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Brent Oil prediction this week January 27 to February 2: price likely to offer a low-risk buying opportunity

By Rakesh Upadhyay

Coronavirus drives prices down amid market uncertainty. How should traders respond?

The Brent oil market dipped 6.83 per cent in the past week, which was its worst weekly loss since end-May of last year. One of the main reasons for the fall was the coronavirus outbreak in China. The market participants believe that if the situation does not come under control quickly, it will impact demand in China, which is the largest importer of crude oil. Goldman Sachs believes that the coronavirus threat can reduce the price of oil by $3.

However, once the epidemic is under control the oil markets are likely to snap back. While the short-term price action is dictated by sentiment and unexpected events, fundamentals of supply and demand decide the long-term price action. Let’s analyse the Brent oil weekly chart to determine its next likely move.

Brent oil price prediction chart: weekly

Within the past three weeks, Brent has plunged from an intraday high of $71.28 to the current levels at $58.50, which is a drop of about 18 per cent. The next support to watch on the downside is $55.73, which has acted as a strong support on two previous occasions (marked via ellipse on the chart). 

With both moving averages starting to slope down and RSI in the negative territory, advantage is clearly with the bears. However, we anticipate the bulls to mount a strong defence at $55.73 once again.

If the price bounces off $55.73, the bulls will attempt to gradually carry it to the $62.50 and above it to $67.50. On the other hand, if the bears sink the price below the critical support at $55.73, a drop to $50.42 is possible. 

The Brent oil weekly chart has turned negative but let’s analyse the Brent oil daily chart to see if we spot any possibilities of a reversal.

Brent oil prediction chart: daily

Brent oil continues to slide towards the strong support at $55.73. The moving averages have completed a bearish crossover, which suggests that the bears are in command.

However, the fall from the highs of $70.59 on January 8 to the current levels has been sharp, which has pushed the RSI deep into the oversold territory. This suggests that the selling has been overdone in the short-term and a relief rally is likely. However, any recovery attempt will face a stiff resistance at the downsloping 20-day EMA.

Contrary to our assumption, if the bears continue to pound Brent oil and sink it below the support at $55.73, a drop to the psychological support at $50 is possible. However, we give it a low probability of occurring.

Do we spot a trading opportunity in Brent oil this week? Let’s find out.

Brent oil price prediction for January 27 to February 2: how to trade it

Brent oil has repeatedly found strong support in the $57 to $55.73 support zone. Hence, this zone may offer a low-risk buying opportunity for the traders with a close stop loss placed at $55. The traders can wait for the price to bounce off this zone before initiating long positions. The first target objective on the upside is $62 and above it $67.50.

As the downside momentum is strong, traders should avoid buying on the way down. They should wait for the price to bounce and sustain it for a few hours before buying.

FURTHER READING: Oil price predictions for 2020 and beyond

FURTHER READING: Gold gains and Oil falls as coronavirus death toll rises

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