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Gold and Silver Clear Key Resistance As Ukrainian Conflict Intensifies

By , Currency Analyst
06 May 2014 05:35 GMT

Talking Points

  • Gold and silver safe-haven demand has been bolstered by intensifying Ukrainian turmoil
  • Crude oil traders may look past the upcoming US Trade balance figures as supply concerns fester
  • Base metals vulnerable to further declines on disappointing Chinese figures this week

Gold and silver traders are treading cautiously during the Asian session following a jump in prices overnight as intensifying geopolitical risks bolstered safe-haven demand for the precious metals. Meanwhile, a better-than-anticipated US services index reading failed to fuel gains for crude oil as WTI continues to struggle below a key technical level of resistance at $100 a barrel. While the upcoming US trade balance figures headline the economic calendar, the reaction from oil and the US Dollar may be muted given the limited implications for Fed policy.

Ukrainian Turmoil Intensifies

As noted in recent commodities reports; a continued recovery for the precious metals hinges on an escalation of geopolitical tensions, or an enduring slumber for the US Dollar. The latest developments in the ongoing Eastern European conflict have delivered on the first front, with gold pushing above a key technical level at $1,305 in recent trading. Early reports from newswires indicated that as many as 4 Ukrainian servicemen have been killed, with at least 30 wounded following a deadly clash with Pro-Russian separatists in the Eastern part of the country.

By their very nature geopolitical events are difficult to predict, which leaves continued uncertainty over the potential for the Ukrainian unrest to escalate. While the fuse is lit, unless we see the powder keg go off, traders may be tempted to unwind some fear-driven positioning in the precious metals.

Also noteworthy for the commodities space is the potential impact of the tensions in Eastern Europe on energy prices. Concerns over supply constraints from Russia, which accounts for roughly one third of Western Europe’s oil imports and is the world’s largest supplier of palladium, may act to support prices for the aforementioned commodities. However, at this stage the West has refrained from enacting sanctions on Russian commodity exports, which suggests supply may not be impinged upon.

Crude Oil Traders To LookPast Upcoming Trade Balance Figures

The US Trade Balance is tipped to post its first improvement since November 2013 in the session ahead, with the deficit expected to narrow to -$40.3B from -$42.3B. While stronger trade figures are considered a sign of strength for the US economy, the data may face a muted response by traders. The past three readings all disappointed relative to expectations, yet the deviations elicited a fairly lackluster reaction from crude oil prices. This may reflect the limited impact that the trade data has on Fed policy in its current phase.

While strong US growth is a positive for crude oil, the glut in US inventories is likely acting as an albatross around the neck of WTI with stockpiles recently reaching their highest level since 1931. Indeed, the bullish implications for US economic growth from last night’s healthy services index reading failed to lift prices, as concerns that demand will be unable to mop up excess supply persist. This puts Wednesday’s weekly Petroleum Status Report from the DOE in the spotlight, which is expected to reveal a 1,000K barrel increase in crude inventories.

China Concerns Weigh On Copper Prices

A busy week for Chinese economic data is off to a bad start following yesterday’s disappointing HSBC Final PMI figures for April, which weighed on copper prices. Exports from the manufacturing powerhouse are expected to decline by 0.9 percent which would mark the third consecutive month of declines. While a far cry from February’s distressing 18.1 percent drop, the persistent weakness in Chinese economic data does little to distill fears of a slowdown of economic growth in the Asian giant.

Details for the upcoming releases are reproduced below (times are in GMT).

Gold and Silver Clear Key Resistance As Ukrainian Conflict Intensifies

Source: DailyFX Economic Calendar

CRUDE OIL TECHNICAL ANALYSIS

Crude oil has broken below trendline support following the emergence of an Evening Star formation on the daily. Alongside building downside momentum (reflected by the rate of change indicator) and a move below the 20 SMA a bearish technical bias is retained. The daily close below the psychologically significant $100.00 handle is seen as an opportunity to enter new short positions. However, traders should also be mindful that volatility (reflected by the ATR) continues to decline, which generally doesn’t favor breakout trading.

Crude Oil: Testing Critical Resistance At $100.00

Gold and Silver Clear Key Resistance As Ukrainian Conflict Intensifies

Daily Chart - Created Using FXCM Marketscope 2.0

GOLD TECHNICAL ANALYSIS

Gold has bounced off key support at $1,277 which has acted to negate several prior bearish technical signals. The daily close above resistance at $1,305 following a Bullish Engulfing candlestick pattern suggests the potential for a continued recovery towards the next definitive level at $1,333 (the 50% Fib Retracement Level).

The DailyFX Speculative Sentiment Index suggests a mixed bias for gold based on trader positioning.

Gold: Prices Hovering Near Support At $1,305

Gold and Silver Clear Key Resistance As Ukrainian Conflict Intensifies

Daily Chart - Created Using FXCM Marketscope 2.0

SILVER TECHNICAL ANALYSIS

Friday’s bounce off the all-important $19.00 support level has prompted the emergence of a Morning Star candlestick formation, which hints at a further recovery following its confirmation from a successive up-day. However, caution is suggested when looking at long positions, given prices remain in a downtrend and notable selling pressure hanging overhead at $19.40/50.

Silver: Prices Reverse Course Near $19.00

Gold and Silver Clear Key Resistance As Ukrainian Conflict Intensifies

Daily Chart - Created Using FXCM Marketscope 2.0

COPPER TECHNICAL ANALYSIS

Copper’s ascending trend channel remains in place after prices threatened a breakdown last week. The appearance of a Morning Star pattern suggests the bulls may be looking to return. A break above nearby resistance at $3.085 would favor new long positions.

Copper: Bounces Off Trendline Support

Gold and Silver Clear Key Resistance As Ukrainian Conflict Intensifies

Daily Chart - Created Using FXCM Marketscope 2.0

PALLADIUM TECHNICAL ANALYSIS

Palladium remains in an upward trend channel following the original breakout above the range-top at $753. However, the 2014 highs near $810/5 continue to cap gains for the precious metal as the rate of change indicator warns of fading upside momentum. A break above $810/5 would offer an extended advance to the August 2011 high at $847.

Palladium: Teases Traders Near 2014 High

Gold and Silver Clear Key Resistance As Ukrainian Conflict Intensifies

Daily Chart - Created Using FXCM Marketscope 2.0

PLATINUM TECHNICAL ANALYSIS

Platinum may be targeting its multi-month range-top near $1,486 following a push above resistance at $1,427 in recent trading. Momentum has also turned positive signaled by a tick into positive territory from the rate of change indicator, which further supports a bullish technical bias.

Platinum: Pushes Past Resistance At $1,427

Gold and Silver Clear Key Resistance As Ukrainian Conflict Intensifies

Daily Chart - Created Using FXCM Marketscope 2.0

Written by David de Ferranti, Market Analyst, FXCM Australia

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06 May 2014 05:35 GMT