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Commodities: US Election Offers Support But "Fiscal Cliff" Fears Loom

Commodities: US Election Offers Support But "Fiscal Cliff" Fears Loom

Ilya Spivak, Head Strategist, APAC

Commodities found support in a clear resolution to the US Presidential election but the chipper mood may prove fleeting as the spotlight turns to “fiscal cliff” fears.

Talking Points

  • Metals Rise, Crude Oil Trims Losses on US Presidential Election Outcome
  • S&P 500 Index Futures Point to Risk-On Mood as Wall Street Comes Online
  • Sentiment Recovery May Prove Fleeting on Returning “Fiscal Cliff” Fears

Metals rose in Asian trade as risk appetite swelled across financial markets – weakening haven demand for the US Dollar – in the aftermath of the US general election. The ballot handed victory to President Barack Obama while challenger Governor Mitt Romney conceded. As we argued yesterday, any outcome that produced a clear winner was likely to be greeted by investors hopeful for a swift re-orientation toward resolving the looming “fiscal cliff” fiasco. Crude oil underperformed having corrected lower early in the overnight session after a strong rally in US hours, with prices trimming losses but failing to meaningfully push into positive territory after the election results crossed the wires.

Looking ahead, a quiet economic calendar is likely to keep the election front and center as financial markets around the world take their opportunity to respond to the results. S&P 500 stock index futures are rapidly erasing losses ahead of the opening bell on Wall Street, suggesting markets are building a foundation to extend the risk-on bias into the hours ahead. Investors’ chipper mood may not prove lasting however, warning that commodities may be quick to turn lower anew as growth fears return while the US Dollar recovers.

All signs appear to point to a broad extension of the status quo in the US political landscape, with President Obama’s victory matched by another Democrat-controlled Senate and Republican-dominated House of Representatives. That may spark fears of renewed deadlock as markets tremble at the thought that a set of automatic spending cuts and tax hikes slated to trigger at the turn of the calendar year that may tip the US back into recession. Such prospect bodes ill for global growth in an environment where the Eurozone is contracting while China slows.

WTI Crude Oil (NY Close): $88.71 // +3.06 // +3.57%

Prices are stalling above the 85.00 figure, a barrier reinforced by the 50%Fibonacci expansion at 83.76. Initial resistance lines up at 87.66, the 38.2% Fib, with a break above that targeting a falling trend line set from late September (now at 91.48). Alternatively, a break below 83.76 targets the 80.00 figure and 61.8% level at 79.84.

Daily Chart - Created Using FXCM Marketscope 2.0

Spot Gold (NY Close): $1716.00 // +31.00 // +1.84%

Prices put in a Bullish Engulfing candlestick pattern above support at 1693.06, the 38.2% Fibonacci retracement, hinting a bounce may be ahead. Initial resistance lines up at a falling trend line set from the October 5 swing high (1707.74). A break above that exposes the 1732.33-35.65 area, marked by a horizontal pivot level and the 23.6% Fib. Alternatively, a drop below support targets the 50% level at 1661.32.

Daily Chart - Created Using FXCM Marketscope 2.0

Want to learn more about RSI? Watch this Video

Spot Silver (NY Close): $31.99 // +0.81 // +2.60%

Prices are retesting the 38.2% Fibonacci retracement at 32.36, with a break above that exposing the 33.51-66 area marked by the 23.6% level and a former range bottom. Near-term support lines up at 31.43, the 50% retracement. A push back beneath that targets the 61.8% Fib at 30.50.

Daily Chart - Created Using FXCM Marketscope 2.0

Want to learn more about RSI? Watch this Video

COMEX E-Mini Copper (NY Close): $3.506 // +0.036 // +1.04%

Prices are bouncing from support at 3.462, the 50% Fibonacci expansion. Near-term resistance lines up at 3.550, the 38.2% level, with a break above that targeting the 23.6% Fib at 3.659. Alternatively, a break below 3.462 targets trend line support at 3.395 and the 61.8% level at 3.372.

Daily Chart - Created Using FXCM Marketscope 2.0

--- Written by Ilya Spivak, Currency Strategist for

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