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Crude Oil Aims Higher on Improving Demand Bets, Gold Eyes US CPI

By , Currency Strategist
17 February 2012 09:40 GMT

Talking Points

  • Crude Oil, Copper Aim Higher as Improving US Data Boosts Demand Outlook
  • Gold, Silver Look to US Inflation Report as QE3 Expectations Remain in Focus

Crude oil prices rose to the highest in over a month yesterday after a broadly supportive set of US economic data bolstered the demand outlook in the world’s largest consumer. Geopolitical jitters continued to compound upward pressure after Iran claimed a “major” breakthrough in its nuclear program after 3,000 next-generation centrifuges were allegedly installed at its main enrichment site in Natanz. The US State Department dismissed the news as “hype” for the domestic audience.

While the war of words between Tehran and Western powers continues, there seem to be signs of a stealth effort toward accommodation in the works. As we noted yesterday, reports indicate Iran cancelled military exercises in the Strait of Hormuz set for this weekend, which is can be interpreted as a conciliatory measure. This could open the door for the geopolitical premium to begin making its way out of crude prices, but a clear bearing on this front will not be had until the weekend passes and the cancellation rumors are confirmed.

In the meantime, the US economic calendar is in focus. The composite Leading Indicators gauge is expected to print at the highest since July 2008 today, which promises to encourage demand expectations higher and keep prices well supported. Copper may likewise see upside momentum as stronger US data underpins the outlook for the world’s second-largest importer of the cycle-sensitive base metal. Gold and silver will be focused on the US Consumer Price Index report as inflation expectations remain in the spotlight. Core inflation is expected to hold unchanged at an annual rate of 2.2 percent in January, which ought to prove net-neutral for QE3 expectations and may yield a muted end to the trading week.

WTI Crude Oil (NY Close): $102.31 // +0.51 // +0.50%

Prices continued higher after breaking through resistance at 101.28, with the bulls pushing onward to challenge the mid-November swing top at 103.35. A break above that barrier targets 105.54. The 101.28 level has been recast as near-term support.

Crude_Oil_Aims_Higher_on_Improving_Demand_Bets_Gold_Eyes_US_CPI_body_Picture_3.png, Crude Oil Aims Higher on Improving Demand Bets, Gold Eyes US CPI

Daily Chart - Created Using FXCM Marketscope 2.0

Spot Gold (NY Close): $1728.07 // -0.07 // -0.00%

The would-be Head and Shoulders setup hinted over recent days is starting to look unlikely as the right side of the formation becomes a bit too overextended. A Descending Triangle set from the February 3 high now looks like a more likely setup. The pattern also calls for losses, although like the H&S a close below support at 1714.05 is needed for confirmation. If that materializes, the bears will open the door for a test of 1677.05. Triangle resistance is now at 1730.33, with a break higher targeting 1763.00.

Crude_Oil_Aims_Higher_on_Improving_Demand_Bets_Gold_Eyes_US_CPI_body_Picture_4.png, Crude Oil Aims Higher on Improving Demand Bets, Gold Eyes US CPI

Daily Chart - Created Using FXCM Marketscope 2.0

Spot Silver (NY Close): $33.50 // +0.05 // +0.14%

Prices put in a bullish Dragonfly Doji candlestick above support at 32.54, the 23.6% Fibonacci retracement level, hinting a bounce may be ahead. Initial resistance lines up at 34.51, the February 8 swing high, with a break above that exposing 35.30. The gold/silver ratio continues to show a meaningful inverse relationship with stock prices, meaning the cheaper metal is likely to underperform in a risk-off scenario (and vice versa).

Crude_Oil_Aims_Higher_on_Improving_Demand_Bets_Gold_Eyes_US_CPI_body_Picture_5.png, Crude Oil Aims Higher on Improving Demand Bets, Gold Eyes US CPI

Daily Chart - Created Using FXCM Marketscope 2.0

COMEX E-Mini Copper (NY Close): $3.790 // -0.012 // -0.32%

Prices put in a Dragonfly Doji candlestick above support at 3.738, the 23.6% Fibonacci retracement level, suggesting a corrective upswing is ahead. Initial resistance lines up at 3.834, the 14.6% Fib level, with a break above that exposing the January 27 high at 3.938.

Crude_Oil_Aims_Higher_on_Improving_Demand_Bets_Gold_Eyes_US_CPI_body_Picture_6.png, Crude Oil Aims Higher on Improving Demand Bets, Gold Eyes US CPI

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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17 February 2012 09:40 GMT