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Commodities Gain as China, Greece Bailout Hopes Boost Risk Appetite

By , Currency Strategist
20 February 2012 09:40 GMT

Talking Points

  • Crude Oil, Copper Outperform as China Delivers Monetary Stimulus
  • Gold, Silver Buoyed as Risk Appetite Recovery Weighs on US Dollar
  • Eurozone FinMin Meeting in Focus, Greek Bailout Accord Expected

Commodities are pushing broadly higher to start the trading week, with business cycle-sensitive crude oil and copper prices outperforming following news that China cut its reserve requirement ratio by 50bps. The move has stoked hopes that easing lending conditions will boost performance in the world’s second-largest economy, helping to offset headwinds facing global growth from a widely-expected recession in the Eurozone. A Bloomberg survey of economists calls for output in the currency bloc to shrink 0.5 percent this year.

Optimism is being compounded by hopeful anticipation of a final deal on the second Greek bailout package as Eurozone finance ministers gather for a meeting in Brussels today. Traders are betting the sit-down will culminate in the provision of €130 billion in EU/IMF funding to stave off a Greek default as a large tranche of maturing debt comes due on March 20. The chipper mood is encouraging capital out of the safe-haven US Dollar, offering de-facto support to gold and silver prices.

With US markets closed for the President’s Day holiday, the risk-on dynamic appears likely to carry forward without significant event risk to derail momentum. The history of EU crisis-fighting efforts over the past three years suggests sentiment will remain supported in the near term provided officials announce at least some kind of arrangement, with qualitative assessments waiting for until traders have ample opportunity to pick apart its details for precedent-setting items that can be applied to other debt-strapped nations.

WTI Crude Oil (NY Close): $103.24 // +0.93 // +0.91%

Prices broke through resistance at 103.66, the January 4 high, exposing the next upside barrier at the 123.6% Fibonacci extension (105.61). Continued upward momentum above here targets 106.81, the 138.2% Fib. The 103.66 level has been recast as near-term support.

Commodities_Gain_as_China_Greece_Bailout_Hopes_Boost_Risk_Appetite_body_Picture_3.png, Commodities Gain as China, Greece Bailout Hopes Boost Risk Appetite

Daily Chart - Created Using FXCM Marketscope 2.0

Spot Gold (NY Close): $1723.38 // -4.70 // -0.27%

Prices are testing through the top of a Descending Triangle set from early February, with a break higher invalidating the formation’s bearish implications and exposing initial resistance levels at 1746.10 and 1763.00. Near-term support lines up at 1714.05. A break below that targets 1677.05.

Commodities_Gain_as_China_Greece_Bailout_Hopes_Boost_Risk_Appetite_body_Picture_4.png, Commodities Gain as China, Greece Bailout Hopes Boost Risk Appetite

Daily Chart - Created Using FXCM Marketscope 2.0

Spot Silver (NY Close): $33.27 // -0.22 // -0.66%

Prices continue to drift slowly lower after putting in a Bearish Engulfing candlestick pattern. Initial support lines up at 32.60, the 23.6% Fibonacci retracement. Near-term resistance stands at 34.37, the February 2 wick high and Engulfing pattern top.

Commodities_Gain_as_China_Greece_Bailout_Hopes_Boost_Risk_Appetite_body_Picture_5.png, Commodities Gain as China, Greece Bailout Hopes Boost Risk Appetite

Daily Chart - Created Using FXCM Marketscope 2.0

COMEX E-Mini Copper (NY Close): $3.708 // -0.082 // -2.16%

Prices are recovering from support at 3.696, the 38.2% Fibonacci retracement level. The barrier is reinforced by a rising trend line set from mid-December. Initial resistance levels line up at 3.789 and 3.909. A daily close above 3.988 – the February 9 high – is needed to overturn near-term bearish cues established by an Engulfing candlestick pattern.

Commodities_Gain_as_China_Greece_Bailout_Hopes_Boost_Risk_Appetite_body_Picture_6.png, Commodities Gain as China, Greece Bailout Hopes Boost Risk Appetite

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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20 February 2012 09:40 GMT