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Commodities: Muted Trade Likely as Markets Wait for Fiscal Cliff News

By , Currency Strategist
28 December 2012 07:03 GMT

Commodity markets are likely to see a quiet end to the short trading week as investors wait for cues from the weekend’s fiscal cliff talks for direction cues.

Talking Points

  • Commodities to See Muted Trade as Markets Wait for Fiscal Cliff News
  • Last-Minute Budget Deal Likely to May Boost Crude Oil, Gold Prices

The spotlight remains on Washington, DC as financial markets return from the Christmas holiday, where US policymakers have a mere five days left to deliver a deal avoiding the so-called “fiscal cliff”, a set of tax hikes and government spending cuts due to trigger at the turn of the year. The Congressional Budget Office (CBO) projects the jolt of austerity will tip the US back into recession.

Critically, the key inflection points are due over the weekend. This means traders may hold off on committing to a firm directional bias in the meantime. On balance, that seems likely to make for a quiet end to the trading week. With that in mind, the markets’ hyper-sensitivity to headlines coupled with thin holiday-season liquidity may make for choppy trade.

For commodity markets, a fiscal cliff deal portends an uptick in cycle-sensitive crude oil and copper prices. Gold and silver may likewise find near-term support amid ebbing haven demand for the US Dollar. On the economic data front, November’s US Pending Home Sales figures headline the docket. December’s Chicago PMI print is also on tap.

WTI Crude Oil (NY Close): $90.87 // -0.11 // -0.12%

Prices are testing resistance in the 91.22-39 area, marked by the 61.8% Fibonacci expansion and the top of a rising channel set from early November. A Doji candlestick points to indecision and hints a pullback may be ahead. Support is at 90.60, the 50% Fib, with a drop below that exposing the 38.2% expansion at 89.97. Alternatively, a break higher targets the 76.4% level squarely at the 92.00 figure.

Commodities_Muted_Trade_Likely_as_Markets_Wait_for_Fiscal_Cliff_News_body_Picture_4.png, Commodities: Muted Trade Likely as Markets Wait for Fiscal Cliff News

Daily Chart - Created Using FXCM Marketscope 2.0

Spot Gold (NY Close): $1664.26 // +4.51 // +0.27%

Prices mounted a shallow recovery from support at 1630.97, marked by the 100% Fibonacci expansion and reinforced by the bottom of a falling channel set from mid-September.Buyers have now edged above the 76.4% expansion at 1659.90, exposing the 61.8% mark at 1677.84. The 1659.90 level has been recast as support, with a turn back below that targeting 1630.97 anew.

Commodities_Muted_Trade_Likely_as_Markets_Wait_for_Fiscal_Cliff_News_body_Picture_3.png, Commodities: Muted Trade Likely as Markets Wait for Fiscal Cliff News

Daily Chart - Created Using FXCM Marketscope 2.0

Want to learn more about RSI? Watch this Video

Spot Silver (NY Close): $30.17 // +0.16 // +0.54%

Prices are stalling after breaking through support at 30.78,the 76.4% Fibonacci expansion.Near-term support is now at 29.66, the 100%level, with a break below that exposing the 123.6% expansion at 28.55. The 30.78 level has been recast as near-term resistance. A reversal back above that targets the 61.8% level at 31.47.

Commodities_Muted_Trade_Likely_as_Markets_Wait_for_Fiscal_Cliff_News_body_Picture_2.png, Commodities: Muted Trade Likely as Markets Wait for Fiscal Cliff News

Daily Chart - Created Using FXCM Marketscope 2.0

Want to learn more about RSI? Watch this Video

COMEX E-Mini Copper (NY Close): $3.602 // +0.004 // +0.11%

Prices are testing above resistance at 3.596, the 23.6% Fibonacci expansion. A break higher exposes the 38.2% level at 3.643. Near-term support is at 3.522, the December 20 low, with a decline below that aiming for a rising trend line at 3.453.

Commodities_Muted_Trade_Likely_as_Markets_Wait_for_Fiscal_Cliff_News_body_Picture_1.png, Commodities: Muted Trade Likely as Markets Wait for Fiscal Cliff News

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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28 December 2012 07:03 GMT