Crude Oil May Bounce on EU Summit, Gold Chart Calls for Losses

Commodities - Energy

Crude Oil May Bounce on EU Summit Outcome

WTI Crude Oil (NY Close): $9 5 . 41 // + 2 . 01 // + 2 . 15 %

A decoupling from risk appetite trends that saw crude deviate from the S&P 500 for second day played in crude's favor this time around. The WTI contract managed to advance despite a selloff on Wall Street as official DOE inventory figures revealed a much larger drop in inventories (-1711k barrels) last week than had been anticipated by preliminary API figures released on the previous day (-81k barrels).

Looking ahead, the absence of energy-specific economic data for the remainder of the week ought to see the link between crude and the S&P 500 reestablished, which argues for a bearish bias at the moment as futures contracts tracking the US benchmark stock index sink to the tune of 0.5 percent ahead of the opening bell in New York. Broadly speaking, this makes sense. Chinese and Euro Zone PMI readings showed continued slowdown in both regions while yesterday's FOMC announcement painted a stark picture of lackluster performance coupled with the absence of further stimulus. Plainly put, all three of the world's top economic growth engines now look worse than before, pointing to a weak second half of 2011 for oil demand.

The situation is highly unstable over the short term however as all eyes turn to the EU leaders' summit in Brussels amid hopes for progress on resolving the Greek fiasco. As we discussed in detail elsewhere, political brinksmanship is nothing new for EU politicians and the primacy of political concerns over economic ones suggests some manner of surface-level agreement deemed credible enough to stop the bleeding and pause the Greek crisis for the time being is a likely outcome. This will offer sentiment a temporary boost, which promises to lift crude along with share prices. A break through resistance at $94.49 exposes $96.86.

Commodities - Metals

Gold Technical Setup Hints at Weakness

Spot Gold (NY Close): 154 8 . 95 // + 2 . 65 // +0. 17 %

Standstill continues below the midline of a rising channel that has confined price since early May, a boundary reinforced by the June 6 high at $1553.42. A Spinning Top candlestick points to indecision and hints that a move lower may be ahead, with the bears initially targeting the channel bottom now at $1525.32.

The direction of the US Dollar seems to have become an increasingly important driver for the yellow metal over the past couple of days, making it de-facto aligned with the risky side of the asset spectrum given the greenback's safe-haven allure in the current environment. With that in mind, the overnight drop in S&P 500 index futures argues for losses, although again the outcome of the EU summit remains a wild card over the near term.

Spot Silver (NY Close): $36.35 // -0.01 // -0.00%

Silver continues to drift sideways but overall positioning has looked broadly bearish since sellers pushed prices lower out of a triangle chart pattern last week. ETF holdings remain at a seven-month low, pointing to fading investment demand and reinforcing the bearish implications of technical positioning. Near-term support lines up at $34.78, with a break lower exposing $32.24. Immediate resistance stands at $36.34. The gold/silver ratio continues to show a significant inverse correlation with the S&P 500, suggesting the risk-averse cues evident in the overnight stock index futures drop are hinting the cheaper metal will underperform over the near term.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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