Support and resistance are converging for brent oil. In the coming days, it will be forced to break out either to the upside or downside. Subsequently, a strong trending phase could ensue. Following the volatility after the Saudi attack last month, brent oil retraced back to prior support around $57.40, as shown in figure 1.
Support around this area comes not only from identifying it as a prior support level but also from a Fibonacci extension of the final upward swing in the prior move to the upside shown in the 4-hourly chart in figure 2.
The price range between the low labelled A and the high labelled B is divided by significant Fibonacci ratios. The 2.618 level coincides very closely with the prior support level. The market has already found support from both the green horizontal level and the yellow 2.618 level.
Figure 3 returns to a daily chart. A white box is drawn to represent the horizontal support zone established between the green line and the 2.618 extension level in figures 1 and 2.
Also in figure 3, a Fibonacci/Speed fan is constructed from the range between point X and point Y. Notice that the 0.25 trendline acts as falling resistance for most of the downtrend from X. The market did break above the 0.25 trendline for a short period, but has fallen back below. The price is currently enclosed in a triangle formed by the support zone below and the falling trendline from above, shown in figure 4. This triangle will end soon, forcing the market to break one of these barriers.
Breaking through one of these barriers will probably have a significant effect on price action for some time. Breaking below the support zone could give the market enough momentum to take prices much lower.
On the other hand, breaking above the 0.25 trendline could give bulls the boost they need to reverse the entire trend. It’s important to watch which barrier is broken in the next few days, but also the manner in which it is broken. The strength of the breakout could suggest the strength of the trend which will follow.