Crude Sees Corrective Bounce, Gold At Risk As Ukraine Concerns Fade

Talking Points

• Crude Oil Sees Corrective Bounce, Sustained Recovery Questionable
• Gold, Silver Remain Vulnerable To Fading Geopolitical Fears
• Palladium Retreats From 13 Year High After Hitting Key Technical Level

Crude oil is recovering ground during the Asian session as traders likely book profits on short positions, which follows a period of steep declines over the past several weeks. Meanwhile, the precious metals remain exposed to ebbing geopolitical concerns, which threaten to sap safe-haven demand for the alternative assets.

Fuel To Sustain Crude Recovery May Prove Limited

The WTI and Brent benchmarks have managed to regain their footing today following a period of dramatic declines over the past two months. Newswires pointed to anticipation of a bullish inventories report from the DOE due on Wednesday as a reason for the recovery. However, a corrective bounce on the back of profit taking seems a more likely rationale at this stage.

The commodities remain hyper-sensitive to incoming news flow related to conflict in both Iraq and Eastern Europe. Speculation over supply disruptions holds the potential to yield a sharp upswing. However, traders should be wary that a recovery on the back of supply concerns from either region may prove difficult to sustain. At this stage production has remained unimpeded by the geopolitical turmoil.

Gold, Silver Remain Vulnerable To Fading Geopolitical Fears

The precious metals are treading water during the Asian session thus far yet may struggle to regain ground lost over the past week. The embers from the latest geopolitical flare-up are glowing, which has likely offered a source of buying support for the alternative assets. However, in the absence of a more material escalation gold could lose its shine, leaving it to resume its recent decent.

The same concerns ring true for Palladium. The precious metal snapped an eight day winning streak yesterday after hitting a 13 year high earlier in the week. Fears over supply disruptions from Russia, the world’s largest producer of the metal, had likely helped push the commodity to a critical technical level at $900 an ounce.

Turning to the US Dollar side of the equation; CPI figures from the world’s largest economy are on the radar. However, it would likely take a significant upside surprise to yield a sustained drive higher for the greenback.

Recent rhetoric from Fed officials suggests the threshold for a policy response to a pick-up in inflation is high. While broader measures of the labor market remain a concern for policy makers a reluctance to discuss rate hikes may persist. This in turn may see the US Dollar struggle to break free of its longer-term range, which in turn could afford gold some breathing room.

Source: DailyFX Economic Calendar, Times In GMT

CRUDE OIL TECHNICAL ANALYSIS

Downside risks remain for crude over the coming weeks with a backdrop of a sustained downtrend alongside negative momentum (signaled by the ROC). However, given the speed and magnitude of the commodity’s descent, the potential a short-term corrective bounce should not be neglected. A daily close above the descending trendline and 98.90 barrier would be required to signal a shift in sentiment to the upside and to mark a small base.

Crude Oil: Facing Further Weakness With Downtrend Intact

Daily Chart - Created Using FXCM Marketscope 2.0

GOLD TECHNICAL ANALYSIS

Gold has managed to post a daily close below the 1,305 floor that had kept the precious metal supported over recent weeks. This makes for a convincing break which casts the immediate risks lower. Sustained weakness would likely be met by buying interest near the July lows at 1,280. Meanwhile, a climb back within the 1,305 to 1,320 trading band would suggest a renewed range-bound environment.

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

Gold: Daily Close Below 1,305 Opens Knock On 1,280

Daily Chart - Created Using FXCM Marketscope 2.0

SILVER TECHNICAL ANALYSIS

The 19.75 barrier has finally been breached for silver, which casts the spotlight on the psychologically-significant 19.00 handle. The sustained presence of a short-term downtrend on the daily reinforces the prospect of further weakness for the precious metal. While a Doji candlestick suggests some hesitation from the bears to lead the precious metal lower, further confirmation would be required to suggest the potential for a reversal. A daily close above the descending trendline and 20.10 ceiling would be required to shift the bias to the upside.

Silver: Breaches 19.75 Barrier To Target 19.00

Daily Chart - Created Using FXCM Marketscope 2.0

COPPER TECHNICAL ANALYSIS

Copper has completed a double top formation with a break of the baseline suggesting the potential for further weakness. The daily close below the 3.117 mark (61.8% Fib) sets the stage for a descent to the base metal’s May low near 3.01. A Piercing Line formation warns of a recovery, which at this stage may prove little more than a corrective bounce. A climb back above the 3.19 hurdle would be required to negate a bearish technical bias.

Copper: Double Top Formation Keeps Immediate Risk Lower

Daily Chart - Created Using FXCM Marketscope 2.0

PALLADIUM TECHNICAL ANALYSIS

Palladium has retreated slightly after hitting the 900 target that was offered in recent reports. A Doji suggests some hesitation from the bulls to lead the precious metal higher, which may be a precursor to a small correction. However, buying on dips would remain the preference while the backdrop of an uptrend persists.

Palladium: Retreats After Hitting 900 Target

Daily Chart - Created Using FXCM Marketscope 2.0

PLATINUM TECHNICAL ANALYSIS

Platinum may face further weakness following its clearance of the ascending trend channel on the daily. This is reinforced by the sustained presence of a downtrend (denoted by the 20 SMA), as well as an Evening Star formation near 1,486. A daily close below the nearby 1,443 barrier would open the July lows near 1,424.

Platinum: Crashes Through Trendline Support

Daily Chart - Created Using FXCM Marketscope 2.0

Written by David de Ferranti, Currency Analyst, DailyFX

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