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Commodities Broadly Sold as Chinese, European PMIs Sink Risk Appetite

By , Currency Strategist
22 March 2012 08:53 GMT

Talking Points

  • Crude Oil, Copper Sold as Chinese, European PMIs Sink Demand Outlook
  • Gold and Silver Down as Risk Aversion Stokes Haven Flows into US Dollar

Commodity prices are broadly lower in early European trade as risk aversion grips financial markets. Sentiment began to sour overnight after Chinese manufacturing PMI figures disappointed, showing factory sector shrank at the fastest pace in four months. European economic data didn’t help matters as the preliminary set of March manufacturing- and service-sector PMIs printed sharply below expectations. Growth-sensitive crude oil and copper are down as demand expectations dropped while anti-fiat gold and silver prices are under pressure as the selloff stokes safe-haven demand for the US Dollar.

Looking ahead, S&P 500 stock index futures are trading sharply lower, hinting the bloodletting will carry into the opening bell on Wall Street. Bearish momentum may meet a bit of resistance as US economic data comes into the spotlight. The House Price Index reading is expected to see home values rise 0.3 percent to the highest level in five months. Meanwhile, the Leading Indicators gauge is forecast to post the largest monthly increase since March 2011 at 0.6 percent. Weekly Jobless Claims figures are also on tap but expectations point to relatively modest changes that are unlikely to materially impact the four-week trend in initial or continuing applications for benefits, meaning price action is likely to yield a muted response.

WTI Crude Oil (NY Close): $107.27 // +1.20 // +1.13%

Prices put in a Bearish Engulfing candlestick below resistance at 108.32, the 14.6% Fibonacci retracement. It is unclear at this point whether the move marks a true bearish reversal or merely a correction to retest recently broken Falling Wedge top resistance. A break of the next layer of support at 104.75 marked by the 38.2% Fib would act as confirmation.

Commodities_Broadly_Sold_as_Chinese_European_PMIs_Sink_Risk_Appetite_body_Picture_3.png, Commodities Broadly Sold as Chinese, European PMIs Sink Risk Appetite

Daily Chart - Created Using FXCM Marketscope 2.0

Spot Gold (NY Close): $1650.43 // -0.35 // -0.02%

Prices continue to carve out a Falling Wedge bullish reversal chart formation, with a Harami candlestick pattern above support at 1638.84 reinforcing the likelihood of a bounce. Initial resistance lines up in the 1666.37-1677.05 area, with a break above that validating the Wedge setup and exposing resistance barriers at the 1700/oz figure as well as 1718.05.

Commodities_Broadly_Sold_as_Chinese_European_PMIs_Sink_Risk_Appetite_body_Picture_4.png, Commodities Broadly Sold as Chinese, European PMIs Sink Risk Appetite

Daily Chart - Created Using FXCM Marketscope 2.0

Spot Silver (NY Close): $32.16 // +0.01 // +0.04%

Prices continue to stall having completed a Head and Shoulders top chart pattern with a break below the formation’s neckline at 32.97, the 38.2% Fibonacci retracement level. Initial support remains at 31.67, the 50% Fib, with a break lower exposing the 61.8% retracement at 30.37. The H&S setup implies a measured downside objective at 26.84, which closely coincides with the late December bottom. The 38.2% level has been recast as near-term resistance.

Commodities_Broadly_Sold_as_Chinese_European_PMIs_Sink_Risk_Appetite_body_Picture_5.png, Commodities Broadly Sold as Chinese, European PMIs Sink Risk Appetite

Daily Chart - Created Using FXCM Marketscope 2.0

COMEX E-Mini Copper (NY Close): $3.846 // +0.016 // +0.42%

Prices are testing below support at 3.808, the 23.6% Fibonacci retracement, with a break below that exposing the 3.696-3.713 area anew. For the time being, near-term resistance remains at a falling trend line resistance connecting major highs since early February, now at 3.910.

Commodities_Broadly_Sold_as_Chinese_European_PMIs_Sink_Risk_Appetite_body_Picture_6.png, Commodities Broadly Sold as Chinese, European PMIs Sink 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 Ilya on Twitter at @IlyaSpivak

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22 March 2012 08:53 GMT