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Oil, Copper Sink as Eurozone Fears Dent Risk Appetite

By , Currency Strategist
06 February 2013 14:32 GMT

Crude oil and copper are under pressure as Eurozone stability jitters spark market-wide risk aversion. The outlook for gold and silver appears clouded for now.

Talking Points

  • Crude Oil, Copper Sold as Eurozone Jitters Spark Risk Aversion Anew
  • US Fiscal Policy Worries May Compound Pressure on Sentiment Trends
  • Gold and Silver Trading Flat and Looking for Clear Directional Cues

Crude oil and copper are under pressure as broad-based risk aversion across financial markets weighs on the sentiment-sensitive commodities. S&P 500 futures are pointing firmly lower ahead of the opening bell on Wall Street, pointing to more of the same ahead.

A singular catalyst for the sour mood is unclear but returning Eurozone stability fears are viable candidate as returning political jitters threaten debt crisis containment efforts. Indeed, spreads between periphery 10-year bond yields and benchmark German equivalents are trading wider to indicate increased funding stress.

More generally, sentiment remains vulnerable to the re-emergence of concerns about the impact of US austerity on global growth the so-called “sequester” spending cuts loom ahead. As we discussed earlier in the week, another last-minute deal seems likely but some additional fiscal retrenchment seems almost certainly in the cards.

The implications risk aversion for gold and silver are somewhat clouded for now. However, it seems feasible that a significant deterioration in sentiment that forces a correction in USDJPY may produce broader-based US Dollar weakness that boosts anti-fiat assets. Both precious metals are little-changed for the time being.

WTI Crude Oil (NY Close): $96.64 // +0.47 // +0.49%

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 91.65. The Wedge bottom (now at 98.09) has been recast as resistance. A reversal back above that aims for the January 30 high at 98.21.

Commodities_Oil_Copper_Sink_as_Eurozone_Fears_Dent_Risk_Appetite_body_Picture_4.png, Oil, Copper Sink as Eurozone Fears Dent Risk Appetite

Daily Chart - Created Using FXCM Marketscope 2.0

Spot Gold (NY Close): $1672.95 // -0.75 // -0.04%

Prices continue to hover above rising trend line support dating back to mid-May (1657.55), 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 1695.97. Alternatively, a drop below support targets the January 4 low at 1625.69 and the channel bottom (now at 1597.62).

Commodities_Oil_Copper_Sink_as_Eurozone_Fears_Dent_Risk_Appetite_body_Picture_3.png, Oil, Copper Sink as Eurozone Fears Dent Risk Appetite

Daily Chart - Created Using FXCM Marketscope 2.0

Want to learn more about RSI? Watch this Video

Spot Silver (NY Close): $31.83 // +0.08 // +0.25%

Prices are edging higher in a narrow upward-sloping channel. Near-term resistance lines up in the 32.65-83 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 33.34. Near-term support is at 31.10, with a drop below that aiming for the 30.00 figure and the major channel bottom at 29.11.

Commodities_Oil_Copper_Sink_as_Eurozone_Fears_Dent_Risk_Appetite_body_Picture_2.png, Oil, Copper Sink as Eurozone Fears Dent Risk Appetite

Daily Chart - Created Using FXCM Marketscope 2.0

Want to learn more about RSI? Watch this Video

COMEX E-Mini Copper (NY Close): $3.770 // +0.002 // +0.05%

Prices turning lower after putting in a Shooting Star candle below resistance at 3.778, marked by the top of a Rising Wedge pattern and the 50% Fibonacci expansion. Near-term support is at 3.736, the 38.2% Fib, with a reversal back below that aiming for the Wedge bottom at 3.673. Alternatively, a break above resistance exposes the 61.8% level at 3.820.

Commodities_Oil_Copper_Sink_as_Eurozone_Fears_Dent_Risk_Appetite_body_Picture_1.png, Oil, Copper Sink as Eurozone Fears Dent 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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06 February 2013 14:32 GMT