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Commodities: Crude Oil Gains with Stocks on Fiscal Cliff Deal Hopes

Commodities: Crude Oil Gains with Stocks on Fiscal Cliff Deal Hopes

Ilya Spivak, Head Strategist, APAC

Crude oil prices are on the upswing amid a broad-based advance in risk appetite triggered by hopes for a US “fiscal cliff” deal. Gold prices are treading water.

Talking Points

  • Crude Oil Follows Stocks Higher on “Fiscal Cliff” Deal Optimism
  • Gold, Silver Tread Water as US Dollar Stages Shallow Recovery

Crude oil prices are on the upswing amid a broad-based recovery in risk appetite as markets look toward a resolution to the “fiscal cliff” fiasco playing out in Washington, DC. The newswires suggest optimism follows an apparent concession from House of Representatives Republican leader John Boehner to accept a tax increase on millionaires as part of the arrangement. Gold and silver are treading water as the typically safety-linked US Dollar looks past swelling sentiment, staging shallow corrective recovery in the wake of last week’s sharp selloff. This is naturally capping precious metals denominated in terms of the benchmark currency.

If the “fiscal cliff is to be avoided, a deal must be agreed-upon and put in motion this week. The markets’ baseline scenario calls for just such an outcome. The consensus view is that policymakers will cobble together a plan that avoids an immediate austerity shock but falls short of setting US public finances on a sustainable long-term path, with a framework for hashing out a “grand bargain” in the future probably baked in.

While a watered-down accord is undeniably better for risk appetite than none at all, its ability to deliver lasting gains for sentiment-linked assets including commodities seems limited. If policymakers perform in line with expectations already priced into the markets, the announcement of a deal is unlikely to provide meaningful upward follow-through beyond a short-term advance reflecting the dissipation of uncertainty. Indeed, with investors’ forecasts validated, the impetus for speculation evaporates.

Still, the landscape is highly headline-sensitive in the run-up to a finalized accord, making for choppy trade and poor trend development. Thinning liquidity ahead of the Christmas and New Year holidays is likely to compound these issues, making for a difficult market prone to knee-jerk price action that is likely to be particularly challenging for investors. Exercising extreme caution seems particularly prudent.

WTI Crude Oil (NY Close): $86.73 // +0.84 // +0.98%

Prices moved lower as expected after putting in a Shooting Star candlestick. A bearish continuation Flag chart pattern now appears to be validated with a break through the setup’s lower boundary. Near-term support is at 85.61, the 50% Fibonacci expansion. A break below that exposes the 61.8% Fib at 84.50. Alternatively, a push back above the Flag bottom (87.16) aims for 89.19

Commodities_Crude_Oil_Gains_with_Stocks_on_Fiscal_Cliff_Deal_Hopes_body_Picture_4.png, Commodities: Crude Oil Gains with Stocks on Fiscal Cliff Deal Hopes

Daily Chart - Created Using FXCM Marketscope 2.0

Spot Gold (NY Close): $1696.10 // -0.85 // -0.05%

Prices broke lower after putting in a Bearish Engulfing candlestick pattern, taking out support at a rising trend line set from late June. A move lower is now materializing as expected following a Hanging Man candle completed on a retest of this barrier. Near-term support is at 1692.41, the 50% Fibonacci expansion. A break below that exposes the 61.8% level at 1677.84. Trend line support-turned-resistance is at 1720.45, with a break above that broadly targeting 1752.55 anew.

Commodities_Crude_Oil_Gains_with_Stocks_on_Fiscal_Cliff_Deal_Hopes_body_Picture_3.png, Commodities: Crude Oil Gains with Stocks on Fiscal Cliff Deal Hopes

Daily Chart - Created Using FXCM Marketscope 2.0

Want to learn more about RSI? Watch this Video

Spot Silver (NY Close): $32.27 // -0.27 // -0.81%

Prices are testing support at a rising trend line set from mid-July (now at 32.56), with a break below that exposing the November 5 low at 30.65. Near-term resistance is at 32.83, the 23.6% Fibonacci expansion. A break above that targets the 38.2% level at 34.19.

Commodities_Crude_Oil_Gains_with_Stocks_on_Fiscal_Cliff_Deal_Hopes_body_Picture_2.png, Commodities: Crude Oil Gains with Stocks on Fiscal Cliff Deal Hopes

Daily Chart - Created Using FXCM Marketscope 2.0

Want to learn more about RSI? Watch this Video

COMEX E-Mini Copper (NY Close): $3.684 // +0.024 // +0.66%

Prices put in a Bearish Engulfing below resistance at a falling trend line set from the September 14 high, a barrier reinforced by the 50% Fibonacci expansion at 3.702. Near-term support is at 3.631, the 38.2% Fib, with a break below that targeting the 23.6% expansion at 3.544. A break above resistance targets the 61.8% level at 3.773.

Commodities_Crude_Oil_Gains_with_Stocks_on_Fiscal_Cliff_Deal_Hopes_body_Picture_1.png, Commodities: Crude Oil Gains with Stocks on Fiscal Cliff Deal Hopes

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

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