Crude Oil Consolidates, Gold Finds Bids On Diversification Demand

Talking Points

• Crude Oil Continues To Endure Negative Fundamental Cues
• Chinese Top Tier Economic Data May Offer Copper Guidance
• Gold Vulnerable To USD Strength Over Q4 – Quarterly Forecast

Crude oil benchmarks managed to recover some lost ground into the close of trading last week. Amid a light economic docket and broad-based risk aversion the rebound likely reflected profit-taking on short positions following a period of steep declines for the growth-sensitive commodity.

Looking ahead a light economic docket at the outset of the week alongside public holidays in Japan and the US may see light trading volumes for the major commodities. While ongoing unrest in Iraq has made headlines over the weekend, crude oil supply disruptions from the OPEC producer remain unlikely at this stage. Coupled with reports that neighboring Iran has joined Saudi Arabia in offering crude at a discount, this may keep anticipation over ample supplies alive, and weigh on prices. Nonetheless there be some more room for profit which could afford WTI and Brent a consolidation.

Meanwhile, gold and silver continue to keep traders in suspense as they hover near noteworthy technical barriers. The precious metals have held up relatively well in spite of broader gains for their USD counterpart. This may in part reflect portfolio diversification flows amid a general souring of sentiment. However, in instances of severe ‘panic’ the US Dollar typically trumps the alternative asset as a store of wealth. This suggests if the most recent bout of risk-aversion snowballs gold may face renewed selling pressure.

Finally, we are staring down a busy week for Chinese economic data with Trade Balance, Financing and CPI data on tap. While the Asian giant recently posted a record trade surplus it was partly attributed to a decline in imports. A continued deterioration may fan fears over a waning demand for growth-sensitive commodities including copper. Further, ongoing turmoil in Hong Kong may continue to keep investor nerves on edge and make a recovery an even greater challenge for the base metal.

ECONOMIC EVENTS

Source:DailyFX Economic Calendar, Times In GMT

Market Movements (Fri 10 Oct, 2014, Close 5PM EST)

CRUDE OIL TECHNICAL ANALYSIS

Small buying interest has been renewed at the 84.00 handle for WTI which has prompted the emergence of a Harami formation. Yet in the context of a downtrend and absence of reversal signals a daily close below the nearby barrier would open a descent on the ’12 low at 77.00

Crude Oil: Awaiting Close Below 84.00 To Open Next Leg Lower

Daily Chart - Created Using FXCM Marketscope 2.0

GOLD TECHNICAL ANALYSIS

Gold remains at a crossroads as it compresses under its descending trendline on the daily. The Rate of Change indicator’sprobe into positive territory signals some upside momentum. However, a Shooting Star offers a warning sign that bulls are not yet prepared to firm their grip on the yellow metal. This leaves a more constructive setup desired.

The DailyFX SpeculativeSentimentIndex suggests a mixed bias for gold based on trader positioning.

Gold: At A Critical Juncture Near Key Technical Barrier

Daily Chart - Created Using FXCM Marketscope 2.0

SILVER TECHNICAL ANALYSIS

Silver’s recent rebound remains seen as corrective within the context of a broader downtrend on the daily (20 SMA and descending trendline). A more convincing close above former support-turned-resistance at 17.30 would be required to mark the potential for a more sustained recovery. Yet with downside momentum fading (reflected by the ROC) a consolidation may be a likely path for the precious metal.

Silver: Consolidation May Ensue As Negative Sentiment Fades

Daily Chart - Created Using FXCM Marketscope 2.0

COPPER TECHNICAL ANALYSIS

Copper remains at a crossroads as it skims across the 3.00/1 floor after failing to post a more convincing daily close below the barrier. Amid the presence of a short-term downtrend a breakout could set the scene for a descent on the 2.96 barrier. Yet the Rate of Change indicator and a sea of Dojis suggests the bears have lost momentum for the time-being.

Copper: Awaiting “Breakout” Within Broader Bearish Context

Daily Chart - Created Using FXCM Marketscope 2.0

PALLADIUM TECHNICAL ANALYSIS

Palladium has failed to breach the 38.2% Fib. near 801 and respected the 20 SMA on the daily. This suggests we may see the precious metal return to its downward trajectory. A close below 775 would open a revisit of the recent lows near 735. However, some caution in playing the downside is warranted by fading sentiment suggested by the Rate of Change indicator.

Palladium: Respect Of Key Fib Puts 735 Back On The Cards

Daily Chart - Created Using FXCM Marketscope 2.0

PLATINUM TECHNICAL ANALYSIS

Platinum’s recovery has stumbled ahead of the 38.2% Fib. and 20 SMA. Alongside a Shooting Star formation the bears seem unprepared to relinquish their grip on prices. The daily close below the 1,263 floor would see the precious metal turn its sights on the recent lows near 1,186.

Platinum: Sights Turn Back To 1,186 With Downtrend Intact

Daily Chart - Created Using FXCM Marketscope 2.0

Written by David de Ferranti, Currency Analyst, DailyFX

To receive David’sanalysis directly via email, please sign up here

Contact and follow David on Twitter: @DaviddeFe