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Crude Oil, Gold May Rise if Fed Minutes Boost QE3 Expectations

Crude Oil, Gold May Rise if Fed Minutes Boost QE3 Expectations

Ilya Spivak, Head Strategist, APAC

Talking Points

  • Crude Oil, Copper to Rise if Markets Pull pro-QE Message from Fed Minutes
  • Gold and Silver May Find Support in Inflation-Hedge Demand on Dovish FOMC

All eyes are on minutes from June’s FOMC meeting amid hopes the Fed will deliver some relief following last week’s disappointing US jobs report and underwhelming stimulus efforts from the ECB and the BOE. Although Ben Bernanke and company opted not to initiate a third round of quantitative easing (QE3) last month, traders will be keen to gauge the degree to which such an option entered into the conversation to guide expectations that such a thing may be unveiled in the coming months.

The Federal Reserve is surely not oblivious to the limitations of more QE given how low rates are already. However, it is equally likely to be very sensitive to the possibility that a strong signal against stimulus may trigger pandemonium across financial markets. That implies the door to further easing will be kept open for now, at least rhetorically.

With that in mind, language perceived as increasing the likelihood of further accommodation is likely to boost risk appetite, sending growth-geared crude oil and copper prices higher. Goldand silverprices are likewise likely to advance as capital flows pour into precious metalsseeking a hedge against dilution of the US Dollar. Needless to say, an outing that fails to advance the case for QE3 stands to produce the opposite result.

WTI Crude Oil (NY Close): $83.91 // -2.08 // -2.42%

Prices are testing 23.6% Fibonacci retracement support at 84.14 having edged lower after putting in a Shooting Star candlestick below resistance at 88.40, the 38.2% level. A break through support exposes 81.19. Alternatively, a rebound that produces a daily close above near-term resistance opens the door for a challenge of the 90.00 figure.

Crude_Oil_Gold_May_Rise_if_Fed_Minutes_Boost_QE3_Expectations_body_Picture_3.png, Crude Oil, Gold May Rise if Fed Minutes Boost QE3 Expectations

Daily Chart - Created Using FXCM Marketscope 2.0

Spot Gold (NY Close): $1567.28 // -20.40 // -1.28%

Prices broke support at 1575.81, the 38.2%Fibonacci expansion, after putting in a bearish Evening Star candlestick pattern below falling trend line resistance set from late March. Sellers now aim to challenge the 50% Fib at 1555.61, with a break below that exposing the trend-defining 1522.50-32.45 area. The 1575.81 level has been recast as near-term resistance.

Crude_Oil_Gold_May_Rise_if_Fed_Minutes_Boost_QE3_Expectations_body_Picture_4.png, Crude Oil, Gold May Rise if Fed Minutes Boost QE3 Expectations

Daily Chart - Created Using FXCM Marketscope 2.0

Spot Silver (NY Close): $26.83 // -0.52 // -1.88%

Prices are testing support is at 26.75, with a break below that exposing the multi-month triple bottom at 26.05. Trend line resistance is now at 28.11, with a breach above that exposing the underside of a previously broken Flag formation (currently at 28.60).

Crude_Oil_Gold_May_Rise_if_Fed_Minutes_Boost_QE3_Expectations_body_Picture_5.png, Crude Oil, Gold May Rise if Fed Minutes Boost QE3 Expectations

Daily Chart - Created Using FXCM Marketscope 2.0

COMEX E-Mini Copper (NY Close): $3.398 // -0.034 // -0.99%

Prices are testing support at 3.384, the 23.6% Fibonacci retracement, with a break lower exposing the major bottom at 3.250. Near-term resistance lines up at 3.474, the 38.2% level, with a break above that exposing the 50% Fib at 3.548.

Crude_Oil_Gold_May_Rise_if_Fed_Minutes_Boost_QE3_Expectations_body_Picture_6.png, Crude Oil, Gold May Rise if Fed Minutes Boost 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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