Brent Retreats Below 200MA Ahead of Key Reports

With OPEC's Oil Market Report set for release on Tuesday and the International Energy Agency's Oil Market Report on Wednesday, volatility looms over crude prices this week. Let's delve into the technical landscape of Brent Crude, the international oil benchmark, as we approach these pivotal reports.

Brent Technical Outlook: Retracement Channel in Focus

After reaching six-month highs in early April, Brent crude has eased off in recent weeks. Driving factors behind this pullback include the increasing likelihood of higher-for-longer US interest rates, and a subtle easing of tensions in the Middle East

The price action during this retreat has formed an orderly retracement channel for Brent crude, marked by a sequence of lower swing highs and lower swing lows on the daily candle chart.

This retracement has pushed prices below the 200-day simple moving average, which has maintained a sideways trajectory since September 2023, coinciding with the formation of a long-term wedge pattern in the market. Brent bears are now eyeing a potential retest of the wedge pattern's lower boundary.

However, Brent crude currently finds support at two levels - the 50% Fibonacci retracement level of the December-April rally and the volume-weighted average price (VWAP) anchored to the December lows. Brent bulls are hopeful that these combined support levels might serve as a foundation for a price recovery.

Brent Crude Daily Candle Chart
Past performance is not a reliable indicator of future results

Pre-Event Trade Plan

The impending oil market reports could trigger significant trade opportunities.

Bullish Scenario: A breakout above the descending retracement channel, followed by a close above, could pave the way for a retest of April's highs.

Bearish Scenario: A breakdown below the anchored VWAP might increase the likelihood of revisiting the lower boundary of the long-term wedge pattern.

Risk Management:

Traders can utilise Brent Crude's Average True Range (ATR), currently standing at $1.63, to gauge daily price volatility. This information should guide decisions regarding stop placement and price targets.

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