Commodities Outlook Clouded as Risk Trends Weigh Competing Forces

2012-07-24 09:32:00 Ilya Spivak, Head Strategist, APAC

Talking Points

Crude Oil, Copper to Track Stocks as Risk Trends Look for Direction
Gold and Silver Continue to Find Link to Sentiment Via the US Dollar

Commodity prices are showing mixed results in early European trade as traders weigh competing catalysts on the economic data and Eurozone debt crisis fronts. July’sflash estimates of Eurozone PMI figures hinted the pace of contraction in region-wide manufacturing- and service-sector activity maybe stabilizing. A similar result is expected from the Richmond Fed’s manufacturing survey, reinforcing improvements on Empire and Philly Fed readings reported last week as well as the Chicago Fed’s National Activity Index.

Taken together, these outcomes have scope to underpin risk appetite, but sovereign risk jitters remain a headwind. Yields rose at an auction of Spanish 3- and 6-month bills while ECB and IMF inspectors are due to meet in Greece to evaluate the country’s progress on the terms of its bailout, with markets closely monitoring sideline commentary amid fears of an imminent cutoff to Athens’ lifeline.

S&P 500 stock index futures are trading flat, making for a clouded landscape ahead of the opening bell on Wall Street. If risk appetite does firm, growth-geared crude oil and copper can be expected to follow stocks higher while gold and silver edge upward amid ebbing haven demand for the US Dollar. Needless to say, an extension of yesterday’s risk-averse dynamic would produce the opposite result.

WTI Crude Oil (NY Close): $88.14 // -3.69 // -4.02%

Prices appear to have invalidated the bullish Head and Shoulders bottom pattern noted yesterday with a break back below the formation’s neckline. Sellers are now testing support in the 87.65-88.32 area, marked by the July 3 closing high and the 14.6% Fibonacci expansion. A break downward exposes the 23.6% level at 85.37. Near-term resistance lines up at 93.21, the July 19 high.

Commodities_Outlook_Clouded_as_Risk_Trends_Weigh_Competing_Forces_body_Picture_3.png, Commodities Outlook Clouded as Risk Trends Weigh Competing Forces

Daily Chart - Created Using FXCM Marketscope 2.0

Spot Gold (NY Close): $1576.95 // -7.55 // -0.48%

Prices continue to consolidate below resistance at 1588.90. A break higher exposes falling trend line resistance now at 1606.40. Near-term support lines up at 1573.26. A breach below that initially targets 1560.08, followed by the 1522.50-32.45 area.

Commodities_Outlook_Clouded_as_Risk_Trends_Weigh_Competing_Forces_body_Picture_4.png, Commodities Outlook Clouded as Risk Trends Weigh Competing Forces

Daily Chart - Created Using FXCM Marketscope 2.0

Spot Silver (NY Close): $27.04 // -0.28 // -1.01%

Prices continue to tread water above support is at 26.75. A break below that exposes the multi-month triple bottom at 26.05. Trend line resistance is now at 27.42, with a breach above that exposing the July 3 high at 28.44.

Commodities_Outlook_Clouded_as_Risk_Trends_Weigh_Competing_Forces_body_Picture_5.png, Commodities Outlook Clouded as Risk Trends Weigh Competing Forces

Daily Chart - Created Using FXCM Marketscope 2.0

COMEX E-Mini Copper (NY Close): $3.380 // -0.068 // -1.97%

Prices are testing support at 3.378, the 23.6% Fibonacci expansion, having broken through support at a rising channel bottom set from late June. Sellers are now testing the 23.6% Fibonacci expansion at 3.378, with a confirmed breach exposing the 38.2% level at 3.268. Near-term resistance is at 3.445, the 14.6% Fib.