Pick your inflationary poison: Higher crude oil prices, or a much lower U.S. dollar. Or both?
My daily chart of July NYMEX crude oil shows the remarkable, relentless upmove from the April 2020 low under $10 to the March 2021 high just above $68. All of the action since the March 2021 high has the right look of a completed or nearly completed 10-week high level bullish digestion period and pattern that is poised for upside continuation.
A sustained climb above $67-$68 will trigger higher projections into the $74-$76 next target zone. Only a sudden sharp bout of weakness that breaks powerful, consequential support at $60-$62 will severely compromise the very constructive set up.
Let's keep in mind that at 10:30 a.m. ET, the American Petroleum Institute (API) releases its latest weekly supply data on crude, heating oil and gasoline. Given the current technical set up, with July crude pushing up against very meaningful near- and intermediate-term resistance, any surprising drawdown in crude oil supply could trigger a powerful upside price reaction that propels oil towards a test of its January 2020 (pre-COVID crisis) high at $74.10. Last is $65.80/81.
Whether and how much a thrust towards 18-month new highs in oil (gasoline) prices might impact other markets remains to be seen, but overlaid on the gargantuan amount of monetary liquidity sloshing around the financial system, coupled with huge spending plans by the Biden administration, commodity inflation might be on the cusp of another powerful upleg.
One more thing. Have a look at my attached weekly chart of the US Dollar Index. As we speak, a 5.5-year period of topping action is bearing down on the 88.25-89.25 level, which, if violated and sustained, will trigger much lower downside potential for the U.S. dollar.
The dollar is on the precipice of triggering a waterfall decline, and since crude oil is mostly priced in U.S. dollars around the world, well, you get the picture. A cheaper U.S. dollar makes oil more expensive.
