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Gold Looks to Fed-Speak as Markets Weigh QE Tapering Prospects

Gold Looks to Fed-Speak as Markets Weigh QE Tapering Prospects

Ilya Spivak, Head Strategist, APAC

Talking Points:

  • Fed Officials’ Commentary in Focus, Lockhart Initially in the Spotlight
  • Gold May Rise if QE Tapering Comes into Question After Soft NFP Data
  • Crude Oil to Fall in With Risk Appetite Trends, Downside Bias Hinted

“Fed-speak” is in the spotlight this week as markets ponder Friday’s deeply disappointing US employment data and the possibility that it may compel the FOMC to rethink the decision to begin “tapering” QE asset purchases. While policymakers seem unlikely to abandon their medium-term strategy on the basis of one data point, speculation is likely to run rampant nonetheless.

Atlanta Fed President Dennis Lockhart will kick things off in the hours ahead. Signs of a dovish rhetorical shift that stresses the data dependence of future QE withdrawal and reiterates the possibility that the process may be slowed or halted may rekindle fears of US Dollar dilution via longer- lasting accommodation and boost anti-fiat demand for gold, pushing prices higher. Commentary reinforcing the status quo stands to have the opposite effect.

The implications for crude oil are less clear-cut. The WTI contract has once again developed a formidable correlation to the S&P 500, a benchmark for risk appetite trends. However, it seems the US jobs report did little to offer directional cues to sentiment, with the stock index still locked in a familiar range. For what it’s worth, S&P 500 futures are pointing sharply lower ahead of the opening bell on Wall Street, hinting oil may be setting up to follow shares downward.

Capitalize on Shifts in Market Mood with the DailyFX Speculative Sentiment Index.

CRUDE OIL TECHNICAL ANALYSIS Prices fell as expected after putting in a Bearish Engulfing candlestick pattern. A break below 91.74 – the November 27 swing low – exposes the 50% Fibonacci expansion at 90.50. Reversing back above 92.91, the 38.2% level, aims for the 23.6% Fib at 95.90.

Gold_Looks_to_Fed-Speak_as_Markets_Weigh_QE_Tapering_Prospects_body_Picture_3.png, Gold Looks to Fed-Speak as Markets Weigh QE Tapering Prospects

GOLD TECHNICAL ANALYSIS Prices turned higher as expected after putting in a Harami candlestick pattern. A break above resistance in the 1217.75-22.01 area, marked by the December 2 low and the 23.6% Fibonacci retracement, has exposed the 38.2% level at 1248.70. A further push beyond that aims for the 1261.28-70.28 region, bracketed by the October 11 swing low and the 50% Fib.

Gold_Looks_to_Fed-Speak_as_Markets_Weigh_QE_Tapering_Prospects_body_Picture_4.png, Gold Looks to Fed-Speak as Markets Weigh QE Tapering Prospects

--- Written by Ilya Spivak, Currency Strategist for DailyFX.com

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