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Crude Oil Gains Fragile as S&P 500 Futures Positioning Lacks Conviction

Crude Oil Gains Fragile as S&P 500 Futures Positioning Lacks Conviction

2011-10-19 11:58:00
Ilya Spivak, Sr. Currency Strategist
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Talking Points

  • Crude Oil Gains on Rumors of EFSF Expansion but Outlook Clouded From Here
  • Gold Spikes Lower as Bernanke Hints Federal Reserve Moving Away from QE

WTI Crude Oil (NY Close): $88.34 // +1.96 // +2.27%

Crude oil is on the upswing along with the spectrum of risky assets as investors seize on yet another EU debt crisis rescue rumor, this one appearing in The Guardian and claiming that France and Germany have agreed to expand the lending capacity of the EFSF bailout fund to 2 trillion euro. Notably, S&P 500 stock index futures are flat heading into North American trade, hinting at a lack of conviction behind the risk-on dynamics noted in Europe and Asia.

The US economic calendar offers a hefty helping of headline event risk to help establish a directional bias, with a continued improvement in leading indicators likely to reinforce upward momentum in the absence of another attention-grabbing headline out of the EU. The Fed’s Beige Book survey of regional economic conditions ought to provide the most comprehensive reading on the pulse of the recovery. CPI, Housing Starts, Building Permits and the official DOE set of weekly inventory figures are also on tap. Needless to say, the third-quarter earnings season is also underway, with 13 more S&P 500 companies due to report results today.

On the technical front, prices negated the bearish Harami candlestick pattern produced yesterday with a break above downward-sloping trend line resistance set from April’s swing high, exposing support-turned-resistance at $90.50. The trend line, now at $86.38, has been recast as near-term support.

Crude_Oil_Gains_Fragile_as_SP_500_Futures_Positioning_Lacks_Conviction_body_Picture_3.png, Crude Oil Gains Fragile as S&P 500 Futures Positioning Lacks Conviction

Spot Gold (NY Close): $1657.85 // -13.00 // -0.78%

Gold dropped the most in five days yesterday, although prices remained within the range carved out over the past three weeks, as Federal Reserve Chairman Ben Bernanke said in a speech in Boston that the US central bank needs to increase clarity in its objectives and will increasingly use communication tools to achieve its goals. The remarks implied that policymakers are moving away from strategies that would increase the Fed’s balance sheet through renewed quantitative easing (QE), sapping demand for gold as an inflation hedge.

Looking ahead, the trajectory of the US Dollar is likely to return as the main catalyst of gold price action, serving as a transmission mechanism for risk appetite trends. With this in mind, the flat reading on S&P 500 stock index futures ahead of the opening bell on Wall Street makes for an uncertain outlook, with directional conviction behind the safe-haven benchmark currency and therefore gold yet to be established.

Sizing up the technical landscape, prices produced a Piercing Line bullish candlestick pattern above support at the bottom of a modestly rising channel carved out since late September. Near-term resistance stands at $1660.73, the 50% Fibonacci retracement level, with a break above that exposing the 61.8% level at $1668.77. Alternatively, a break below the 38.2% Fib at $1652.68 exposes the 23.6% boundary at $1642.73.

Crude_Oil_Gains_Fragile_as_SP_500_Futures_Positioning_Lacks_Conviction_body_Picture_4.png, Crude Oil Gains Fragile as S&P 500 Futures Positioning Lacks Conviction

Spot Silver (NY Close): $32.05 // +0.25 // +0.79%

As with gold, silver is looking to the US Dollar as the conduit for the influence of risk sentiment trends, with directional cues unclear so far as markets look for direction. 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_Gains_Fragile_as_SP_500_Futures_Positioning_Lacks_Conviction_body_Picture_5.png, Crude Oil Gains Fragile as S&P 500 Futures Positioning Lacks Conviction

--- 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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