Talking Points

  • Crude Oil, Copper Aim Lower as China Slowdown Fears Dent Sentiment
  • Gold and Silver to Rise if Bernanke Comments Reboot QE3 Expectations

Commodity prices are broadly under pressure in early trade European trade as risk appetite comes under pressure following overnight news that China raised fuel prices, tacking on 7 percent to the price of gasoline and 7.8 percent to that of diesel. The move stoked fears that higher energy costs will further slow the world’s second-largest economy, and with it that of the world at large.Crude oil and copper prices are down courtesy of the announcement’s negative implications for the global business cycle while gold and silver are lower as risk aversion renews safe-haven demand for the US Dollar. S&P 500 stock index futures are trading sharply lower, hinting more of the same is likely as Wall Street comes online.

Looking ahead, the spotlight will turn to Fed Chairman Ben Bernanke as he delivers the first in four lectures at George Washington University. The exercise is part of the central bank’s recent push for transparency, with Mr Bernanke expected to lean heavily on clarifying the steps the Fed took during and in the immediate aftermath of the 2008 global credit crunch and subsequent recession. Although not a regular policy speech at face value, the outing allows for ample opportunity for the Chairman to touch on the outlook for policy going forward.

Dovish commentary in light of emerging worries about oil’s ability to derail the US recovery, replaying what happened in late 2010 – early 2011, is likely to offer a lift to risky assets (including growth-geared commodities) amid hopes for additional stimulus. Precious metals are also likely to move higher on renewed store-of-value demand if QE3 is seen as back on the table. Alternatively, a neutral outcome echoing this month’s FOMC statement that acknowledges the run-up in oil prices but doesn’t hint at policymakers’ readiness to provide near-term support is likely to have the opposite effect.

On the data front, US Housing Starts and Building Permits reports headline the calendar, with narrow improvements expected on both fronts. The preliminary set of weekly inventory figures from API is also on tap.

WTI Crude Oil (NY Close): $108.09 // +1.03 // +0.96%

Prices followed a Hammer candlestick with a break through the top of a Rising Wedge chart formation identified last week. The bulls have now cleared initial resistance at 107.35, the 23.6% Fibonacci expansion, exposing the next barrier at 109.56 marked by the 38.2% Fib. The 23.6% expansion has been recast as near-term support.

Commodities_Sink_on_China_Slowdown_Fears_Bernanke_May_Offer_Lifeline_body_Picture_3.png, Commodities Sink on China Slowdown Fears, Bernanke May Offer Lifeline

Daily Chart - Created Using FXCM Marketscope 2.0

Spot Gold (NY Close): $1664.52 // +4.52 // +0.27%

Prices continue to carve out a Falling Wedge bullish reversal chart formation, with a Harami candlestick pattern above support at 1638.84 reinforcing the likelihood of a bounce. Initial resistance lines up in the 1666.37-1677.05 area, with a break above that validating the Wedge setup and exposing resistance barriers at the 1700/oz figure as well as 1718.05.

Commodities_Sink_on_China_Slowdown_Fears_Bernanke_May_Offer_Lifeline_body_Picture_4.png, Commodities Sink on China Slowdown Fears, Bernanke May Offer Lifeline

Daily Chart - Created Using FXCM Marketscope 2.0

Spot Silver (NY Close): $32.95 // +0.42 // +1.30%

Prices continue to tread water after completing a Head and Shoulders top chart pattern with a break below the formation’s neckline at 32.97, the 38.2% Fibonacci retracement level. Initial support remains at 31.67, the 50% Fib, with a break lower exposing the 61.8% retracement at 30.37. The H&S setup implies a measured downside objective at 26.84, which closely coincides with the late December bottom. The 38.2% level has been recast as near-term resistance.

Commodities_Sink_on_China_Slowdown_Fears_Bernanke_May_Offer_Lifeline_body_Picture_5.png, Commodities Sink on China Slowdown Fears, Bernanke May Offer Lifeline

Daily Chart - Created Using FXCM Marketscope 2.0

COMEX E-Mini Copper (NY Close): $3.910 // +0.032 // +0.83%

Prices are stalling after putting in a Bearish Engulfing candlestick pattern below falling trend line resistance connecting major highs since early February but overall positioning remains broadly in favor of a downside scenario. Initial support lines up at 3.808, the 23.6% Fibonacci retracement, with a break below that exposing the 3.696-3.713 area anew. Trend line resistance is now at 3.915.

Commodities_Sink_on_China_Slowdown_Fears_Bernanke_May_Offer_Lifeline_body_Picture_6.png, Commodities Sink on China Slowdown Fears, Bernanke May Offer Lifeline

Daily Chart - Created Using FXCM Marketscope 2.0

--- Written by Ilya Spivak, Currency Strategist for

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