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Metals Prices Rise on ECB LTRO Hopes, Crude Oil Underperforms

Metals Prices Rise on ECB LTRO Hopes, Crude Oil Underperforms

2012-02-28 08:15:00
Ilya Spivak, Head Strategist, APAC
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Talking Points

  • Copper Gains on Risk Appetite Recovery Ahead of ECB LTRO Outcome
  • Gold, Silver Find Support as Fading Safety Demand Weighs on US Dollar
  • Crude Oil Underperforms Amid Correction of Overbought Positioning

Metals are on the upswing in European trade amid a recovery in risk appetite. Optimism appears driven by hopeful expectation ahead of the outcome of the second 3-year ECB long-term refinancing operation (LTRO). Median forecasts call for a take-up of €470 billion this time around after a €489 billion outing in December, an outcome is likely to downgrade the threat of a Eurozone-driven credit crunch in the eyes of investors. This is translating into a relatively more benign economic growth outlook, boosting cycle-sensitive copper prices. The move is also putting downward pressure on the safe-haven US Dollar, offering a de-facto lift to gold and silver.

Looking ahead, S&P 500 stock index futures are pointing firmly higher and the final LTRO outcome is not due until tomorrow, hinting the upswing is likely to continue as Wall Street comes online. The US economic calendar likewise appears supportive. While Durable Goods Orders are expected to decline in January, the timelier February readings for Consumer Confidence and the Richmond Fed Manufacturing Activity index are forecast to show improvement, with the latter hitting an 11-month high.

Interestingly, crude oil is failing to capitalize on investors’ rosy disposition, with the WTI contract slightly lower ahead of the opening bell on Wall Street. Weakness appears corrective, with prices digesting overdone positioning after three consecutive weeks of gains. Prices soared to a nine-month high on the back of escalating tensions between Iran and Western powers that threatened to disrupt the vital Strait of Hormuz shipping lane. The Strait accounts for close to 40 percent of global seaborne crude supply. Data from the CFTC showed that speculative net-long crude oil positioning hit the highest since May last week.

WTI Crude Oil (NY Close): $108.56 // -1.21 // -1.10%

Prices put in a Bearish Engulfing candlestick pattern below resistance at 110.04, the 61.8% Fibonacci extension, hinting a move lower may be ahead. A break below initial support at 106.70, the 50% Fib extension, exposes the 38.2% level at 103.34. Alternatively, renewed bullish momentum that produces a daily close above resistance exposes the 76.4%Fib at 114.25.

Metals_Prices_Rise_on_ECB_LTRO_Hopes_Crude_Oil_Underperforms_body_Picture_3.png, Metals Prices Rise on ECB LTRO Hopes, Crude Oil Underperforms

Daily Chart - Created Using FXCM Marketscope 2.0

Spot Gold (NY Close): $1767.68 // -4.77 // -0.27%

Prices completed a bearish Three Outside Down candlestick pattern below resistance at the 1800/oz figure, a barrier reinforced by the 38.2% Fibonacci extension level. Initial support lines up at 1763.00, the confluence of former resistance at the December 2 high and the 23.6% Fib. A break below this barrier exposes 1705.34. Alternatively, abounce that sees prices issue a daily close above 1800.00 exposes the 50% extension at 1825.68.

Metals_Prices_Rise_on_ECB_LTRO_Hopes_Crude_Oil_Underperforms_body_Picture_4.png, Metals Prices Rise on ECB LTRO Hopes, Crude Oil Underperforms

Daily Chart - Created Using FXCM Marketscope 2.0

Spot Silver (NY Close): $35.39 // -0.01 // -0.02%

Unchanged from yesterday: “Prices put in a Shooting Star candlestick below resistance at 35.66, the October 28 swing high reinforced by the 38.2% Fibonacci extension level, hinting a pullback may be ahead. Initial support lines up at 34.37, the February 2 top. Alternatively, a daily close above resistance exposes 36.99, the August 9 low bolstered by the 50% extension.”

Metals_Prices_Rise_on_ECB_LTRO_Hopes_Crude_Oil_Underperforms_body_Picture_5.png, Metals Prices Rise on ECB LTRO Hopes, Crude Oil Underperforms

Daily Chart - Created Using FXCM Marketscope 2.0

COMEX E-Mini Copper (NY Close): $3.890 // +0.020 // +0.52%

Prices are testing above resistance at 3.909, with a break higher exposing the February 9 high at 3.988. This level doubles as the top of a Bearish Engulfing candlestick pattern, with a daily close above it needed to neutralize otherwise bearish hues in overall positioning. Near-term support remains at 3.789 for now.

Metals_Prices_Rise_on_ECB_LTRO_Hopes_Crude_Oil_Underperforms_body_Picture_6.png, Metals Prices Rise on ECB LTRO Hopes, Crude Oil Underperforms

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

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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