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Crude Oil at Risk on US Spending Cuts, Copper Breaks Down

Crude Oil at Risk on US Spending Cuts, Copper Breaks Down

Ilya Spivak, Head Strategist, APAC

Crude oil is at risk despite buoyant risk appetite as US “sequester” spending cuts loom just over a week ahead. Copper has completed a bearish technical breakout.

Talking Points

  • Commodities Little-Changed Despite Risk-On Mood Before Wall Street Open
  • Looming US “Sequester” Spending Cuts May Undermine Sentiment Trends
  • Copper Prices Complete Multi-Month Bearish Technical Pattern, Aim Lower

Commodity prices are trading little-changed ahead of the opening bell on Wall Street despite a swell of risk appetite in Europe and increasingly supportive pre-open cues from S&P 500 futures, where prices have now pushed into meaningfully positive territory. The chipper mood seems to be following a dramatically stronger-than-expected German ZEW investor confidence reading.

Looking ahead, a quiet US economic calendar offers little that can meaningfully derail momentum. Still, with just over a week to go until the dreaded “sequester” government spending cuts in the US are triggered, the onset of risk aversion may be relatively swift. Indeed, it seems only a matter of time before speculation about the impact of fiscal retrenchment in the world’s top economy and global output at large begin to resurface.

If a broad-based reversal in risk does materialize, cycle-sensitive crude oil and copper prices are set to follow shares lower. The implications for precious metals are less clear-cut. It does seem plausible to think that a major turn in risk appetite will weigh on carry trades and force a correction in the runway USDJPY advance. This in turn could carry spill-over implications for the US Dollar at large considering the magnitude of the USDJPY rally and the implied degree of pending profit-taking. Such a scenario may offer a de-facto lift to precious metals.

WTI Crude Oil (NY Close): $95.86 // -1.45 // -1.49%

Prices are consolidating above support at 95.14, the 23.6% Fibonacci retracement. Resistance remains in the 98.02-21 area (marked by the 23.6% Fib expansion and the January 30 high). A break higher exposes the 38.2% expansion at 99.91. Alternatively, a reversal below 95.14 initially targets the 38.2% retracement at 93.24.

Commodities_Crude_Oil_at_Risk_on_US_Spending_Cuts_Copper_Breaks_Down_body_Picture_3.png, Crude Oil at Risk on US Spending Cuts, Copper Breaks Down

Daily Chart - Created Using FXCM Marketscope 2.0

Spot Gold (NY Close): $1610.05 // -0.05 // -0.00%

Prices broke below support at 1617.84, the 61.8% Fibonacci expansion, exposing the 76.4% level at 1599.10. A further push below that targets a falling channel bottom at 1588.66. The 1617.84 level has been recast as near-term resistance, with a reversal back above that eyeing the 50% Fib at 1632.97.

Commodities_Crude_Oil_at_Risk_on_US_Spending_Cuts_Copper_Breaks_Down_body_Picture_4.png, Crude Oil at Risk on US Spending Cuts, Copper Breaks Down

Daily Chart - Created Using FXCM Marketscope 2.0

Spot Silver (NY Close): $29.94 // +0.14 // +0.47%

Prices are testing support in the 29.62-89 area, marked by the 61.8% Fibonacci retracement and the June 6 high. A bounce here sees initial resistance at 30.71, the 50% Fib, with a break above that targeting a falling trend line at 31.47. Alternatively, a move below support aims for the 76.4% level at 28.28.

Commodities_Crude_Oil_at_Risk_on_US_Spending_Cuts_Copper_Breaks_Down_body_Picture_5.png, Crude Oil at Risk on US Spending Cuts, Copper Breaks Down

Daily Chart - Created Using FXCM Marketscope 2.0

COMEX E-Mini Copper (NY Close): $3.738 // -0.004 // -0.11%

Prices completed a bearish Rising Wedge chart pattern with a break through the formation’s support. Sellers now target the 38.2% Fibonacci retracement at 3.642. A break below that aims for the 50% level at 3.596. Near term support-turned-resistance is in the 3.712-18 area.

Commodities_Crude_Oil_at_Risk_on_US_Spending_Cuts_Copper_Breaks_Down_body_Picture_6.png, Crude Oil at Risk on US Spending Cuts, Copper Breaks Down

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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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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