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Crude Oil Sinks, Gold Finds Support on Sequestration Jitters

By , Currency Strategist
01 March 2013 13:54 GMT

Crude oil is down amid broad-based risk aversion while gold finds support on swelling Fed stimulus bets as “sequestration” spending cuts threaten US recovery.

Talking Points

  • Crude Oil, Copper Sink as PMIs, “Sequestration” Fears Sink Risk Appetite
  • Gold and Silver Find Support as US Fiscal Drag Jitters Buoy Fed QE Bets

Commodity prices are facing heavy selling pressure ahead of the opening bell on Wall Street as risk aversion sweeps financial markets in the wake of soft Chinese and UK Manufacturing PMI figures. The onset of US “sequestration” government spending cuts is likely amplifying negative sentiment as traders worry about the growing fiscal headwinds threatening the still-fragile recovery in the world’s largest economy. Cycle-sensitive crude oil and copper prices are following shares lower while gold and silver find support as fears of slowing US growth amplify the outlook for Fed stimulus.

Looking ahead, all eyes are on February’s US ISM Manufacturing gauge. Consensus forecasts point to print at 52.5 compared with 53.1 in the prior month, marking a slowdown in factory-sector activity. US economic releases have conspicuously improved relative to expectations since the beginning of last month (according to data from Citigroup). A similar result this time around may help to relieve “sequester”-linked jitters, which could underpin risk appetite and cap losses in crude oil and copper while limiting upside potential in the precious metals space.

WTI Crude Oil (NY Close): $92.05 // -0.71 // -0.77%

Prices are pushing lower toward support at 91.13, the 50% Fibonacci retracement. A break below that exposes the 61.8% level at 89.45. Near-term resistance is at 92.80, the 38.2 % Fib, with a reversal back above that aiming for the 23.6% retracement at 94.87.

Commodities_Oil_Sinks_Gold_Finds_Support_on_Sequestration_Jitters__body_Picture_3.png, Crude Oil Sinks, Gold Finds Support on Sequestration Jitters

Daily Chart - Created Using FXCM Marketscope 2.0

Spot Gold (NY Close): $1579.58 // -17.82 // -1.12%

Prices turned lower anew after putting in a Dark Cloud Cover candlestick pattern, taking out support at the 23.6% Fibonacci expansion at 1589.36. Sellers now target the 38.2% level at 1570.37, with a break below that exposing the intersection of the May 16 2012 close and the 61.8% Fib at 1539.35. Alternatively, a move back above 1589.36 aims for the 1600/oz figure and the February 26 high at 1620.09.

Commodities_Oil_Sinks_Gold_Finds_Support_on_Sequestration_Jitters__body_Picture_4.png, Crude Oil Sinks, Gold Finds Support on Sequestration Jitters

Daily Chart - Created Using FXCM Marketscope 2.0

Spot Silver (NY Close): $28.54 // -0.48 // -1.64%

Prices are testing below support at 28.46, the 23.6% Fibonacci expansion, having put in a bearish Dark Cloud Cover candlestick pattern below resistance marked by the June 6 close at 29.42. A confirmed break downward exposes the 38.2% level at 27.86.

Commodities_Oil_Sinks_Gold_Finds_Support_on_Sequestration_Jitters__body_Picture_5.png, Crude Oil Sinks, Gold Finds Support on Sequestration Jitters

Daily Chart - Created Using FXCM Marketscope 2.0

COMEX E-Mini Copper (NY Close): $3.548 // -0.020 // -0.56%

Prices are testing through support marked by a rising trend line set from early June (3.515) and the 38.2% Fibonacci expansion (3.495), eyeing the 50% level at 3.463. A break below the latter boundary exposes the 61.8% Fib at 3.431. Near-term resistance is at 3.536, the 23.6% expansion, followed by the February 28 high at 3.601.

Commodities_Oil_Sinks_Gold_Finds_Support_on_Sequestration_Jitters__body_Picture_6.png, Crude Oil Sinks, Gold Finds Support on Sequestration Jitters

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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01 March 2013 13:54 GMT