Commodities at Risk as Growth Fears Weigh on Risk Trends, Boost Dollar

2012-09-05 08:52:00 Ilya Spivak, Head Strategist, APAC

Talking Points

Crude Oil, Copper Set to Follow Stocks Lower on Global Slowdown Fears
Gold and Silver Vulnerable as Risk Aversion Stokes Demand for US Dollar

Commodity prices are under pressure in European trade as global slowdown fears stoke risk aversion across financial markets in the wake of disappointing economic news-flow over the past 24 hours. The ISM Manufacturing gauge unexpectedly showed factory-sector activity shrank again in August, the composite Eurozone PMI gauge was revised lower and overnight reports from China and Australia struck a dour note.

The US calendar is relatively quiet, with traders left to look to the rhetoric accompanying a rate decision from the Bank of Canada for guidance on North American growth trends. S&P 500 stock index futures are pointing firmly lower, suggesting the risk-off mood is likely to carry forward. This stands to weigh on cycle-sensitive crude oil and copper prices while gold and silver face de-facto selling pressure courtesy of returning haven demand for the US Dollar.

WTI Crude Oil (NY Close): $95.30 // -1.17 // -1.21%

Prices are testing below support at the bottom of a rising channel set from the June 28 low (95.72). Initial resistance is at 97.82, the 61.8% Fibonacci retracement, with a break higher exposing the 100.00 figure and 100.65. Alternatively, a reversal through channel support initially targeting the 50% Fib at 93.90.

Commodities_at_Risk_as_Growth_Fears_Weigh_on_Risk_Trends_Boost_Dollar_body_Picture_3.png, Commodities at Risk as Growth Fears Weigh on Risk Trends, Boost Dollar

Daily Chart - Created Using FXCM Marketscope 2.0

Spot Gold (NY Close): $1695.75 // +3.25 // +0.19%

Prices are stalling near the 1700/oz figure after taking out critical resistance at 1674.65, the intersection of the 38.2% Fibonacci retracement and a falling trend line set from the August 23 2011 swing high. A push above 1700 will likely challenge the 50% Fib at 1721.65. The 1674.65 level has been recast as near-term support, with a break back below that clearing the way for a re-test of the trend line (now at 1665.36) and the August 31 low at 1645.76.

Commodities_at_Risk_as_Growth_Fears_Weigh_on_Risk_Trends_Boost_Dollar_body_Picture_4.png, Commodities at Risk as Growth Fears Weigh on Risk Trends, Boost Dollar

Daily Chart - Created Using FXCM Marketscope 2.0

Spot Silver (NY Close): $32.34 // +0.25 // +0.77%

Prices broke resistance at 31.79, the 50% Fibonacci retracement, with buyers now aiming to challenge the 32.93-33.14 area marked by a horizontal pivot level and the 61.8% level. A break above that targets the 76.4% Fib at 34.80. The 31.79 level has been recast as support, with a break back below that exposing the 38.2% retracement at 30.45.

Commodities_at_Risk_as_Growth_Fears_Weigh_on_Risk_Trends_Boost_Dollar_body_Picture_5.png, Commodities at Risk as Growth Fears Weigh on Risk Trends, Boost Dollar

Daily Chart - Created Using FXCM Marketscope 2.0

COMEX E-Mini Copper (NY Close): $3.470 // +0.012 // +0.35%

Prices are pulling back to support at 3.438, with a break below that exposing the bottom of a rising channel set from the August 2 low (3.420). Near-term resistance lines up at 3.535. A push above that targets the channel top at 3.555.