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Crude Oil, Gold Selling Likely to Resume After Euro FinMin Summit

Crude Oil, Gold Selling Likely to Resume After Euro FinMin Summit

2012-03-30 10:28:00
Ilya Spivak, Sr. Currency Strategist
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Talking Points

Markets appear in good spirits in Europe as traders look to the outcome of a Eurozone finance ministers’ meeting underway in Copenhagen amid hopes they will decide to run the temporary EFSF bailout fund and permanent ESM one alongside one another at least through June 2013, increasing the region’s war-chest to €748 billion over the near term. The outcome would reconcile Germany’s preference for an ESM with total lending capacity of €500 billion including the €192 already spent by the EFSF (which would leave a much smaller €308 billion in unused resources) and that of countries wanting a permanent increase to €748 billion (where the EFSF would not expire as scheduled by the middle of next year).

Officials’ recent commentary suggestssuch a compromise has been in the works for some weeks now, meaning its validation would offer little that has not been priced into asset prices already, thereby raising the risk of a “buy the rumor, sell the fact” scenario after the final announcement crosses the wires. On the US data front, a rise in Personal Income and Spending may be tarnished as the former continues to lag the latter while outlays are inflated by rising oil prices rather than a true pick-up in activity. Against this backdrop, the University of Michigan consumer confidence gauge is set to confirm that sentiment registered its first decline since August this month (albeit a slightly smaller one than originally reported). The Chicago PMI regional economic activity gauge is also forecast to print lower.

On balance, this appears likely to make for a difficult environment for commodity prices into the week-end. S&P 500 stock index futures are pointing higher to suggest risk appetite is well-supported for now, but the removal of uncertainty on the Eurozone summit’s outcome as well as a dollop of US economic data flow that is likely to prove mixed at best opens the door for confidence to deflate before the closing bell in North America. Profit-taking may be another component weighing on growth-geared assets in the final hours of the first quarter as traders facing a challenging growth environment for the remainder of the year move to lock in profits on the final day of the first quarter. Such a reversal stands to weigh on crude oil and copper – where prices continue to track broad-based sentiment trends – while driving haven demand for the US Dollar and weighing on the anti-fiat gold and silver by extension.

WTI Crude Oil (NY Close): $102.78 // -2.63 // -2.50%

Prices completed a Descending Triangle chart pattern with a break through support at 104.75, the 38.2% Fibonacci retracement level. The setup implies a measured target at 99.57 from here, with interim Fib support levels at 102.97 and 101.19 along the way. The 104.75 level has been recast as near-term resistance.

Crude_Oil_Gold_Selling_Likely_to_Resume_After_Euro_FinMin_Summit_body_Picture_3.png, Crude Oil, Gold Selling Likely to Resume After Euro FinMin Summit

Daily Chart - Created Using FXCM Marketscope 2.0

Spot Gold (NY Close): $1661.57 // -2.10 // -0.13%

Prices reversed back through the 23.6% Fibonacci retracement at 1666.29 after finding resistance at the 38.2% level (1690.04). Sellers now target the 38.2% Fib expansion level at 1634.81, with a break below that exposing the 50% boundary at 1615.48. The 1666.29 level has been recast as near-term resistance.

Crude_Oil_Gold_Selling_Likely_to_Resume_After_Euro_FinMin_Summit_body_Picture_4.png, Crude Oil, Gold Selling Likely to Resume After Euro FinMin Summit

Daily Chart - Created Using FXCM Marketscope 2.0

Spot Silver (NY Close): $32.25 // +0.19 // +0.58%

Prices continue to consolidate below resistance at 32.93, the former neckline of a Head and Shoulders (H&S) top carved out between late January and mid-March, and horizontal support at 31.04. A break blower exposes the first downside barrier at 29.79. The H&S setup broadly implies a measured downside target at 26.84.

Crude_Oil_Gold_Selling_Likely_to_Resume_After_Euro_FinMin_Summit_body_Picture_5.png, Crude Oil, Gold Selling Likely to Resume After Euro FinMin Summit

Daily Chart - Created Using FXCM Marketscope 2.0

COMEX E-Mini Copper (NY Close): $3.796 // +0.004 // +0.11%

Prices continue to trace out a Triangle chart pattern above support at 3.696, the 38.2% Fibonacci retracement level. While the setup is typically indicative of trend continuation, which in this case would be a bullish development, confirmation is needed on a break of either of its boundaries before firm conclusions can be drawn. Near-term support is now at 3.767, while resistance stands at 3.895.

Crude_Oil_Gold_Selling_Likely_to_Resume_After_Euro_FinMin_Summit_body_Picture_6.png, Crude Oil, Gold Selling Likely to Resume After Euro FinMin Summit

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 Ilya 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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