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Crude Oil and Gold Aiming Lower but US Data May Cut Pullback Short

Crude Oil and Gold Aiming Lower but US Data May Cut Pullback Short

2011-10-28 10:56:00
Ilya Spivak, Sr. Currency Strategist
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Talking Points

  • Crude Oil Corrects Lower, Spotlight Now Turns to US Economic Calendar
  • Gold Has Scope to Decline as EU Crisis Fears Recede, US Dollar Rebounds

WTI Crude Oil (NY Close): $93.96 // +3.76 // +4.17%

Crude oil continues to reflect broad-based sentiment trends, with the WTI contract still showing a firm correlation with the S&P 500. Prices slid in Asia and remain under pressure in early European trade as profit-taking drives risk-linked assets lower after yesterday’s aggressive advance in the wake of an encouraging outcome to the EU debt crisis summit and a supportive US GDP report. US stock index futures are pointing firmly lower ahead of the opening bell on Wall Street, hinting more of the same is up ahead.

Scanning the economic calendar, US Personal Income and Spending figures are on tap, with expectations calling for both to improve in September (the former yielding the largest increase in four months). The final revision of October’s University of Michigan Consumer Confidence gauge is also due to cross the wires, with forecasts calling for a slight upgrade from flash estimates. It remains to be seen whether such outcomes are potent enough to meaningfully refuel the rally in risky assets into the weekend or if investors have sufficiently priced in the rosier near-term outlook for US growth after yesterday’s GDP reading, allowing the current correction to continue into the weekly close.

Looking at the technical picture, prices rebounded from support at $90.17, the 38.2% Fibonacci retracement, but conspicuously failed to overturn the bearish Shooting Star candlestick formed on 10/25 (which would have required a close above its wick high at $94.56). Resistance is reinforced by the 50% Fib at $94.87. The current setup needs either a break higher through the 50% level or a reversal lower through the 38.2% level, on a daily closing basis in both instances, to reestablish a clear directional bias. In the meantime, positioning is broadly neutral.

Crude_Oil_and_Gold_Aiming_Lower_but_US_Data_May_Cut_Pullback_Short_body_Picture_3.png, Crude Oil and Gold Aiming Lower but US Data May Cut Pullback Short

Spot Gold (NY Close): $1744.85 // +20.03 // +1.16%

Gold prices managed to advance yesterday as downward pressure following the EU debt crisis summit outcome was outweighed by a sharp decline in the US Dollar, amounting to a de-facto boost for the yellow metal considering it is priced in terms of the greenback. The buck was in corrective mode in Asia and losses on S&P 500 index futures suggest those dynamics are likely to continue, offering support to the safe-haven currency and thereby forcing a pullback in gold prices.

With that in mind, sentiment may still be overturned as the day’s dose of US data comes across the wires, with further evidence of improvement in the health of the world’s top economy possibly rekindling the urgency in behind the advance in risky assets. As noted in the crude oil section above however, yesterday’s aggressive rally may have sapped bullish momentum at least through the end of the week.

Sizing up the technical landscape, prices are backing toward former resistance at $1726.60, the 50% Fibonacci retracement, a level now acting as support. A break below this boundary would expose the $1700 figure and the 38.2% Fib at $1680.78. Alternatively, the resumption of bullish momentum sees its first hurdle at $1772.42, the 61.8% level.

Crude_Oil_and_Gold_Aiming_Lower_but_US_Data_May_Cut_Pullback_Short_body_Picture_4.png, Crude Oil and Gold Aiming Lower but US Data May Cut Pullback Short

Spot Silver (NY Close): $35.11 // +1.72 // +5.14%

As with gold, silver prices shot higher yesterday as aggressive US Dollar selling catapulted the metal higher. Likewise in line with its more expensive counterpart, the metal may now have scope to correct lower if profit-taking continues to drive a recovery in the benchmark currency. Former resistance at $34.72, the 50% Fibonacci retracement level, has now been recast as near-term support, with a break lower exposing the 38.2% Fib at $32.67. Alternatively, bullish continuation targets the 61.8% retracement at $36.76.

Crude_Oil_and_Gold_Aiming_Lower_but_US_Data_May_Cut_Pullback_Short_body_Picture_5.png, Crude Oil and Gold Aiming Lower but US Data May Cut Pullback Short

--- 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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