Talking Points:
- Gold prices continue to slide after breaking monthly channel support
- Crude oil prices show new signs of topping after testing $50/bbl mark
- G7 communiqué weighs on commodities, Yellen and US GDP ahead
Gold prices found no support in easing Fed rate hike bets yesterday: the yellow metal finished the day with a seventh consecutive loss despite a pullback in priced-in tightening projections (as reflected in futures markets). The dovish shift seemed to be at odds with the day’s broadly upbeat US economic news-flow, with Durable Goods Orders and Pending Home Sales figures topping expectations. Comments from Fed Governor Jerome Powell likewise mirrored the recent hawkish tone shift from other central bank officials.
Meanwhile, crude oil prices retraced downward after hitting the highest level in nearly six months. The WTI contract and gold established intraday tops and began trading lower at approximately the same time. The moves coincided with bottoming and recovery for the US Dollar. The greenback recoiled upward after touching a weekly low, suggesting de-facto weakness may have accounted for commodities’ price action in the final hours of the US trading day since they are denominated in terms of the reserve currency.
Confounding dynamics may have reflected corrective flows as liquidity drained ahead of the long weekend ahead. Markets in the US and the UK will be closed Monday for Memorial Day and the Late May Bank Holiday, respectively. Familiar patterns returned overnight however. Gold fell alongside crude oil and stock futures while the greenback and US front-end bond yields rose after a moderately-worded G7 draft communiqué seemed to open the door for Fed policy tightening in the near term. Follow-through proved limited, with markets swiftly settling back into digestion mode.
Looking ahead, a revised set of first-quarter US GDP figures and scheduled commentary from Fed Chair Janet Yellen are in the spotlight. The growth reading is expected to show output expanded at an annualized rate of 0.9 percent in the first three months of the year, topping the previously projected 0.5 percent. A penchant for outperformance on US news-flow relative to consensus forecasts over recent weeks opens the door for a still stronger outcome.
As for Yellen, a cautiously hawkish tone seems likely. Unmistakable parallels in the tone of Fed officials’ latest commentary as well as minutes from April’s FOMC meeting hint at a coordinated strategy aimed at rebuilding rate hike bets (as expected). It seems overwhelmingly unlikely that the Fed Chair is not party to such an effort, if not its architect. With that in mind, her statement coupled with an upbeat GDP report may offer another upward push to the US Dollar, sending commodities downward along the way.
Are gold and crude oil trends matching DailyFX analysts’ outlook? Find out here !
GOLD TECHNICAL ANALYSIS – Gold prices continue to make good on channel support break secured earlier in the week, making for the longest losing streak in almost seven months. A daily close below the 38.2% Fibonacci retracementat 1205.30 sees the next downside barrier at 1174.93, the 50% level. Alternatively, a reversal above channel floor support-turned-resistance at 1230.32 targets the 23.6% retracementat 1242.88.
CRUDE OIL TECHNICAL ANALYSIS – Crude oil prices are showing bearish reversal cues once more, with negative RSI divergence pointing to ebbing upside momentum following a test of the $50/barrel figure. Near-term support is at 48.77, the 50%Fibonacci expansion, with a break below that exposing the 38.2%level at 47.41. Alternatively, a push above the 61.8% Fib at 50.13 targets the 76.4%expansion at 51.82.
--- Written by Ilya Spivak, Currency Strategist for DailyFX.com
To receive Ilya's analysis directly via email, please SIGN UP HERE
Contact and follow Ilya on Twitter: @IlyaSpivak
