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Talking Points:

  • Rally due to European Central Bank’s QE expansion quickly subsided before Non-farm Payrolls
  • Oil sensitive to macro, awaits employment data and subsequent USD moves
  • Copper bearish coming up to US data
  • Gold saw progressive outflows, expects volatility with USD swings

The European Central Bank monetary meeting yesterday eluded to increase the size, composition, and duration of its quantitative easing program. This led to an instantaneous rally in equities and commodities, although momentum quickly subsided and position-covering took over ahead of Non-farm Payrolls data and a long US weekend.

The Federal Reserve will factor this employment data into the timing of rate lift-off when they meet on September 16-17. A good number would affirm sustainable economic growth therefore support an early rate rise and boost the US dollar, leading to a drop in commodity prices.

Copper and aluminum pared the ECB-induced gains, after copper closed at the highest since August 10. The metal has lost the most among major commodities so far amid talks of profit taking before a US long weekend and China coming back from holidays next week. There is little fundamental upside prospect for copper at present as it is strongly attached to a slowing Chinese economy, hence prices may react more negatively to any US dollar rally than other commodities.

In recent days, oil has proven to be extremely sensitive to macro events. It joined equities to test the upside after ECB’s President Draghi struck a dovish tone yet quickly cooled down to sideways moves in Asia’s trade. This completely mirrored the crash-to-rebound on September 2 upon a multi-year low China manufacturing gauge.

Therefore oil prices will take cues from the market’s interpretation of Non-farm Payrolls today and swing in reverse to subsequent USD moves. A weekly oil rig count by Baker Hughes also contributes to volatility ahead.

Gold stayed flat during Asian session and interests had waned daily ahead of employment data, despite lowered expectations for an early US rate rise. Chances for a September increase had progressively reduced in the past three weeks since China devalued its currency and given recurring equity rout. Hence Non-farm Payrolls data is thought to drive the US dollar more than a shift in Fed’s decision; as such ensuing gold volatility may be lesser than previously expected.

GOLD TECHNICAL ANALYSIS – Gold dropped below 38.2% Fibo and currently lingers on the lower end of yesterday price band with low volatility. Momentum signals clearly indicate further declines with a firm support level at 23.6% Fibo at 1109.3. Chances for gold prices to climb back above 1132 are slim except for a severe rally. The gold bears may place short-term trades ahead.

Oil, Copper Pare ECB-Induced Gains, Gold Weak into Non-farm Payrolls

Daily Chart - Created Using FXCM Marketscope

COPPER TECHNICAL ANALYSIS – Copper is stuck in a lackluster period with unclear momentum signals. Support level is found at 2.2080 whereas yesterday’s high at 2.4170 offers a resistance level. Range traders may take advantage of this region in the absence of directional moves.

Oil, Copper Pare ECB-Induced Gains, Gold Weak into Non-farm Payrolls

Daily Chart - Created Using FXCM Marketscope

CRUDE OIL TECHNICAL ANALYSIS WTI oil is capped at a recent peak of 49.30 before US data offer more clues on Fed’s rate assessment and consequently move the USD. As highlighted in past reports, momentum signals hinted at downward pressure on oil prices and if the dollar rally oil may see a drastic descent from current support level at 5-day moving average to touch the 20-day moving average at 42.86 below it.

Oil, Copper Pare ECB-Induced Gains, Gold Weak into Non-farm Payrolls

Daily Chart - Created Using FXCM Marketscope

--- Written by Nathalie Huynh, Currency Strategist for DailyFX.com

Contact and follow Nathalie on Twitter: @nathuynh