Talking Points

  • Crude Oil, Copper Outlook Unclear Amid Clouded Risk Appetite Trends
  • Gold and Silver Likely to Stay Under Pressure on Fading QE3 Expectations

Commodity prices produced mixed results in the aftermath of yesterday’s FOMC policy announcement. Ben Bernanke and company upgraded their outlook for the US economy while maintaining a pledge to keep rates low at least through late 2014. The outcome weighed heavily on gold and silveras expected, with store-of-value demand for the two metals evaporating along with QE3 expectations. The behavior of crude oil and copper was more nuanced however, reflecting an unexpected reaction from risk appetite.

Indeed, the S&P 500 surgedin the aftermath of the FOMC announcement, a response that we did not expect. Looking at the US in isolation, the stocks rally seems to make sense. After all, with growth improving and the Fed clearly not interested in impeding it, the landscape appears rather rosy (an unexpected boost from JPMorgan certainly didn’t hurt either).Not all is as it seems however, because although the US recovery is gaining momentum, global output is still expected to contract this year courtesy of a recession in the Eurozone.

Taking this into consideration, the Fed announcement was a mixed blessing at best in that its apparent dismissal of QE3 meant that the US recovery – expected to yield a relatively modest 2.2 percent GDP growth rate compared with the long-run average of 3.4 percent – will be less potent of a counterweight to the slump in Europe than otherwise. These conflicting cues produced a mixed response, with copper following shares higher while crude oil stood barely changed.

Looking ahead, the risk appetite landscape still appears somewhat clouded, with S&P 500 stock index futures flat ahead of the opening bell on Wall Street. Crude oil and copper are conspicuously lower however despite a robust rally in European shares, meaning the risky asset complex is still not of one mind on how to interpret the current environment. We suspect the path of least resistance ought to lead lower, but that is far from confirmed and a high degree of caution appears prudent. Gold and silver remain under pressure as the Dollar continues to press higher amid fading QE3 bets and more of the same appears likely, with the US economic calendar thin on scheduled event risk that could jolt the markets and undermine momentum.

WTI Crude Oil (NY Close): $106.71 // +0.37 // +0.35%

A Bearish Engulfing candlestick pattern continues to argue for near-term losses, with a break below 23.6% Fibonacci retracement support at 106.50 exposing the 38.2% barrier at 104.38. Prices are carving out a downward-sloping chart pattern that can turn out to be a bullish continuation Flag or a bearish falling Channel, depending on follow-through from here. Near-term resistance lines up at 107.67.

Gold_Likely_to_Remain_Under_Pressure_Amid_Fading_QE3_Expectations_body_Picture_3.png, Gold Likely to Remain Under Pressure Amid Fading QE3 Expectations

Daily Chart - Created Using FXCM Marketscope 2.0

Spot Gold (NY Close): $1674.10 // -27.22 // -1.60%

Prices followed a bearish Dark Cloud Cover candlestick pattern below resistance at 1719.76 identified yesterday with a drop through initial support at 1686.57, the 23.6% Fibonacci expansion. Sellers are now challenging the 38.2% Fib at 1667.71, with a break below that aiming for the 50% expansion at 1652.68. The 23.6% level has been recast as near-term resistance.

Gold_Likely_to_Remain_Under_Pressure_Amid_Fading_QE3_Expectations_body_Picture_4.png, Gold Likely to Remain Under Pressure Amid Fading QE3 Expectations

Daily Chart - Created Using FXCM Marketscope 2.0

Spot Silver (NY Close): $33.41 // -0.25 // -0.74%

Prices remain locked between the 23.6% and 38.2% Fibonacci retracements at 32.97 and 34.59, respectively. Overall positioning broadly favors the downside absent a daily close above 37.48, the February 29 high and peak of a Bearish Engulfing candlestick pattern. A break above 34.59 initially targets 35.66, while a push through support exposes the 50% retracement at 31.67.

Gold_Likely_to_Remain_Under_Pressure_Amid_Fading_QE3_Expectations_body_Picture_5.png, Gold Likely to Remain Under Pressure Amid Fading QE3 Expectations

Daily Chart - Created Using FXCM Marketscope 2.0

COMEX E-Mini Copper (NY Close): $3.902 // +0.064 // +1.67%

Prices continue to consolidate above support in the 3.696-3.713 region marked by the 38.2% Fibonacci retracement and the late October top. A Bearish Engulfing top candlestick pattern continues to broadly call in favor of a downside bias. A break below immediate support exposes the 50% level at 3.606. Near-term falling trend line resistance lines up at 3.924.

Gold_Likely_to_Remain_Under_Pressure_Amid_Fading_QE3_Expectations_body_Picture_6.png, Gold Likely to Remain Under Pressure Amid Fading QE3 Expectations

Daily Chart - Created Using FXCM Marketscope 2.0

--- Written by Ilya Spivak, Currency Strategist for

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