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Gold, Crude Oil Look to Fed Beige Book for Direction Cues

Gold, Crude Oil Look to Fed Beige Book for Direction Cues

Ilya Spivak, Head Strategist, APAC

Talking Points:

  • Fed Beige Book Key Ahead as QE “Taper” Outlook Remains in Focus
  • Gold to Fall on Ebbing Anti-Fiat Demand if US News-flow Boosts USD
  • Crude oil May Rise with Risk Trends on Signs of Firming US Recovery

The spotlight falls on the Federal Reserve Beige Book survey in the hours ahead. An upbeat report that reinforces the argument in favor of continued reduction in Fed asset purchases stands to boost the US Dollar and weigh on gold prices amid ebbing anti-fiat demand.

Interestingly, news-flow pointing to a strengthening US recovery has been interpreted positively in the risky asset space recently, marking a departure from relatively recent dynamics. Indeed, even relatively recently, upbeat economic outcomes frequently triggered risk aversion amid fears that such results would spur the Fed to pull back on stimulus.

This suggests the markets are no longer as fearful of the possibility that QE reduction will sink the world’s largest economy. Indeed, the positive correlation between the US Dollar and the S&P 500 is now at the highest in four months (on 20-day percent change studies). That means an encouraging Beige Book may boost share prices and other cycle-sensitive assets, including crude oil. Needless to say, a sour tone that echoes last week’s disappointing jobs report stands to yield the inverse outcome.

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

CRUDE OIL TECHNICAL ANALYSIS Prices overturned yesterday’s breakdown, completing a bullish Piercing Line candlestick pattern. Breaking above resistance at 93.46 – the 23.6% Fibonacci retracement – exposes the 38.2% level at 94.85. Near-term support is at 91.21, the January 9 swing low.

Gold_Crude_Oil_Look_to_Fed_Beige_Book_for_Direction_Cues_body_Picture_3.png, Gold, Crude Oil Look to Fed Beige Book for Direction Cues

GOLD TECHNICAL ANALYSIS Prices put in a Bearish Engulfing candlestick pattern below support-turned-resistance at 1261.28, hinting a move lower is ahead. Near-term support is in the 1212.03-17.75 area, marked by the December 2 low and the 23.6% Fibonacci expansion. A break below that targets the 1200.00 figure and the 38.2% level at 1185.34.

Gold_Crude_Oil_Look_to_Fed_Beige_Book_for_Direction_Cues_body_Picture_4.png, Gold, Crude Oil Look to Fed Beige Book for Direction Cues

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

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