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Crude Oil, Gold to Fall if FOMC Minutes Scatter QE3 Expectations

Crude Oil, Gold to Fall if FOMC Minutes Scatter QE3 Expectations

Ilya Spivak, Head Strategist, APAC

Talking Points

Commodity prices are looking to the release of minutes the March Federal Reserve policy meeting for direction over the coming 24 hours. Broadly speaking, the outcome seems likely to reflect the relatively upbeat tone of the policy statement while reiterating a commitment to press on with accommodative monetary policy, which increasingly looks like a reference to the pledge of near-zero rates through late 2014 rather than additional non-standard measures.

With this in mind, the report’s market-moving potential will be found in any discussion of the various policy options open to the Federal Reserve in the event that additional easing is needed. Specifically, markets will want a gauge of how high the bar for triggering a third round of asset purchases has been set and what preliminary steps can be taken (like an extension of “Operation Twist”, so-called “sterilized QE”, and so on) before the Fed decides to embark on such a course.

Simply put, traders will want to get a sense for the likelihood of a QE3 program and the environment needed to produce it. If officials’ commentary is judged to signal that another expansion of the balance sheet is relatively likely, growth-sensitive copper and crude oil prices are likely to advance. Such an outcome also stands to weigh on the US Dollar, boosting gold and silver as alternatives to paper currency. Alternatively, a sense that QE3 is fading as a probable turn for Fed policy is likely to produce the opposite result.

S&P 500 stock index futures are trading lower heading into the opening bell on Wall Street to hint the markets are positioned for the latter scenario, and we tend to broadly agree. Elsewhere on the calendar, US Factory Orders are expected to rise 1.5 percent in February after shedding 1 percent in the previous month. The preliminary set of weekly crude oil inventory figures from API rounds out the docket.

WTI Crude Oil (NY Close): $105.23 // +2.21 // +2.15%

As we suspected yesterday, crude moved higher after putting in an Inverted Hammer candlestick above support at 102.97, the 50% Fibonacci retracement. Prices closed above initial resistance at 104.75, the 38.2% Fib, with bulls now aiming to challenge the 23.6% level at 106.96. This barrier is reinforced by a falling channel top set from late February. The 104.75 level has been recast as near-term support.

Crude_Oil_Gold_to_Fall_if_FOMC_Minutes_Scatter_QE3_Expectations_body_Picture_3.png, Crude Oil, Gold to Fall if FOMC Minutes Scatter QE3 Expectations

Daily Chart - Created Using FXCM Marketscope 2.0

Spot Gold (NY Close): $1677.68 // +9.32 // +0.56%

Prices moved higher as expected after taking out resistance at 1690.04, the 23.6% Fibonacci retracement level. The bulls continue to target the 38.2% Fib at 1690.04, with a break above that exposing 1709.23. Near-term support remains in the 1658.51-1666.29 area.

Crude_Oil_Gold_to_Fall_if_FOMC_Minutes_Scatter_QE3_Expectations_body_Picture_4.png, Crude Oil, Gold to Fall if FOMC Minutes Scatter QE3 Expectations

Daily Chart - Created Using FXCM Marketscope 2.0

Spot Silver (NY Close): $32.97 // +0.70 // +2.17%

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_to_Fall_if_FOMC_Minutes_Scatter_QE3_Expectations_body_Picture_5.png, Crude Oil, Gold to Fall if FOMC Minutes Scatter QE3 Expectations

Daily Chart - Created Using FXCM Marketscope 2.0

COMEX E-Mini Copper (NY Close): $3.922 // +0.096 // +2.51%

Prices appear to have broken resistance at the top of a Triangle chart formation carved out since early February, exposing initial resistance at 3.985 marked by the 38.2% Fibonacci expansion level. Overall, the Triangle setup implies a measured upside target at 4.187. The Triangle top now at 3.890 has been recast as near-term support.

Crude_Oil_Gold_to_Fall_if_FOMC_Minutes_Scatter_QE3_Expectations_body_Picture_6.png, Crude Oil, Gold to Fall if FOMC Minutes Scatter QE3 Expectations

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

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

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