Crude Oil Positioning May Signal Risk Aversion, Point to US Dollar Gains

MSCI WORLD STOCK INDEX – Prices continue to consolidate between the 61.8% and 50% Fibonacci retracements of the 7/1-8/5 upswing at $1076.93 and $1092.60, respectively. Resistance is reinforced by the top of a near-term falling channel set from the recent swing high. The path of least resistance continues to point lower, with a break below support exposing the 76.4% Fib at $1057.54.

US DOLLAR INDEX – Prices continue to test resistance at 83.37, the 38.2% Fibonacci retracement of the 6/7-8/6 downswing, with the 23.6% level at 82.12 acting as support. Longer-term positioning hints a major Head and Shoulders bottom has been taking shape since mid-2004, pointing to a structural advance over the coming years that would amount to parity on the greenback’s exchange rate with the Euro. Near term, a break higher exposes the 50% Fib at 84.40.

CRUDE OIL –Prices are showing a Hanging Man candlestick below resistance near the 50% Fibonacci retracement of the 5/19-8/4 rally ($75.43) and the lower boundary of a previously broken rising channel set from the May bottom ($76.12), hinting a move lower is ahead. The 61.8% retracement at $73.66 marks initial support, with a break below that exposing the 76.4% level at $71.46.

GOLD – Prices are continuing to test resistance at $1243.27, with a break past this boundary exposing the record high at $1265.30. As we mentioned previously however, longer-term positioning reveals bearish cues with clear negative RSI divergence hinting that a major top may be taking shape. Confirmation of a downward reversal in line with our fundamental outlook requires a weekly close below a rising trend line set from the swing bottom in late 2008, now at $1198.36. Near-term, a reversal at current resistance sees initial support at $1215.47.

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