Markets

Crude Oil to Re-Join Gold, Silver in Selloff as Risk Aversion Continues

Talking Points

  • Crude Oil Likely to Fall as Prices Re-Couple with Sentiment Trends
  • Gold Selling Likely to Continue as Risk Aversion Boosts US Dollar

WTI Crude Oil (NY Close): $100.14 // +2.37 // +2.42%

Crude oil prices produced their strongest daily advance in nearly four weeks yesterday - diverging from a slump in risky assets - amid fears that escalating tension with Iran may disrupt key supply routes following reports that Teheran planned to hold drills practicing the closure of the Strait of Hormuz. About one-sixth of global oil consumption (15.5 million barrels) flows through the Strait each day, and geopolitical observers have long said that disrupting the narrow sea passage can be potent weapon for Iran were it to be attacked as a result of growing international unease about its nuclear program.

Looking ahead, a variety of factors are at play. The geopolitical side of the story seems likely to fade into the background a bit. Indeed, the Strait of Hormuz remains open and exercises there - both by the Iranian and other navies - are not unprecedented, so yesterday's knee-jerk rally probably has scope to be unwound at least to an extent. S&P 500 stock index futures are treading water ahead of the opening bell on Wall Street but the mood in European trade is hardly positive, with regional shares nearly 1.5 percent in the red, hinting risk aversion may compound selling pressure in the hours ahead. The economic calendar may offer a bit of a countervailing force to sellers, with the DOE expected to report that US crude inventories fell the most in three weeks.

The technical picture is unchanged from yesterday, with prices testing rising trend line support set from late October. A break lower exposes the next layer of support at 94.58. Near-term resistance is found at 101.80, but only a daily close above 103.35 negates the overall downside bias established by a Bearish Engulfing candlestick pattern completed on November 17.

Daily Chart - Created Using FXCM Marketscope 2.0

Spot Gold (NY Close): $16 31 . 57 // - 35 . 00 // -2. 10 %

Gold prices fell for a second day yesterday after the Federal Reserve opted for no QE3 at its monthly policy meeting, weighing on demand for the metal as an inflation hedge and boosting the US Dollar. Indeed, gold continues to look to the benchmark currency as its chief driving catalyst, though the outlook appears conflicted ahead of the North American session as S&P 500 futures point to risk trends still looking for clear direction. A rout in Europe seems to suggest the path of least resistance points lower however.

Sizing up the technical landscape, prices are testing the lower boundary of a falling channel set from early November, with a bounce targeting support-turned-resistance at 1680.55. Support is reinforced at 1609.05. A break below this latter boundary exposes the May 2 high at 1576.05.

Daily Chart - Created Using FXCM Marketscope 2.0

Spot Silver (NY Close): $3 0 . 78 // -0. 53 // - 1 . 69 %

As with gold, silver's path of least resistance points lower as negative cues emerge out of European trade, but a lack of conviction on S&P500 stock index futures casts doubt on the bears' conviction. Prices took out a rising trend line set from late-September, exposing the next layer of support at 29.79 marked by the early-October bottom as well as the lower boundary of a falling channel. Near-term resistance is at 31.19.

Daily Chart - Created Using FXCM Marketscope 2.0

--- Written by Ilya Spivak, Currency Strategist for Dailyfx.com

To contact Ilya , e-mail ispivak@dailyfx.com . Follow me on Twitter at @IlyaSpivak

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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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