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Oil at Risk on Euro Zone GDP Drop, Gold Eyes Fed Minutes for QE3 Clues

Oil at Risk on Euro Zone GDP Drop, Gold Eyes Fed Minutes for QE3 Clues

2012-02-15 02:09:00
Ilya Spivak, Head Strategist, APAC
Share:

Talking Points

WTI Crude Oil (NY Close): $100.74 // -0.17 // -0.17%

An increasing focus on global economic growth trends puts fourth-quarter Eurozone GDP figures into the spotlight. The result is expected to show output shrank 0.4 percent to mark the first contraction since the region emerged from the Great Recession in mid-2009. Taken collectively, the Euro area is the world’s largest economy so a downturn there naturally bodes ill for crude oil demand.

US economic data may emerge as a mitigating factor later in the day. Industrial Production data is expected to show output rose 0.7 percent in January, the most in six months, while the Empire gauge of manufacturing activity is forecast to yield the highest reading since April of last year. The DOE set of weekly inventory figures is also on tap.

On the technical front, prices put in a Spinning Top candlestick below resistance at 101.28, pointing to indecision and hinting a pullback may be ahead. Initial support lines up at 99.96, marked by the previously broken top of a falling channel set from early January now recast as support.

Oil_at_Risk_on_Euro_Zone_GDP_Drop_Gold_Eyes_Fed_Minutes_for_QE3_Clues_body_Picture_3.png, Oil at Risk on Euro Zone GDP Drop, Gold Eyes Fed Minutes for QE3 Clues

Daily Chart - Created Using FXCM Marketscope 2.0

Spot Gold (NY Close): $1720.18 // -2.10 // -0.12%

Gold prices continue to track investors’ 2-3 year inflation expectations (tracked by “breakeven rates”, which are the difference between yields on nominal and inflation-adjusted US Treasury bonds). The release of minutes from the Federal Reserve’s January FOMC meeting is in focus over the coming 24 hours.

Traders will look for clues about the probability of QE3 after Ben Bernanke and company lurched further toward the dovish side of the spectrum by extending their pledge to hold rates “exceptionally low” by 18 months. If the release stokes bets on additional stimulus, gold is likely to follow inflation expectations higher, and vice versa.

Any forthcoming risk aversion after Eurozone GDP dips into negative territory may be an offsetting catalyst. If the outcome bears down on global growth expectations at large and sinks risk appetite, the US Dollar is likely to rise on safe-haven demand, which would amount to de-facto downward pressure on the yellow metal.

The technical picture continues favor the downside. Prices appear to be carving out a Head and Shoulders top below resistance at 1763.00, with the peak marked by a Bearish Engulfing candlestick pattern. A daily close below H&S neckline support at 1714.05 is needed for confirmation, exposing a measured target at 1665.03.

Oil_at_Risk_on_Euro_Zone_GDP_Drop_Gold_Eyes_Fed_Minutes_for_QE3_Clues_body_Picture_4.png, Oil at Risk on Euro Zone GDP Drop, Gold Eyes Fed Minutes for QE3 Clues

Daily Chart - Created Using FXCM Marketscope 2.0

Spot Silver (NY Close): $33.57 // -0.15 // -0.45%

Silver’s fundamental profile continues to mirror that of gold, with the Fed minutes release and its implications for QE3 expectations critical in the day ahead. Likewise, prices remain responsive to the influence of risk sentiment trends via their implications for the US Dollar, and so Eurozone GDP data may prove market-moving as well.

Prices broke through rising trend line support set from late December, with the bears now aiming to challenge 32.78. The trend line, now at 34.07, has been recast as near-term resistance. The gold/silver ratio continues to show a meaningful inverse relationship with the S&P 500, meaning the cheaper metal is likely to outperform in a risk-on environment, and vice versa.

Oil_at_Risk_on_Euro_Zone_GDP_Drop_Gold_Eyes_Fed_Minutes_for_QE3_Clues_body_Picture_5.png, Oil at Risk on Euro Zone GDP Drop, Gold Eyes Fed Minutes for QE3 Clues

Daily Chart - Created Using FXCM Marketscope 2.0

COMEX E-Mini Copper (NY Close): $3.814 // -0.026 // -0.68%

As with crude oil, Eurozone GDP figures and their implications for the global growth outlook are central over the coming hours as risk sentiment trends remain in control. As noted above however, US economic data may help offset negative cues. Prices broke through 14.6% Fibonacci retracement support at 3.834, with sellers now aiming to challenge the 23.6% level at 3.738. The 14.6% level has been recast as near-term resistance.

Oil_at_Risk_on_Euro_Zone_GDP_Drop_Gold_Eyes_Fed_Minutes_for_QE3_Clues_body_Picture_6.png, Oil at Risk on Euro Zone GDP Drop, Gold Eyes Fed Minutes for QE3 Clues

Daily Chart - Created Using FXCM Marketscope 2.0

--- 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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