Commodities - Energy
Oil Focused on US Consumer Confidence, 2-Year Bond Sale
WTI Crude Oil (NY Close): $112.28 // -0.01 // -0.01%
Prices put in a bearish Spinning Top candlestick below resistance at $113.44, the April 11 high, a barrier reinforced by support-turned-resistance at a rising trend line set from the lows in mid-February. A pullback from here sees initial support at $109.37, the 23.6% Fibonacci retracement of the 3/16-4/11 advance.
Risk sentiment trends remain in focus, with short-term correlation studies pointing to the strongest link between the WTI contract and the MSCI World Stock Index in four months (0.71). Over the next 24 hours, this puts the spotlight on US Consumer Confidence figures as traders size up the toll that recent crude price gains have had on demand in the world's top oil-buying country. Expectations call for a rebound in April after the gauge hit three-month low in the previous month, which ought to prove supportive. Weekly API inventory figures are also on tap.
Investors will also keep an eye on US Treasury yields ahead of tomorrow's 2-year bond auction amid fears that the recent S&P downgrade of the US' credit outlook will boost borrowing costs, weighing on economic growth expectations. Monday's 3- and 6-month bill sale saw the highest yields in close to a month, stoking concerns. Similar outcomes on offerings of longer-term maturity US debt may put a dent in sentiment, pressuring crude lower.
Commodities - Metals
Gold Looks to Treasury Yields for Direction Cues
Spot Gold (NY Close): $ 1507.23 // + 0 . 38 // + 0 . 02 %
Prices pulled back from resistance at the top of a rising channel set from late March, with negative RSI divergence arguing for a deeper downward correction ahead. Initial support lines up at $1496.50, the 161.8% Fibonacci extension of the pullback from the April 11 high, with a break below that exposing $1476.45.
Inflation expectations remain in focus, with gold prices tracking US breakeven rates (the spread between yields on regular and inflation-indexed Treasury bonds of equal maturity). The benchmark 10-year bond yield has been closely tracking its inflation-adjusted counterpart, putting the spotlight on tomorrow's debt auction. Borrowing costs will almost surely rise in nominal terms after the S&P downgrade of the US credit outlook, so the key question will become the extent to which traders see the rise as manageable.
On balance, if the markets conclude that the increase in lending rates does not materially threaten the US economic recovery, gold prices are likely to follow crude higher as bets on higher growth underpin investors' inflation outlook. Alternatively, a pullback has scope to materialize if markets believe the rise in yields will significant enough to materially bear down on economic and price growth alike.
Spot Silver (NY Close): $46.91 // -0.34 // -0.72%
Prices put in an acutely bearish Spinning Top candlestick formation at the top of a rising channel in place since late January, hinting a pullback is ahead after prices hit a record high in yesterday's session. Initial support stands at $44.37, with a break below that exposing $41.94.
The short-term directional correlation between gold and silver remains firm, suggesting the two metals will continue to move along the same trajectory. The gold/silver ratio moved higher for the first in 10 days, although we will need to see more follow-through to conclude that silver would now begin to materially underperform its more expensive counterpart.
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