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Crude Oil, Gold Prices May Diverge on ADP Employment Data

Wednesday, 02 May 2012 09:00 GMT

by  Ilya Spivak, Currency Strategist

Crude oil and gold prices may diverge as a preliminary gauge of US jobs growth leads growth-geared assets and those dependent on QE3 bets along different paths.

Talking Points

  • Crude Oil, Copper Outlook Tied Up with Risk Trends, Focus on ADP Report
  • Gold and Silver Price Action to Reflect Job Data’s Implications for QE3 Bets

Commodity prices are pushing lower in European trade as dismal European economic data weighs on demand expectations for growth-sensitive crude oil and copper while risk aversion encourages safe-haven flows into the US Dollar, amounting to de-facto downward pressure on gold and silver. S&P 500 stock index futures are pointing lower, arguing for more of the same as Wall Street comes online.

On the data front, the US ADP Employment report is in the spotlight, with expectations pointing to a 170K increase in private employment in April after a 209K print in the previous month. The likelihood of a Fed QE3 program remains a driving theme across financial markets. This means a soft outcome is likely to be taken as fodder for stimulus hopes and weigh on the greenback, boosting gold and silver. Yesterday’s response to better-than-expected ISM figures suggests risky assets are responding to economic data in a straight-forward fashion however, so a weak jobs print would likely reinforce headwinds already facing sentiment heading into the session. Needless to say, an upside surprise stands to produce the opposite results.

WTI Crude Oil (NY Close): $106.16 // +1.29 // +1.23%

Prices took out resistance in the 104.90-105.15 area marked by a former support as well as the 50% Fibonacci retracement level to meet a falling trend line capping gains since late February. This barrier is reinforced by the 61.8% Fib at 106.27. A break above this barrier exposes the 76.4% at 107.67. The 104.90-105.15 area has been recast as support.

Crude_Oil_Gold_Prices_May_Diverge_on_ADP_Employment_Data_body_Picture_3.png, Crude Oil, Gold Prices May Diverge on ADP Employment Data

Daily Chart - Created Using FXCM Marketscope 2.0

Spot Gold (NY Close): $1662.43 // -2.32 // -0.14%

Unchanged from yesterday: “Prices took out the top of a falling channel set from early March, with the bulls now aiming to challenge resistance at 1680.00 and 1696.88 marked by key swing highs set on April 12 and March 27.” The channel top, now at 1654.93, is acting as near-term support.

Crude_Oil_Gold_Prices_May_Diverge_on_ADP_Employment_Data_body_Picture_4.png, Crude Oil, Gold Prices May Diverge on ADP Employment Data

Daily Chart - Created Using FXCM Marketscope 2.0

Spot Silver (NY Close): $30.97 // -0.05 // -0.17%

Prices continue to drift sideways below resistance at 31.36, a barrier reinforced by a downward-sloping trend line set from the April 3 high now at 31.19. A break higher exposes the top of a falling channel set from early March, now at 31.90. Near-term channel bottom support is at 29.58.

Crude_Oil_Gold_Prices_May_Diverge_on_ADP_Employment_Data_body_Picture_5.png, Crude Oil, Gold Prices May Diverge on ADP Employment Data

Daily Chart - Created Using FXCM Marketscope 2.0

COMEX E-Mini Copper (NY Close): $3.844 // +0.014 // +0.37%

Prices are retesting former support at a rising trend line set from mid-February, with a Hammer candlestick pointing to ebbing bullish conviction and hinting a reversal lower may be ahead. Initial support lines up at 3.713. Alternatively, a break higher exposes the next upside barrier just below the 4.000 figure in the 3.933-3.988 area.

Crude_Oil_Gold_Prices_May_Diverge_on_ADP_Employment_Data_body_Picture_6.png, Crude Oil, Gold Prices May Diverge on ADP Employment Data

Daily Chart - Created Using FXCM Marketscope 2.0

--- Written by Ilya Spivak, Currency Strategist for Dailyfx.com

To contact Ilya, e-mail ispivak@dailyfx.com. Follow Ilya on Twitter at @IlyaSpivak

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