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Crude Oil Retreats Ahead of US Data, Copper Aims Higher On Inventories

Crude Oil Retreats Ahead of US Data, Copper Aims Higher On Inventories

David de Ferranti, Currency Analyst

Talking Points

  • Copper looks to upcoming China data as inventories slide
  • Platinum and Palladium pullback as supply disruption fears ease
  • Crude oil to take guidance from key US economic data

Copper continues to climb in Asian trading today as investors return to the base metal following some encouraging manufacturing figures from China last week, alongside a further slide in inventories. Meanwhile, platinum and palladium may be vulnerable to a correction as concerns over supply disruptions ease. Finally, crude oil could give back some of its recent gains if a raft of top-tier US economic data fails to meet expectations this week.

Copper Climbs As China Concerns Ease

Last week’s higher-than-anticipated HSBC Chinese Manufacturing PMI print may have restored some faith in policy makers’ ability to achieve their stated growth objectives, easing concerns over a waning of the country’s commodities appetite. While still in contractionary territory, the flash reading for the key gauge of manufacturing sector activity for the month of May was the highest in 5 months. The encouraging data from the Tiger economy has likely helped copper to continue its ascent, with the base metal hitting the highest level since March 7th today, alongside gains in Chinese equity benchmarks.

The growth-sensitive commodity may take further guidance from the China Leading Index, and Industrial Profits figures due on Wednesday. While only “medium-tier” releases, strong economic data from the Asian giant could help ease fears of a further deceleration in growth, which would be a source of support for copper. Details available on the economic calendar here.

While improving Chinese data bodes well for the demand side of the equation, supply considerations also suggest a bullish near-term outlook for the commodity. Copper stockpiles reported at the LME on Friday sunk to the lowest level since 2008, with comes as inventories at other major exchanges rest near multi-year lows. A continued drawdown in stockpiles would suggest supply is unable to match demand for copper, which could lead to further gains.

Crude Oil Retreats Ahead of US Data, Copper Aims Higher On Inventories

Platinum And Palladium Pullback

Platinum and palladium retreated on Friday during US trading, after edging out fresh 2014 highs earlier in the week. The precious metals had likely been spurred on over the month of May by fears over supply disruptions from the commodity’s two largest producers; Russia and South Africa. The pullback in prices may have been due to speculation of a positive outcome to the Ukrainian election, and negotiations to end the South African mining strike (both taking place over the weekend). As noted in recent commodities reports; geopolitical risks in Eastern Europe, and the workers strike may offer only short-term sources of support for the precious metals. As concerns over further supply disruptions ease, platinum and palladium may be left vulnerable to a continued correction.

US Data To Offer Guidance To Crude Prices

While the US Memorial Day holiday will see most major commodities exchanges closed, a set of potentially market-shifting economic event risk lies on the calendar over the remainder of the week (see here). US Consumer Confidence and Durable Goods Orders data will be closely watched as leading indicators for the state of the US economy. If data misses expectations it could create doubt over the pace of the economic recovery, which follows on from an anemic first quarter GDP print. This would likely weigh on the growth-sensitive commodities including crude oil, which looks vulnerable as prices retreat shy of a psychologically-significant level at $105.

CRUDE OIL TECHNICAL ANALYSIS

WTI has continued its push towards the psychologically significant $105.00 handle. Several bullish signals remain including the presence of a short-term uptrend as suggested by the Rate of Change Indicatorand 20 SMA. However, with prices nearing the key resistance level new long positions are precluded at this stage. Additionally, the emergence of a bearish reversal pattern on the daily would suggest a pullback to support at 102.30.

Crude Oil: Nearing Key Resistance At $105.00

Crude Oil Retreats Ahead of US Data, Copper Aims Higher On Inventories

Daily Chart - Created Using FXCM Marketscope 2.0

GOLD TECHNICAL ANALYSIS

Gold continues to drift between $1,277 and $1,305, which may afford short-term range-trading opportunities on either side of the narrow corridor. A lack of momentum signaled by the Rate of Change indicator alongside low volatility levels (reflected by the ATR) and several Doji formations suggest the consolidation may continue.

The DailyFX Speculative Sentiment Index suggests a mixed bias for gold based on trader positioning.

Gold: Dojis Highlight Trader Indecision As Range Persists

Crude Oil Retreats Ahead of US Data, Copper Aims Higher On Inventories

Daily Chart - Created Using FXCM Marketscope 2.0

SILVER TECHNICAL ANALYSIS

Silver prices have resembled a tennis match of-late with prices swinging between $19.00 and $19.70. With the ATR and ROC indicators suggesting low volatility and a lack of momentum respectively, range-trading strategies are preferred.

Silver: Tennis Match Continues

Crude Oil Retreats Ahead of US Data, Copper Aims Higher On Inventories

Daily Chart - Created Using FXCM Marketscope 2.0

COPPER TECHNICAL ANALYSIS

Copper’s recent run higher has stalled with prices becoming compressed between $3.120 and $3.170. At this stage the ascending trend channel remains intact, which affords a bullish technical bias. A break above $3.170 would open up the next notable level of resistance at $3.300.

Copper: Uptrend Remains Intact

Crude Oil Retreats Ahead of US Data, Copper Aims Higher On Inventories

Daily Chart - Created Using FXCM Marketscope 2.0

PALLADIUM TECHNICAL ANALYSIS

Palladium has found support at former resistance near $826 after prices retreated on Friday. At this stage the precious metal remains within the ascending trend channel, with both the 20 and 50 SMA signaling the uptrend remains intact. This suggests the recent pullback offers a new opportunity to enter longs. A target is offered by the August 2011 high at $847.

Palladium: Pulls Back To Support

Crude Oil Retreats Ahead of US Data, Copper Aims Higher On Inventories

Daily Chart - Created Using FXCM Marketscope 2.0

PLATINUM TECHNICAL ANALYSIS

Buyers near the $1,466 mark are keeping platinum supported at this stage after the precious metal staged a false breakout above $1,486 last week. While an uptrend remains in force, the false breakout and emergence of a Bearish Engulfing pattern taken together suggest a mixed technical bias. A retreat below $1,466 and confirmation of the key reversal candlestick formation would open up another retest of the descending trendline.

Platinum: False Breakout Leaves Mixed Signals

Crude Oil Retreats Ahead of US Data, Copper Aims Higher On Inventories

Daily Chart - Created Using FXCM Marketscope 2.0

Written by David de Ferranti, Currency Analyst, DailyFX

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Contact and follow David on Twitter: @DaviddeFe

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

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