Crude Oil Plunges On Strategic Reserve Sale

May Crude Oil futures sold off sharply on Wednesday after the U.S. Department of Energy said it would sell up to 5 million barrels of crude oil from the Strategic Petroleum Reserve. The move is designed to test the capabilities of the country’s emergency stockpile.

According to U.S. Department of Energy spokesman Bill Gibbons, “Due to the recent dramatic increase in domestic crude oil production, significant changes in the system have occurred.” He added further that this test sale was needed to “appropriately assess the system’s capabilities in the event of a disruption”.

Whether it was planned or not, the move means more supply and increased supply means lower prices. The reaction by traders was strong enough to drive the market through the Fibonacci level at $99.19.

Tensions in Ukraine helped boost April Gold futures today. The momentum was strong enough to drive the market through the October 2013 main top at $1361.10. Sustaining a move through this level could drive the market into the next resistance level near $1375.00.

Continued weakness in U.S. stock index futures should help underpin gold over the near-term. Besides the speculative buying caused by worries about possible military action between Ukraine and Russia, hedgers are also buying gold as protection against a steep decline in equity prices.

Buyers returned to the Euro today after a two-day setback. Overbought conditions triggered by an excessively bullish reaction to comments from European Central Bank President Mario Draghi after the central bank’s meeting on Thursday, encouraged some traders to pare positions. In addition, some traders reacted the same way on Tuesday after a central bank official said Draghi’s comments were misinterpreted.

The current chart pattern suggests trader indecision. While bullish traders want to believe the Euro Zone economy has turned the corner and may not need additional stimulus, this may not be enough buying to offset an improving U.S. economy and the continued threat of military activity between Ukraine and Russia.

Investors continued to exit the GBP/USD on Tuesday. They have been selling off the Sterling since the Bank of England announced at its last meeting that it would continue to keep interest rates low as well as its stimulus level. It further added that it would roll the interest paid on its bond purchases back into the market. This action is just another form of stimulus which is bearish for the market.

Traders may try to drive the Forex pair into a value zone at 1.6537 to 1.6469 which could then offer aggressive buyers another opportunity to explore the long side.