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Commodities Wait for G7 Outcome Amid Euro Crisis, Global Slump Fears

Commodities Wait for G7 Outcome Amid Euro Crisis, Global Slump Fears

2012-10-11 03:41:00
Ilya Spivak, Head Strategist, APAC
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Commodity prices are looking for the G7 finance ministers’ summit for guidance as policymakers grapple with the Eurozone debt crisis and a global slowdown.

Talking Points

  • Commodities Consolidate in Overnight Trade Before G7 FinMin Summit
  • Revised German, French CPI Data to Shape Outlook for ECB Stimulus
  • Italian Bond Sale Results May Spark Eurozone Crisis Fears if Yields Rise
  • US Q3 Earnings Likely to Overshadow Tame Economic Data Calendar

Commodities are treading water in overnight trade as markets take advantage of a short respite in fundamental event risk ahead of the G7 finance ministers’ summit today in Tokyo. The gathering will have plenty of key issues on the agenda as the Eurozone debt crisis continues to fester while fears about slowing global economic growth gain traction.

Traders will be keen to scour the communiqué issued at the culmination of the sit-down and any sideline commentary from key officials to glean guide expectations for global stabilization efforts. While concrete policy prescriptions rarely emerge at such outings, the times they do tend to be accompanied by sharp volatility across financial markets. The possibility of such an outcome this time around seems credible considering the wide spectrum of critical issues at hand.

On the data front, the final set of September’s German, French and Spanish CPI figures is in focus in European trade. Downside revisions may prove supportive for risk appetite as traders speculate that lower inflation will create room for ECB stimulus, a critical consideration considering the recession in the Eurozone represents the most significant headwind for global economic performance. By the same token, a revision higher may carry risk-averse implications, though such an outcome probably carries less potential for follow-though considering initial data for September already showed a strong pickup in price growth. Italy will also sell a tranche of bonds spread across 2015, 2016, 2018 and 2025 maturities. A pickup in yields or particularly soft bid-to-cover readings may carry negative sentiment implications, and vice versa.

The US calendar is relatively quiet, with weekly Jobless Claims and Augusts’ Trade Balance report rounding out the docket. The third-quarter earnings docket may prove more significant with Fastenal and Safeway due to report results. Guidance from the former, a global seller of industrial and construction supplies, will help shape broad-based growth expectations. The latter, a supermarket chain operator, will help establish a reading on US consumption trends as investors continue to hope that a firmer recovery in North America will help to offset weakness elsewhere.

On balance, a net sentiment-negative outcome to the varied mix of catalysts on offer stands to weigh cycle-sensitivecrude oil and copper prices. Meanwhile, gold and silver may decline as ebbing risk appetite boosts haven demand for the US Dollar. Needless to say, a broadly risk-positive tone is likely to produce the inverse dynamic.

WTI Crude Oil (NY Close): $91.25 // -1.14 // -1.23%

Prices are testing minor falling trend line resistance at 92.68 that has capped gains over recent weeks. A break higher targets the 94.00 figure, followed by the underside of a rising channel set from early July (now at 97.67). Near-term support is at 87.70, the 38.2%Fibonacci expansion, with a push below that targeting the 50% level at 83.76.

Commodities_Wait_for_G7_Outcome_Amid_Euro_Crisis_Global_Slump_Fears_body_Picture_3.png, Commodities Wait for G7 Outcome Amid Euro Crisis, Global Slump Fears

Daily Chart - Created Using FXCM Marketscope 2.0

Spot Gold (NY Close): $1762.35 // -1.95 // -0.11%

Prices continue to push lower after completing a bearish Dark Cloud Cover candlestick pattern below resistance in the 1790.55-1802.80 area, a setup reinforced by negative RSI divergence. Sellers have cleared the bottom of a Rising Wedge chart pattern, exposing the 23.6% Fibonacci retracement at 1747.20 as the next downside objective. The Wedge bottom, now at 1773.68, has been recast as near-term resistance. A push back above that threatens 1790.55-1802.80 anew.

Commodities_Wait_for_G7_Outcome_Amid_Euro_Crisis_Global_Slump_Fears_body_Picture_4.png, Commodities Wait for G7 Outcome Amid Euro Crisis, Global Slump Fears

Daily Chart - Created Using FXCM Marketscope 2.0

Want to learn more about RSI? Watch this Video

Spot Silver (NY Close): $33.98 // +0.07 // +0.20%

Prices followed the completion of a Bearish Engulfing candlestick pattern with a drop to range support at 33.66, a barrier reinforced by the 23.6% Fibonacci retracement at 33.18. A break below the latter boundary exposes the 38.2% Fib at 31.83. Negative RSI divergence reinforces the case for a downside scenario. Near-term resistance stands at the 35.00 figure, with a break above that initially targeting the October 28 2011 high at 35.66.

Commodities_Wait_for_G7_Outcome_Amid_Euro_Crisis_Global_Slump_Fears_body_Picture_5.png, Commodities Wait for G7 Outcome Amid Euro Crisis, Global Slump Fears

Daily Chart - Created Using FXCM Marketscope 2.0

Want to learn more about RSI? Watch this Video

COMEX E-Mini Copper (NY Close): $3.718 // 0.000 // 0.00%

Prices continue to consolidate below resistance at a falling trend line set from early February (3.820). A break higher exposes swing highs at 3.955 and 3.988. Near-term support lines up at 3.707, the 23.6% Fibonacci retracement. A push below that targets the 38.2% level at 3.627.

Commodities_Wait_for_G7_Outcome_Amid_Euro_Crisis_Global_Slump_Fears_body_Picture_6.png, Commodities Wait for G7 Outcome Amid Euro Crisis, Global Slump Fears

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

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