Oil, Gold Eye EU Summit and US Data as Risk Appetite Searches for Direction
Commodities – Energy
Oil Consolidates as Risk Trends Look for Direction
WTI Crude Oil (NY Close): $97.37 // -2.28 // -2.29%
Prices have dropped back below the $100/barrel handle after finding resistance at $104.73, the 50% Fibonacci retracement of the drop from the May 2 high. Near-term support stands at $94.65, the May 6 low, while the 23.6% Fib at $99.41 is acting as immediate resistance.
Risk sentiment trends remain in focus, with the WTI contract tracking closely with the S&P 500 benchmark stock index. This puts the spotlight on the second day of the EU finance ministers’ summit. The sit-down has already produced an approval of Portugal’s 78 billion euro bail-out but the question of expanded assistance for Greece remains unresolved, with policymakers prodding the beleaguered nation to commit to greater government asset sales and deeper austerity. Against this backdrop, Greece is due to sell 1.25 billion euro in 3-month bills.
Sizing up the data docket, a second consecutive increase in US Housing Starts will be counterbalanced by a slowdown in Industrial Production in April, according to economists’ consensus forecasts. Preliminary API crude inventories are also on tap.
On balance, the dominant theme at present appears to be indecision, with prices confined to a tight range overnight and S&P 500 stock index futures relatively flat, pointing to a lack of directional conviction at current levels.
Commodities – Metals
Gold Outlook Clouded, Weakness Narrowly Favored
Spot Gold (NY Close): $1489.30 // -5.72 // -0.38%
Gold continues to consolidate between $1519.55, the 50% Fibonacci retracement of the drop from the May 2 high and a rising trend line set from late January. Piercing this downside barrier would amount to a material, medium-term trend change, opening the door for protracted gold weakness over the coming weeks. Short term support and resistance line up at 1489.19 and $1505.98, marking the 23.6 and 38.2 percent Fibonacci retracements of the decline from the May 2 high.
As with oil, sentiment trends remain in focus, putting the spotlight the EU summit and the US data set. Continued unwinding of QE2-dependent positions remains an important theme as well, suggesting the path of least resistance favors weakness as the June deadline for the program’s expiry looms ever closer ahead. Indecisive readings on S&P 500 stock index futures overnight make for a clouded near-term landscape however.
Spot Silver (NY Close): $33.60 // -1.82 // -5.13%
Prices have taken out the $34.00 figure having found resistance at $39.45, the 38.2% Fibonacci retracement of the 4/25-5/6 decline. From here, sellers target support-turned-resistance at $31.24. Alternatively, a break back above the $34 handle sees resistance at $37.01, the 23.6% retracement level.
Short-term percent change correlation studies suggest silver continues to trade in tandem with gold prices, hinting the metals will move in tandem as risk trends find their bearing. However, the gold/silver ratio has recovered to the highest in three months, hinting silver is likely to increasingly underperform its more expensive counterpart.
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