WTI crude oil has been trending higher as it formed higher lows and higher highs inside an ascending channel. Price is currently testing the channel top and might be due for a correction to support before heading further up.
Applying the Fib tool on the latest swing low and high shows that the 61.8% level lines up with the channel support around $58 per barrel. A shallow pullback could already find support at the 38.2% level or $58.22 per barrel.
However, the 100 SMA is below the longer-term 200 SMA to indicate that the path of least resistance is to the downside. In other words, bearish pressure is still in play, but the gap between the indicators has narrowed to signal weakening selling pressure.
RSI is also in the overbought zone to signal exhaustion among buyers and a likely return in bearish momentum. This might be enough to take price down to the nearby support levels marked by the Fib tool or lower. Stochastic is also indicating overbought conditions and could be due to turn south again.
Crude oil is edging higher ahead of the US inventory reports as traders might be expecting a large drawdown in stockpiles. Apart from that, escalating tensions in the Middle East are also dampening global oversupply fears, on top of the nine-month extension in the OPEC output deal.
Risk appetite has also been supported overall, with market watchers still expecting to hear rate cut hints from Fed Chairman Powell in his upcoming speech this week. A more dovish tone could spur expectations of lower borrowing costs, which would be beneficial for businesses and consumers, in turn ramping up demand for commodities like crude oil in the longer run. Apart from that, improving trade tensions are also keeping higher-yielding assets supported, as this could signal an end to the global economic slowdown.