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Crude Oil Aiming Higher, Gold Vulnerable on Fed Meeting Outcome

By , Currency Strategist
25 April 2012 08:46 GMT

Talking Points

  • Crude Oil, Copper to Follow Stocks Higher on Supportive Fed Outlook
  • Gold and Silver Vulnerable if FOMC Outcome Dents QE3 Bets Further

The spotlight is pointing squarely at the Federal Reserve policy announcement today. The central theme driving the spectrum of financial markets in the second quarter is the degree to which headwinds from the Eurozone and China can be offset by a firmer recovery in the US, and the outcome here will be critical to evaluating the latter part of the equation. The most market-moving component of the outing is likely to be found in an updated roundup of forecasts for interest rates and key economic performance metrics from individual FOMC members. Ben Bernanke’s post-announcement press conference may likewise spark volatility if any of the Chairman’s remarks catch the markets off-guard.

On balance, a relatively supportive outcome seems likely. Although US economic data has struggled to outperform relative to expectations lately, this most probably reflects a catch-up in analysts’ forecasts rather than slowing growth. Indeed, a survey of economists polled by Bloomberg shows that consensus bets on 2012 output have edged higher since the last FOMC meeting. If a similarly rosy view is seen emerging among Fed policymakers, that ought to prove supportive for growth-geared commodities including crude oil and copper. Gold and silver prices are likely to suffer however as fading QE3 hopes dent demand for a non-fiat inflation hedge and drive the US Dollar higher.

WTI Crude Oil (NY Close): $103.55 // +0.44 // +0.43%

Prices remain wedged between resistance at 104.90 and a rising trend line support set from mid-December, with a Bullish Engulfing candlestick pattern arguing for an upside bias. A break above 104.90 exposes falling trend line resistance at 106.25. Support is now at 101.78.

Crude_Oil_Aiming_Higher_Gold_Vulnerable_on_Fed_Meeting_Outcome_body_crudeoil.png, Crude Oil Aiming Higher, Gold Vulnerable on Fed Meeting Outcome

Daily Chart - Created Using FXCM Marketscope 2.0

Spot Gold (NY Close): $1642.27 // +3.45 // +0.21%

Prices are testing below support at 1638.02, the 23.6% Fibonacci expansion, after putting in a Bearish Engulfing candlestick pattern below falling trend line resistance set from early March. A break lower exposes the 38.2% level at 1612.02. Trend line resistance is now at 1664.19.

Crude_Oil_Aiming_Higher_Gold_Vulnerable_on_Fed_Meeting_Outcome_body_Picture_4.png, Crude Oil Aiming Higher, Gold Vulnerable on Fed Meeting Outcome

Daily Chart - Created Using FXCM Marketscope 2.0

Spot Silver (NY Close): $30.85 // -0.13 // -0.04%

Prices finally took out support at 31.04 this week, exposing the next downside target at 29.79. The 31.04 level has been recast as near-term resistance. Broadly speaking, a Head and Shoulders (H&S) top carved out between late January and mid-March argues for a measured downside target at 26.84.”

Crude_Oil_Aiming_Higher_Gold_Vulnerable_on_Fed_Meeting_Outcome_body_Picture_5.png, Crude Oil Aiming Higher, Gold Vulnerable on Fed Meeting Outcome

Daily Chart - Created Using FXCM Marketscope 2.0

COMEX E-Mini Copper (NY Close): $3.672 // +0.046 // +1.27%

Prices continue to test rising trend line support set from early October, now at 3.639. A break lower exposes supports at 3.573 and 3.522 marked by swing tops in early December and January respectively. Initial resistance lines up at 3.713.

Crude_Oil_Aiming_Higher_Gold_Vulnerable_on_Fed_Meeting_Outcome_body_Picture_6.png, Crude Oil Aiming Higher, Gold Vulnerable on Fed Meeting Outcome

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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25 April 2012 08:46 GMT