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Crude Oil, Gold Corrections May Be Cut Short by Sequester Fears

Crude Oil, Gold Corrections May Be Cut Short by Sequester Fears

Ilya Spivak, Head Strategist, APAC

Crude oil and gold are retracing as markets digest recent volatility but worries about the impact of looming US “sequester” spending cuts may reboot risk aversion.

Talking Points

  • Crude Oil, Copper Rise as Risk Appetite Trends Digest Recent Volatility
  • Gold and Silver Correct Lower Having Gained on Italian Instability Fears
  • Looming US “Sequester” Deadline May Unleash Risk Aversion Anew

Risk-linked crude oil and copper prices are recovering along with European stocks as risk sentiment trends digest yesterday’s sharp selloff. Gold and silver – which rose amid the turmoil at the start of the week as fears of resurgent sovereign risk in Italy drove support for assets whose value does not necessarily depend on well-functioning financial markets – are now pulling back.

Looking ahead, risk aversion may be find added fuel as the fast-approaching deadline to trigger the “sequester” spending cuts in the US finally begins to gain traction around the news wires. Needless to say, traders are concerned that another hefty dose of austerity may snuff out the already fragile US economic recovery, with dire consequences for the world at large.

The economic calendar offers mixed cues. January’s US Durable Goods Orders data crosses the wires. Expectations are pointing to a 4.7 decline, marking the worst reading in five months. Pending Home Sales are expected to improve over the same period however, reinforcing yesterday’s dramatically improved New Home Sales print. Ben Bernanke is scheduled to testify again – this time in the House of Representatives – but the content of his remarks will almost certainly mirror what was said yesterday to the Senate and thereby offer nothing new to drive price action.

WTI Crude Oil (NY Close): $92.63 // -0.48 // -0.52%

Prices broke below support at 92.80, the 38.2% Fibonacci retracement, exposing the 50.0% level at 91.13. A further break beneath that aims for the 61.8% Fib at 89.45. The 92.80 mark has been recast as near-term resistance, with a turn back above that eyeing the 23.6% retracement at 94.87.

Commodities_Oil_Gold_Corrections_May_Be_Cut_Short_by_Sequester_Fears_body_Picture_3.png, Crude Oil, Gold Corrections May Be Cut Short by Sequester Fears

Daily Chart - Created Using FXCM Marketscope 2.0

Spot Gold (NY Close): $1613.85 // +20.35 // +1.28%

Prices broke above resistance at 1609.40, the 38.2% Fibonacci retracement, exposing the 50% level at 1626.20. A further push above that aims for the 61.8% Fib at 1643.00. The 1609.40 mark has been recast as near-term support, with a reversal back beneath that eyeing the 23.6% retracement at 1588.61.

Commodities_Oil_Gold_Corrections_May_Be_Cut_Short_by_Sequester_Fears_body_Picture_4.png, Crude Oil, Gold Corrections May Be Cut Short by Sequester Fears

Daily Chart - Created Using FXCM Marketscope 2.0

Spot Silver (NY Close): $29.40 // +0.40 // +1.36%

Prices bounced as expected after putting gin a Spinning Top candlestickabove support at 28.28, the 76.4% Fibonacci retracement. Buyers now aim for a retest of the 29.62-89 area, marked by the 61.8% level and the June 6 high, with a break above that aiming for the 50% Fib at 30.70. Alternatively, a move below support aims for the June 28 2012 low at 26.11.

Commodities_Oil_Gold_Corrections_May_Be_Cut_Short_by_Sequester_Fears_body_Picture_5.png, Crude Oil, Gold Corrections May Be Cut Short by Sequester Fears

Daily Chart - Created Using FXCM Marketscope 2.0

COMEX E-Mini Copper (NY Close): $3.584 // +0.022 // +0.62%

Prices are testing resistance at 3.580, the 23.6% Fibonacci retracement, after bouncing from a rising trend line set from early June. A break higher exposes the 38.2% level at 3.620. Trend line support is now at 3.512.

Commodities_Oil_Gold_Corrections_May_Be_Cut_Short_by_Sequester_Fears_body_Picture_6.png, Crude Oil, Gold Corrections May Be Cut Short by Sequester 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

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

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