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Oil May Fall as Gold Gains on Soft Services ISM Data

By , Currency Strategist
05 February 2013 14:00 GMT

Crude oil may fall while gold prices advance as risk appetite falters anew after soft service-sector ISM data reboots fears about US resilience ahead of further austerity.

Talking Points

  • Commodity Prices Broadly Higher as Risky Assets Correct After Yesterday’s Selloff
  • Crude Oil May Fall as Gold Gains if Soft Services ISM Triggers US Austerity Fears

Commodities are on the upswing heading into the opening bell in North America, with a sharp pickup on S&P 500 futures reinforcing the case for upside follow-through as Wall Street comes online. The newswires are teeming with plausible explanations for the advance, from better-than-expected European PMI figures to a narrowing Eurozone bond yield spreads. Capital flows seem like the most plausible driver however, with global markets correcting after the MSCI World Stock Index recorded the largest daily drop in three months.

The chipper mood may not prove lasting however as traders begin to fret about the ability of the US recovery to withstand added austerity with just over three weeks left until a “sequester” spending cuts deal is due. A slowdown on the ISM Non-Manufacturing Composite survey may act as the trigger, with service-sector activity expected to slow for the first time in 3 months. Such an outcome stands to weigh on sentiment-linked crude oil and copper prices. As we discussed yesterday though, it may buoy precious metals.

WTI Crude Oil (NY Close): $96.17 // -1.60 // -1.64%

Prices broke lower as expected, taking out the bottom of a Rising Wedge chart formation, after putting in a bearish Dark Cloud Cover candlestick pattern. Sellers now target the 93.40-94.61 area, with a break below that exposing trend line resistance-turned-support at 91.74. The Wedge bottom (now at 97.78) has been recast as resistance. A reversal back above that aims for the January 30 high at 98.21.

Commodities_Oil_May_Fall_as_Gold_Gains_on_Soft_Services_ISM_Data_body_Picture_4.png, Oil May Fall as Gold Gains on Soft Services ISM Data

Daily Chart - Created Using FXCM Marketscope 2.0

Spot Gold (NY Close): $1673.70 // +6.25 // +0.37%

Prices continue to hover above rising trend line support dating back to mid-May (1656.78), with a bullish Morning Star candlestick pattern arguing for an upside bias. Near-term resistance is at 1690.39, the 38.2% Fibonacci retracement, followed by a falling channel top at 1696.74. Alternatively, a drop below support targets the January 4 low at 1625.69 and the channel bottom (now at 1598.77).

Commodities_Oil_May_Fall_as_Gold_Gains_on_Soft_Services_ISM_Data_body_Picture_3.png, Oil May Fall as Gold Gains on Soft Services ISM Data

Daily Chart - Created Using FXCM Marketscope 2.0

Want to learn more about RSI? Watch this Video

Spot Silver (NY Close): $31.75 // -0.08 // -0.24%

Prices are edging higher in a narrow upward-sloping channel. Near-term resistance lines up in the 32.65-77 area, marked by a horizontal pivot and the channel top. A break above that aims for the upper boundary of a larger channel top at 33.37. Near-term support is at 31.05, with a drop below that aiming for the 30.00 figure and the major channel bottom at 29.14.

Commodities_Oil_May_Fall_as_Gold_Gains_on_Soft_Services_ISM_Data_body_Picture_2.png, Oil May Fall as Gold Gains on Soft Services ISM Data

Daily Chart - Created Using FXCM Marketscope 2.0

Want to learn more about RSI? Watch this Video

COMEX E-Mini Copper (NY Close): $3.768 // -0.016 // -0.42%

Prices are testing resistance at 3.778, the top of a Rising Wedge pattern and the 50% Fibonacci expansion. A break above that targets the 61.8% level at 3.820. Near-term support is at 3.736, the 38.2% Fib, with a reversal back below that aiming for the Wedge bottom at 3.667.

Commodities_Oil_May_Fall_as_Gold_Gains_on_Soft_Services_ISM_Data_body_Picture_1.png, Oil May Fall as Gold Gains on Soft Services ISM Data

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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05 February 2013 14:00 GMT