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Crude Oil to Follow Stocks Lower, Gold Sets Sights on Bernanke Speech

Crude Oil to Follow Stocks Lower, Gold Sets Sights on Bernanke Speech

2011-10-18 12:02:00
Ilya Spivak, Sr. Currency Strategist

Talking Points

  • Crude Oil Under Pressure as EU Debt Crisis Fears Stoke Risk Aversion
  • Gold Looks to Shake Off Standstill, Focus Turns to Ben Bernanke Speech

WTI Crude Oil (NY Close): $86.38 // -0.42 // -0.48%

Crude oil prices are following the spectrum of risky assets lower amid fading optimism in the ability of EU policymakers to deliver on a comprehensive solution to the region’s debt crisis by the October 23 deadline set at the weekend’s summit of G20 finance ministers. Germany poured cold water on nascent optimism, with Chancellor Angela Merkel saying the idea that something can be delivered quickly was a “dream”.

Looking ahead, S&P 500 stock index futures are pointing lower ahead of the opening bell on Wall Street, hinting risk aversion is likely to carry forward into North American trade. Sizing up scheduled event risk, the spotlight falls on another batch of top-tier US earnings reports, with results from firms including Bank of America and Goldman Sachs set to cross the wires. US PPI data and API weekly inventory figures are also on tap.

On the technical front, prices put in a bearish Harami candlestick pattern above resistance at a downward-sloping trend line set from April’s swing high, hinting a move lower is ahead. Initial support stands at 84.61, the 23.6% Fibonacci extension. Alternatively, a break higher exposes support-turned-resistance at 90.50.

Crude_Oil_to_Follow_Stocks_Lower_Gold_Sets_Sights_on_Bernanke_Speech_body_Picture_3.png, Crude Oil to Follow Stocks Lower, Gold Sets Sights on Bernanke Speech

Spot Gold (NY Close): $1670.85 // -9.88 // -0.59%

Short-term gold volatility has continued to be driven indirectly by risk sentiment trends via the movement of the US Dollar. The quiet may be interrupted over the coming days however as US monetary policy considerations come back into the forefront with today’s speech from Fed Chairman Ben Bernanke, who is set to speak about the impact of the Great Recession on the way central banks conduct themselves, as well as tomorrow’s release of the Beige Book regional economic conditions survey.

As before, traders will be most concerned with any indication any QE3-type program that expands the Fed’s balance sheet is on the horizon or is at least being actively contemplated as a policy alternative. If the latter is the case, an indication of the conditions needed to be met to justify such an approach revealed in the speech will be used as the basis for scrutiny of future economic data, including the Beige Book, and so guide gold’s response to fundamental event risk over the near to medium term.

The overall technical landscape has been little changed, over the past three weeks, with gold prices locked in a narrow range. Looking at short-term positioning, prices put in a bearish Three Inside Down candlestick pattern below resistance at the top of a modestly rising channel, with sellers now poised to challenge horizontal support at 1653.70. A break below this boundary exposes the channel bottom, now at 1619.24. Channel top resistance is now at 1703.63.

Crude_Oil_to_Follow_Stocks_Lower_Gold_Sets_Sights_on_Bernanke_Speech_body_Picture_4.png, Crude Oil to Follow Stocks Lower, Gold Sets Sights on Bernanke Speech

Spot Silver (NY Close): $31.80 // -0.40 // -1.25%

Silver is broadly looking to the US Dollar as the transmission mechanism for risk sentiment trends, although as with gold, the upcoming Ben Bernanke speech and tomorrow’s Beige Book releases ought to prove interesting to monitor. The technical landscape has been little changed over the past three weeks, and prices continue to tread water above resistance-turned-support at $30.98 at the 14.6% Fibonacci extension level. Near-term resistance is marked by the September 27 high at $33.51.

Crude_Oil_to_Follow_Stocks_Lower_Gold_Sets_Sights_on_Bernanke_Speech_body_Picture_5.png, Crude Oil to Follow Stocks Lower, Gold Sets Sights on Bernanke Speech

--- 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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