Commodities Slide as Payrolls Boost Dollar while China Trade Slows

2015-11-09 05:16:00

Nathalie Huynh, Contributor

Talking Points:

Gold halts decline although lower extensions possible as good Non-farm Payrolls back up rate rise
Oil steadies after last week’s decline though vulnerable to China’s cutbacks & OPEC’s increase
Copper is vulnerable to demand concerns after weak China’s trade, German IP

Two main events affecting commodity market since last session: US Non-farm Payrolls shot up to the biggest this year and China’s trade balance missed forecast with a decline in imports. Good NFP boosted US dollar hence pressured commodity prices. Whereas weak China’s trade and imports spelled trouble to demand.

The 271,000 gain in payrolls brought a December rate rise back on the table and gold shred 2.3 percent on Friday. Market now priced 68% chance of a December hike in Fed fund futures. Consequently, on Friday. Bullion does not generate yields therefore lose out to interest-bearing assets which can adapt to higher rates e.g. equities, fixed income.

As Asia started the week, gold recovered up to 1093. However it is unlikely to return above 1100 mark.

Oil stabilized in the 44s region after an 8.8 percent fall from the 48.36 peak late last week. Autumn maintenance season of U.S. refineries have mostly completed and run rates have risen, promising reasonable demand. The U.S. Commodity Futures Trading Commission recorded net long positions (bullish bets) in WTI oil at a 7-month high for the week ended November 3.

However downward pressure persists as demand wanes in China and supply rises within OPEC. October crude imports by the world’s second largest consumer dropped to a 5-month low, down 8.8 percent from September, according to China’s General Administration of Customs. This signals that storage tanks are quite full, amid slowing economic growth. OPEC is reported to project additional 500,000 barrels per day in 2016 to accommodate Iranian oil post-sanction.

Copper took cue from soft China trade data to fall near a firm support at 2.2255. Import volume of copper by China slipped to 420,000 tons from 460,000 tons in September. Data from Europe deepened demand concerns as German industrial production unexpectedly dropped to a one-year low. UK’s industrial production also declined.

A fourth straight day of rise in the Shanghai Composite index has not sufficiently propped up copper above 2.25 level. The metal likely stays weak as dip buying is offset by selling on demand concerns.

GOLD TECHNICAL ANALYSIS – Gold halts declines in Asia’s trade, although the steep support trend line indicates lower moves are most likely. Gold has descended near this year’s record low at 1073 where prices will face considerable support. The gold bears may position their stops for heightened volatility near this level.

Daily Chart - Created Using FXCM Marketscope

COPPER TECHNICAL ANALYSIS – Copper is testing a multi-month low and firm support level at 2.2255, which is followed by a record low at 2.2025. Downtrend signal from moving averages remains strong and downward momentum is not yet exhausted. It is not clear whether copper could break below this support, however weakness is here to stay. Firm resistance comes at 20-day moving average at 2.343.

Daily Chart - Created Using FXCM Marketscope

CRUDE OIL TECHNICAL ANALYSIS – WTI oil slipped past major technical Fibonacci support levels and headed to a multi-month low at 42.58. Momentum signals indicate there is room for prices to fall further hence downside remains in focus. Despite a pick-up in Asia’s trade, oil may stage another day of lower-high and lower-low today. As such, yesterday’s high at 45.62 comes as resistance level.