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Crude Oil, Gold Aiming Higher as Stock Rebound Weighs on US Dollar

Crude Oil, Gold Aiming Higher as Stock Rebound Weighs on US Dollar

2011-10-10 06:08:00
Ilya Spivak, Sr. Currency Strategist
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Talking Points

  • Crude Oil Poised to Rise as Risk Appetite Recovers to Start the Trading Week
  • Gold Indirectly Influenced by Risk Trends Until Fed Minutes Arrive on Tuesday

WTI Crude Oil (NY Close): $82.98 // +0.39 // +0.47%

Crude oil continues to track broad-based risk sentiment trends, with prices still showing a strong correlation with the S&P 500. Futures tracking the benchmark stock index are pointing firmly higher overnight, hinting the WTI contract is likely to rise along with a broad-based advance in risky assets.

Overnight optimism seems fragile however. Sentiment seems to be feeding in part on a catch-up rally as Asian traders price in Friday’s better-than-expected US jobs report as well as supportive EU debt crisis news-flow after German Chancellor Angela Merkel and French President Nicolas Sarkozy pledged to devise a plan to recapitalize the region’s banks, mend economic governance, and resolve the turmoil in Greece by the November 3rd G20 summit.

The US jobs data outcome seems legitimately supportive even though 45K of the reported 103K increase can be chalked to the end of a strike at Verizon Communications Inc considering Augusts’ figure was revised higher by 57K to more than offset the adjustment. Another set of bold promises with no specifics out of the Euro Zone seems hardly encouraging however. Indeed, the pronouncement of chest-pounding promises to squash the crisis by key EU officials that end as little more than rhetoric have become an almost weekly (if not daily) affair. As such, it seems unlikely that traders will find lasting comfort in yet another promise that this time really is different.

On the technical front, prices put in a Spinning Top candlestick below support-turned-resistance at $83.65, pointing to ebbing bullish conviction after a three-day rally and hinting that a reversal may materialize. Initial support lines up at $80.18. Alternatively, upward continuation through immediate resistance targets a multi-month channel top at $85.84.

Crude_Oil_Gold_Aiming_Higher_as_Stock_Rebound_Weighs_on_US_Dollar_body_Picture_3.png, Crude Oil, Gold Aiming Higher as Stock Rebound Weighs on US Dollar

Spot Gold (NY Close): 1637.85 // -13.58 // -0.82%

Gold remains locked in a range between the 14.6% and 38.2% Fibonacci retracements at $1589.14 and $1680.78, respectively. The metal’s inverse correlation with the S&P 500 has faded, suggesting it has lost its safe-haven appeal. Prices do track closely with a Credit Suisse gauge measuring investors’ priced-in Federal Reserve monetary policy expectations, but those appear relatively anchored for the time being until the central bank releases minutes from its September 20 policy meeting on Tuesday.

In the meantime, gold prices may prove most sensitive to the direction of the US Dollar over the coming 24 hours. Needless to say, gold is denominated in terms of the greenback, so the overnight rise in stock index futures may be telegraphing gains as the safe-haven US currency finds itself on the defensive. Naturally, the same concerns about the sustainability of the “risk-on” mood on the basis of seemingly flimsy EU promises to fix the debt crisis (as outlined above) apply here as well. A push higher through the range top exposes the 50% Fib at $1726.60.Alternatively, a break below immediate support exposes the September 26 low at $1532.45.

Crude_Oil_Gold_Aiming_Higher_as_Stock_Rebound_Weighs_on_US_Dollar_body_Picture_4.png, Crude Oil, Gold Aiming Higher as Stock Rebound Weighs on US Dollar

Spot Silver (NY Close): $31.16 // -0.84 // -2.64%

As with gold, silver finds itself indirectly under the influence of risk appetite trends, with the Dollar acting as a transmission mechanism, until the Fed minutes release on Tuesday. Prices are perched above resistance-turned-support at $30.98, the 14.6% Fibonacci extension level, with the next upside barrier marked by the September 27 high at $33.51. Alternatively, a break of support exposes the 23.6% Fib at $29.42.

Crude_Oil_Gold_Aiming_Higher_as_Stock_Rebound_Weighs_on_US_Dollar_body_Picture_5.png, Crude Oil, Gold Aiming Higher as Stock Rebound Weighs on US Dollar

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

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

To be added to Ilya's e-mail distribution list, send a note with subject line "Distribution List" to ispivak@dailyfx.com

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