Commodities Rise on Spain Bank Bailout But Gains May Prove Fleeting

2012-06-11 09:00:00 Ilya Spivak, Head Strategist, APAC

Talking Points

Crude Oil, Copper Follow Stocks Higher on Spain Bailout and Chinese Trade Data
Gold and Silver Find Support as Risk-on Mood Saps Haven Demand for US Dollar

Commodity prices are on the upswing to start the trading week amid a broad-based recovery in risk appetite after Spain successfully lobbied for a €100 billion EU aid package to recapitalize its banking sector over the weekend. Sentiment-linked crude oil and copper are following stocks higher while gold and silver are finding de-facto support as the chipper mood saps safe-haven demand for the US Dollar.

The bailout announcement downgrades the possibility of a credit squeeze in the event that a Spanish lender folded. The apparent absence of added austerity measures attached to the terms of the bailout are reinforcing the risk-on mood, hinting it will not compound Spain’s already deep recession and contribute to Eurozone-linked headwinds battering global output at large.

A supportive set of Chinese Trade Balance figures likewise amplified chipper sentiment trends, showing exports grew at the fastest pace in three months. The outcome hinted that the world’s second-largest economy and its top exporter may not be facing as deep of a demand slump as has been feared at the hands of the Eurozone recession.

Looking ahead, S&P 500 stock index futures are pointing firmly higher, pointing to more of the same as Wall Street comes online. Investor’s rosy disposition may be short-lived however as markets look ahead to Greece’s second attempt at a general election on June 17, with uncertainty about the outcome threatening to sink risky assets anew as the week progresses.

WTI Crude Oil (NY Close): $84.10 // -0.72 // -0.85%

Prices are consolidating between the June 7 high at 87.00 and the 14.6% Fibonacci expansion at 83.30. A break above resistance exposes the 90.00 figure. Alternatively, a push through support targets the 23.6% Fib at 81.07.

Commodities_Rise_on_Spain_Bank_Bailout_But_Gains_May_Prove_Fleeting_body_Picture_3.png, Commodities Rise on Spain Bank Bailout But Gains May Prove Fleeting

Daily Chart - Created Using FXCM Marketscope 2.0

Spot Gold (NY Close): $1594.78 // +4.05 // +0.25%

Prices are probing above resistance at 1599.17, the 50% Fibonacci retracement, after carving out a Hammer candlestick above support at 1582.10 marked by the 38.2% level. A break higher sees the next significant barrier at 1616.23, the 61.8% Fib.

Commodities_Rise_on_Spain_Bank_Bailout_But_Gains_May_Prove_Fleeting_body_Picture_4.png, Commodities Rise on Spain Bank Bailout But Gains May Prove Fleeting

Daily Chart - Created Using FXCM Marketscope 2.0

Spot Silver (NY Close): $28.50 // -0.10 // -0.36%

Prices are testing above resistance at 28.70, with a break higher exposing 29.71. The overall structure appears to be showing a Flag chart formation, a setup indicative of bearish continuation. Confirmation is required on a daily close below the pattern’s bottom – now at 28.04 – which would expose 27.06 as the next downside objective.

Commodities_Rise_on_Spain_Bank_Bailout_But_Gains_May_Prove_Fleeting_body_Picture_5.png, Commodities Rise on Spain Bank Bailout But Gains May Prove Fleeting

Daily Chart - Created Using FXCM Marketscope 2.0

COMEX E-Mini Copper (NY Close): $3.286 // -0.084 // -2.49%

Prices are once again testing resistance at the top of a falling channel set from the May 1 swing high (now at 3.350), with a break higher initially exposing the 76.4% Fibonacci retracement at 3.426. Double bottom support lines up at 3.250, with a break below that targeting the 123.6% Fib extension at 3.080.