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Crude Oil, Gold Whipsaw Lower as Germany Cools EU Debt Fix Hopes

Crude Oil, Gold Whipsaw Lower as Germany Cools EU Debt Fix Hopes

2011-10-17 11:38:00
Ilya Spivak, Sr. Currency Strategist
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Talking Points

  • Crude Oil Erases Most Session Gains After Germany Cools Debt Fix Optimism
  • Gold, Silver Lose Luster as US Dollar Recovers on Renewed Safe-Haven Demand

WTI Crude Oil (NY Close): $86.80 // +2.57 // +3.05%

Crude oil prices saw a sharp reversal having followed the spectrum of risky assets in early trade amid hopes that an EU debt crisis resolution was just around the corner after Germany poured cold water on investors’ expectations. German Chancellor Angela Merkel said “dreams” of a package that will fix everything by October 23rd as alluded to after the weekend’s summit of G20 finance ministers will not be fulfilled, while her top spokesman added that finding a durable solution to the malaise “surely extends well into next year.”

S&P 500 stock index futures have now erased overnight gains and trade broadly flat heading into the opening bell on Wall Street, pointing to an uncertain and potentially fragile outlook for the WTI contract. Aside from the EU fiasco, US Industrial Production figures as well as the New York Fed’s manufacturing survey (the so-called “Empire” report) are on tap, with output set to rise 0.2 percent in September, matching Augusts’ result, while conditions in New York State’s factory sector narrowly improve after two consecutive months of deterioration. Nine S&P 500 companies including Wells Fargo and Citigroup are also set to reveal third-quarter results.

On the technical front, prices broke through resistance at the top of a falling channel set from early May. The bulls are now poised to challenge the 38.2% Fibonacci retracement level at $90.17. Near-term support lines up at $84.35, the 23.6% Fib.

Crude_Oil_Gold_Whipsaw_Lower_as_Germany_Cools_EU_Debt_Fix_Hopes_body_Picture_3.png, Crude Oil, Gold Whipsaw Lower as Germany Cools EU Debt Fix Hopes

Spot Gold (NY Close): $1680.73 // +12.59 // +0.75%

As before, the absence of significant news on the US monetary policy front has meant that gold is left to take indirect cues from risk sentiment via the trajectory of the US Dollar, rising along with risky assets as a swell in confidence weighs on the safe-haven greenback (and vice versa). As with crude, this had meant the metal rallied as the greenback sank amid EU debt crisis fix hopes into early European trade but rapidly reversed course after Germany deflated high hopes for an imminent solution.

The technical picture has remained effectively unchanged for the past two weeks. Prices remain locked in a choppy range between the 14.6% and 38.2% Fibonacci retracements at 1589.14 and 1680.78 respectively. A break below immediate support exposes the September 26 low at 1532.45. Alternatively, a push higher through the range top exposes the 50% Fib at 1726.60.

Crude_Oil_Gold_Whipsaw_Lower_as_Germany_Cools_EU_Debt_Fix_Hopes_body_Picture_4.png, Crude Oil, Gold Whipsaw Lower as Germany Cools EU Debt Fix Hopes

Spot Silver (NY Close): $32.20 // +0.31 // +0.98%

As with gold, silver is looking to the US Dollar as the transmission mechanism for sentiment trends. Overall positioning has been little changed over recent days however, with prices still treading water above resistance-turned-support at $30.98, the 14.6% Fibonacci extension level. Near-term resistance is marked by the September 27 high at $33.51.

Crude_Oil_Gold_Whipsaw_Lower_as_Germany_Cools_EU_Debt_Fix_Hopes_body_Picture_5.png, Crude Oil, Gold Whipsaw Lower as Germany Cools EU Debt Fix Hopes

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

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

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