Fiscal Cliff Optimism Drives Crude Oil through $90

February crude oil closed sharply higher after posting a wide range in active trading. The strong up move marked the first positive close in two sessions. Today’s price action took out the December 3 top at $90.90, changing the main trend to up. If upside momentum can continue then the next potential target is a 50% level at $93.35.

Traders are backing the long side of the market as optimism builds that President Barack Obama and the U.S. Congress can reach a budget solution to meet the year-end deadline and avoid the so-called fiscal cliff.

Also driving the market higher is the forecast that U.S. oil stock piles probably fell last week to the lowest level in 10 weeks. Traders cite higher usage by refineries and a drop in imports as the main reason for the decline in supply. A failure to reach an agreement regarding tax hikes and spending cuts will probably lead to speculative selling as traders are likely to begin positioning themselves for a possible first quarter recession. 

Since the crude oil market is susceptible to fiscal cliff news, there is a possibility of increased volatility over the near-term. 

Oversold conditions and a weaker U.S. Dollar helped boost February gold on Wednesday. Based on the near-term range of $1725.00 to $1636.00, expectations are for a possible rally to $1680.50 to $1691.00 over the near-term. 

Optimistic traders supported the EUR/USD today. Following a three-day sell-off from the December top at 1.3308, investors stepped in at 1.3158, helping to form a short-term low. The main trend is up on the daily chart, but investors could find resistance at 1.3233 to 1.3251. Today’s rally could be aggressive short-covering or new buying. The reason for the move is not clear, but either way, it is being driven by the possibility that a solution may be reached this week regarding U.S. tax and budget issues. 

Technical factors as well as oversold conditions helped to support the GBP/USD today. After holding the December 24 low at 1.6101, the Sterling found support on an uptrending Gann angle today at 1.6106, helping to drive the market higher. Sentiment shifted to the upside as the British Pound piggy-backed a strong rebound in the Euro and a sell-off in the U.S. Dollar.