Federal Reserve expectations, the price could continue its downtrend to shift below support at $73.49. Lower support is established at $71.42 and $69.15, where the market could look to limit the downside potential.
Summary
Despite the optimistic uptrend in the oil price in recent weeks, the United States Oil Fund has suffered from a pullback, as the supply tailwinds fail to outweigh the concerns around global demand. The next crucial event is the NFP report later today, which could either catalyse a bounce off support at $73.49 toward $76.10 or confirm the recent trend, which could see the market looking for support at $71.42.
Sources: Koyfin, Tradingview, CME Group
