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Crude Oil May Fall on LTRO2 Repayment, Gold Aiming Higher

Crude Oil May Fall on LTRO2 Repayment, Gold Aiming Higher

Ilya Spivak, Head Strategist, APAC

Crude oil may continue lower as a large ECB LTRO2 repayment dents risk appetite. Gold is aiming to correct higher having hit an eight-month low.

Talking Points

Commodity prices are correcting narrowly higher in early European trade as markets digest yesterday’s aggressive selloff across most benchmark asset. S&P 500 stock index futures are pointing higher, hinting cycle-sensitive crude oil and copper prices have scope to follow stocks higher into the end of the trading week. Gold and silver are likewise primed for a narrow recovery having hit the lowest levels in eight and six months respectively earlier this week.

The cautiously positive mood may be upset however as the ECB announces the size of this week’s 3-year LTRO pre-payment. Notably, this week banks will be able to repay financing via the second LTRO (conducted in February 2012) as well as the first (December 2011). That may bring institutions that have not had an opportunity to participate thus far into the equation, making for a larger figure than in recent weeks.

The first opportunity to pre-pay LTRO1 funding saw 137.2 billion returned by 278 banks. Since then, the numbers have dropped dramatically, with only 12.3 billion repaid by 57 banks over the following three weeks. If the first round of LTRO2 repayment marks a similarly large up-front reduction in the ECB’s balance sheet, the de-facto tightening of monetary that it implies may once again weigh on risk appetite. That bodes ill for crude oil and copper, although gold and silver may continue higher considering such a result stands to boost EURUSD. That in turn may yield market-wide ripples of US Dollar weakness, underpinning anti-fiat assets.

WTI Crude Oil (NY Close): $92.84 // -1.62 // -1.72%

Prices broke below support at 93.24, the 38.2% Fibonacci retracement, exposing the 50% level at 91.70. A further break beneath that aims for the 61.8% Fib at 90.16. The 93.24 mark has been recast as near-term resistance, with a turn back above that eyeing the 23.6% retracement at 95.14.

Commodities_Crude_Oil_May_Fall_on_LTRO2_Repayment_Gold_Aiming_Higher_body_Picture_3.png, Crude Oil May Fall on LTRO2 Repayment, Gold Aiming Higher

Daily Chart - Created Using FXCM Marketscope 2.0

Spot Gold (NY Close): $1576.40 // +11.85 // +0.76%

Prices bounced to retest support-turned-resistance at the bottom of a falling channel set from October, a barrier reinforced by the 23.6% Fibonacci retracement at 1588.61. A break above that targets the 38.2% level at 1609.40. Near-term support is at 1555.00 – the February 21 low – with a turn back beneath that targeting the May 16 2012 close at 1539.35.

Commodities_Crude_Oil_May_Fall_on_LTRO2_Repayment_Gold_Aiming_Higher_body_Picture_4.png, Crude Oil May Fall on LTRO2 Repayment, Gold Aiming Higher

Daily Chart - Created Using FXCM Marketscope 2.0

Spot Silver (NY Close): $28.67 // +0.11 // +0.39%

Prices broke support in the 29.62-89 area, marked by the 61.8% Fibonacci retracement and the June 6 high, to challenge the 76.4% level at 28.28. A Spinning Top candlestick above this barrier points to indecision and hints a bounce may be ahead. A reversal back above 29.89 targets the 50% Fib at 30.71. Alternatively, a further drop below support aims for the June 28 2012 low at 26.11.

Commodities_Crude_Oil_May_Fall_on_LTRO2_Repayment_Gold_Aiming_Higher_body_Picture_5.png, Crude Oil May Fall on LTRO2 Repayment, Gold Aiming Higher

Daily Chart - Created Using FXCM Marketscope 2.0

COMEX E-Mini Copper (NY Close): $3.554 // -0.054 // -1.50%

Prices broke support at the 50% Fibonacci retracement (3.596), exposing the 61.8% level at 3.551. A further push below that aims for the 76.4% Fib at 3.494. Alternatively, a reversal back above 3.596 eyes the 38.2% Fib at 3.642.

Commodities_Crude_Oil_May_Fall_on_LTRO2_Repayment_Gold_Aiming_Higher_body_Picture_6.png, Crude Oil May Fall on LTRO2 Repayment, Gold Aiming Higher

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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