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Crude and Copper Slide as Emerging Market Jitters Sink Risk Appetite

Crude and Copper Slide as Emerging Market Jitters Sink Risk Appetite

2014-02-03 08:41:00
David de Ferranti, Currency Analyst

Talking Points

  • Crude Oil Dips as Ongoing Emerging Market Concerns Sink Risk Appetite
  • Copper Finds Support Following Eight Consecutive Days of Declines
  • Gold and Silver Prices Vulnerable to Upbeat US ISM Manufacturing Data

Crude oil slumped on Friday in a move mirrored in risk assets like the SPX500 as traders sought safety in Treasuries and the US Dollar. Newswires attributed the broad-based risk aversion to ongoing jitters surrounding emerging markets, as well as the Federal Reserve’s recent decision to continue tapering their asset purchase program.

An upside surprise to upcoming US ISM Manufacturing figures may help the oil price to recover based on the bullish implications for the US economy. However, a better-than-expected print would also likely firm Fed policy expectations, which could spark another bout of risk aversion and weigh on the WTI contract.

If we see investor sentiment sour further, it is likely that increased safe-haven demand for US Treasuries would lead to further declines for US 10 year. This in turn would lower the opportunity cost of holding gold, and may benefit the precious metal. Indeed gold has rallied in recent weeks as its negative correlation with US 10 year yields has continued to strengthen.

CRUDE OIL TECHNICAL ANALYSIS Despite Friday’s declines, oil is still putting up a series of higher highs and higher lows, indicating a continuation of the recent uptrend. However, prices are wavering around the trend line from the September 2013 high as a Dark Cloud cover candle pattern may be warning of a potential reversal. This leaves a mixed technical bias for the commodity.

Crude_and_Copper_Slide_as_Emerging_Market_Jitters_Sink_Risk_Appetite_body_Picture_5.png, Crude and Copper Slide as Emerging Market Jitters Sink Risk Appetite

Daily Chart - Created Using FXCM Marketscope 2.0

GOLD TECHNICAL ANALYSIS Following the declines from $1,270 a Dark Cloud Cover candlestick formation may be warning of further falls for the precious metal. A confluence of additional technical signals is required before a more meaningful reversal could be suggested including a break below support at $1,234.

Crude_and_Copper_Slide_as_Emerging_Market_Jitters_Sink_Risk_Appetite_body_Picture_6.png, Crude and Copper Slide as Emerging Market Jitters Sink Risk Appetite

Daily Chart - Created Using FXCM Marketscope 2.0

SILVER TECHNICAL ANALYSIS Silver has once again found buying support at the psychologically significant $19 level following its dramatic downside break from the ascending triangle formation. With prices remaining within the downward trend channel, shorts are preferred on a break below close-by support at $19.

Crude_and_Copper_Slide_as_Emerging_Market_Jitters_Sink_Risk_Appetite_body_Picture_7.png, Crude and Copper Slide as Emerging Market Jitters Sink Risk Appetite

Daily Chart - Created Using FXCM Marketscope 2.0

COPPER TECHNICAL ANALYSIS The downside continue to be preferred for copper, with the technical suggesting the downtrend remains intact. However, following 8 consecutive days of declines and with support close-by at $3.18, a corrective bounce may play out in the short-term which could offer a better entry for short positions.

Crude_and_Copper_Slide_as_Emerging_Market_Jitters_Sink_Risk_Appetite_body_Picture_8.png, Crude and Copper Slide as Emerging Market Jitters Sink Risk Appetite

Daily Chart - Created Using FXCM Marketscope 2.0

--- Written by David de Ferranti, Market Analyst, FXCM Australia

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