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Crude Curve Turns Contango As Slide Continues, Gold Dips On USD Gains

Crude Curve Turns Contango As Slide Continues, Gold Dips On USD Gains

David de Ferranti, Currency Analyst

Talking Points

Crude oil continues to make headlines in Asian trading today as the commodity extends its recent losses. Thus far during the session WTI is off by 2.4 percent, lagging declines for its sibling Brent (-2.6 percent). The sharp drop at the outset the week appears to be simply a continuation of investor concerns over the lingering supply glut story. This follows the recent gathering of OPEC producers who failed to deliver meaningful action aimed at cutting production to bolster prices.

Interestingly, the WTI curve has flipped to contango – a rare display for the energy commodity. This is simply where spot crude is cheaper than longer dated futures contracts. The same structure evolved in 2009 as the result of the GFC induced sell-off in risk sensitive instruments. Big name players at the time actually sought to take delivery, then store the commodity in tankers and sell forward at a higher rate. Yet such plays are more of an interesting side note than suggestive of a possible surge in demand. While the negative supply side cues persist crude may remain under pressure over the medium-term.

Finally, the precious metals are also weaker across the board in Asian trading today. Silver is leading the pack lower with declines of close to 3 percent for the session. Broad-based US Dollar strength is likely dragging the group lower. Yet there may also be some selling arising from traders having to cover margins in other commodities.

Looking ahead US ISM Manufacturing figures headline the US economic calendar. While they are tipped to deteriorate slightly, a near consensus reading (58) would still be firmly in expansionary territory. At this stage it would likely take a more pronounced drop-off in the leading indicator to dent Fed policy normalization bets and turn the tide against the US Dollar. This in turn could leave gold and silver vulnerable to further declines. More on the outlook for the US Dollar over the week ahead here.

ECONOMIC EVENTS

Please refer to the DailyFX Economic Calendar for the events over the session ahead.

CRUDE OIL TECHNICAL ANALYSIS

Crude has cracked the 67.25 target offered in recent reports amid persistent signs of a downtrend (descending trendline, 20 SMA). This leaves downside risks to remain and warns of a test of the August 2009 low near 60.74. However, given the extent of recent declines a small corrective bounce should not be precluded.

Crude Oil: Cracks Key Support Keeping The Risks Lower

Crude Curve Turns Contango As Slide Continues, Gold Dips On USD Gains

Daily Chart - Created Using FXCM Marketscope 2.0

GOLD TECHNICAL ANALYSIS

Gold has resumed its descent with trend indicators once again aligned lower (20 SMA and ROC). This puts the 2014 lows near 1,123 in focus with bullish reversal patterns lacking at this stage.

The DailyFX SpeculativeSentimentIndex suggests a mixed bias for gold based on trader positioning.

Gold: Returns Gaze To Recent Lows Near 1,123

Crude Curve Turns Contango As Slide Continues, Gold Dips On USD Gains

Daily Chart - Created Using FXCM Marketscope 2.0

SILVER TECHNICAL ANALYSIS

Silver’s downtrend appears to have been reinstated with trend indicators once again pointing lower (20 SMA and ROC). Buying interest appears evident near the psychologically-significant 15.00 handle. If broken on a daily close basis the door may be opened to another test of 14.65.

Silver: Trend Indicators Turn Lower

Crude Curve Turns Contango As Slide Continues, Gold Dips On USD Gains

Daily Chart - Created Using FXCM Marketscope 2.0

COPPER TECHNICAL ANALYSIS

Copper’s downward trajectory has become cleaner in recent trade. Amid signs of a downtrend from the 20 SMA and ROC the risks are likely skewed to the downside. A close below the June 2010 low near 2.766 may open the October 2009 low. However, caution is still suggested when adopting fresh positioning - given the commodity’s tendency towards whipsaws over recent months.

Copper: Breaks Lower Amid Persistent Downtrend Signals

Crude Curve Turns Contango As Slide Continues, Gold Dips On USD Gains

Daily Chart - Created Using FXCM Marketscope 2.0

PALLADIUM TECHNICAL ANALYSIS

Palladium is struggling to sustain its recent gains at the 38.2% Fib. This has left a pair of Dojis in its path. However, the candlestick formations are not considered key reversal patterns. Alongside signs of an emerging uptrend a pullback remains questionable.

Palladium: Struggles Sub The 38.2% Fib.

Crude Curve Turns Contango As Slide Continues, Gold Dips On USD Gains

Daily Chart - Created Using FXCM Marketscope 2.0

PLATINUM TECHNICAL ANALYSIS

Platinum is at a crossroads near the 1,187 floor as trend indicators begin to a negative shift. This suggests a daily close below the barrier may set the wheels in motion for a push lower towards the July 2009 low at 1,101. A bullish reversal signal would be required to suggest a potential base for the commodity.

Platinum: Bears Pull Prices To Recent Lows

Crude Curve Turns Contango As Slide Continues, Gold Dips On USD Gains

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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