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Commodities May Recover from Early Losses as QE3 Bets Rebuild

By , Currency Strategist
04 June 2012 10:21 GMT

Talking Points

  • Crude Oil, Copper Sold as China Services PMI Compounds Growth Fears
  • Gold and Silver Expected to be Well-Supported as QE3 Speculation Returns

Sentiment-linked crude oil and copper pricesare under pressure in European trade after soft Chinese service-sector data released over the weekend compounded Friday’s dismal US jobs report to weigh on risk appetite. Gold and silver are likewise trading lower as the dour mood drives haven-seeking capital flows into the US Dollar, but the metals are holding up markedly better overtly growth-geared raw materials.

Gold and silver appear likely to remain well-supported in the near term as signs of weakness in US data stoke QE3 expectations and weigh on the greenback. Although another Fed stimulus program seems highly unlikely with the benchmark 10-year Treasury yield already near record lows courtesy of the Eurozone debt crisis, speculation is likely to metastasize regardless heading into Thursday’s Congressional testimony from Fed Chairman Ben Bernanke.

Signs of a QE3-themed boost to sentiment seem to be emerging already as S&P 500 stock index futures trim losses sustained earlier in the session while the Dollar gives away the lion’s share of intraday gains versus most its leading counterparts. US Factory Orders figures are in the spotlight on the economic calendar, with a modest 0.2 percent increase expected. While a print in line with forecasts is unlikely to prove materially market-moving, a disappointing outcome may amplify pressure on the Dollar while boosting metals given the current environment.

WTI Crude Oil (NY Close): $83.23 // -3.30 // -3.81%

Prices are testing through support at 83.34, the 76.4% Fibonacci retracement, with a break below this boundary exposing 80.16. Highly oversold RSI studies warn that the risk of a corrective rebound may be swelling. Near-term resistance lines up in the 90.14-88.54 area, marked by the early September swing top and the 61.8% Fib.

Commodities_May_Recover_from_Early_Losses_as_QE3_Bets_Rebuild_body_Picture_3.png, Commodities May Recover from Early Losses as QE3 Bets Rebuild

Daily Chart - Created Using FXCM Marketscope 2.0

Spot Gold (NY Close): $1624.10 // +63.68 // +4.08%

Prices are testing resistance at a falling trend line set from early March, now at 1630.24. The barrier is reinforced by the 76.4% Fibonacci retracement at 1637.35, with a break higher exposing the May 1 high at 1671.49. Near-term support lines up at 1616.23, the 61.8% Fib, with a break below that opening the door for a test of the 1600/oz figure.

Commodities_May_Recover_from_Early_Losses_as_QE3_Bets_Rebuild_body_Picture_4.png, Commodities May Recover from Early Losses as QE3 Bets Rebuild

Daily Chart - Created Using FXCM Marketscope 2.0

Spot Silver (NY Close): $28.51 // +0.81 // +2.92%

Prices are drifting sideways above support at 27.06, with gains still capped at 28.70. A break lower initially exposes the 26.05-15 area. Alternatively, a push higher through resistance opens the door for a challenge of 29.71.

Commodities_May_Recover_from_Early_Losses_as_QE3_Bets_Rebuild_body_Picture_5.png, Commodities May Recover from Early Losses as QE3 Bets Rebuild

Daily Chart - Created Using FXCM Marketscope 2.0

COMEX E-Mini Copper (NY Close): $3.314 // -0.052 // -1.54%

Prices broke through support at 3.426, the 76.4% Fibonacci retracement, with sellers now testing the double bottom at 3.250. A break below this boundary exposes the 123.6% Fib expansion at 3.080. The 3.426 level has been recast as near-term resistance.

Commodities_May_Recover_from_Early_Losses_as_QE3_Bets_Rebuild_body_Picture_6.png, Commodities May Recover from Early Losses as QE3 Bets Rebuild

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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04 June 2012 10:21 GMT