Commodities Recover alongside Asian Stocks as Investors Re-Position

2015-08-25 05:37:00

Nathalie Huynh, Contributor

Talking Points:

Oil stuck in downtrend before inventory reports from API today, EIA tomorrow
Copper rebounded alongside Chinese and Asian stocks
Gold pared gains below 1071 amidst recovery in risky assets

Asia market started Tuesday in a recovery mood after Monday’s drastic losses in risky assets around the globe. Most currency pairs recorded modest moves compare with their volatile swings yesterday. Regional stock markets staged dramatic recovery with over 2 percent gains in Australia’s ASX 200 and Hong Kong’s Hang Seng, over 1 percent gain in Nikkei, and Shanghai index edged up after its low opening.

In commodities, gold was little changed while oil and copper put forth strong rebounds at over 1 percent. Chinese currency (called CNY onshore and CNH offshore) also gained even with a lower daily fixing by its central bank.

Monday saw extreme movements in global stocks and foreign exchange market as macro focus alternated among China slowdown, stocks and commodities rout, and implications to the U.S. rate hike with Jackson Hole (a conference of central bankers and economists) starting on Tuesday.

Gold pared gains today after it opened below the two previous-session highs. Gold stopped short of the 1170.7 resistance level highlighted in our technical analysis yesterday. As investors re-position and get back into risky assets, gold will likely stay flat today, with upside potential linked to any sudden and downward progressions in the market.

Oil found a much-needed reprieve as market players re-positioned after huge losses on Monday. However the global structural glut persists and investors stay anxious before today’s weekly inventory report by the American Petroleum Institute before tomorrow’s report by the Energy Information Administration.

The increasing signs of slowdown in Chinese economy have intensified demand concerns for oil and other commodities. Downtrend signal remains firm in oil technical analysis.

Looking ahead, a normalization of oil prices at the currently low levels may materialize as supply and demand stuck with their respective structural constraints, both contributing to a bearish oil outlook. The bottom in oil prices will likely be realized simultaneously to the bottom of China indicators.

Copper also rebounded from yesterday’s fresh six-year low, together with other industrial metals, after a brief dip below the August support trend line yesterday. Fundamental drivers in copper are the most supportive among metals with stable production (unlike oil) and production costs comfortably below current price level. Going forward, the pace of China’s soft landing will be the strongest influence in copper.

GOLD TECHNICAL ANALYSIS – Gold opened on the 5-day moving average at 1151.2 today and has stayed flat with trivial losses after yesterday’s rise stopped short of the 61.8% Fibo resistance level at 1170.79. As momentum signals wane near upper bound of the range, the upside for gold looks restrictive. On the downside, we will be watching the 5-day MA as an immediate support level. While other assets go through high volatility, direction of gold prices may change abruptly and the bears should take caution.

Daily Chart - Created Using FXCM Marketscope

COPPER TECHNICAL ANALYSIS – Copper stayed elevated above the August support trend line highlighted in our previous technical analysis. At top, 10-day moving average plays immediate resistance level at 2.305. With downtrend signal overall and in the absence of a clear direction in momentum signals, traders may watch the support trend line for a guide of levels ahead.

Daily Chart - Created Using FXCM Marketscope

CRUDE OIL TECHNICAL ANALYSIS – Crude oil have promptly rebounded since the open of the Asian session, although intraday momentum shows sign of wane after noon time. The downside of oil remains vulnerable with a weak floor at yesterday’s lows of 37.75 in WTI and 42.23 in Brent, which will likely be tested with inventory reports scheduled for today and tomorrow. WTI oil’s weekly chart displays a consistent downturn with no disruption in sign yet.