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Talking Points:

  • Asian stock rally lifted commodities amid a higher USD from month-end/quarter-end demand
  • Copper averted monthly loss with gains alongside equities
  • Oil pressured by growing inventories, awaiting EIA weekly report
  • Gold weakened to high US consumer confidence

Commodities and risk assets in Asia turned the tables on New York losses with a strong rally, except for oil which was pressured by swelling US inventories. On the other hand, US dollar demand for month-end and quarter-end today will likely cap the upside of commodity prices.

WTI oil lowered to 44.70s region after it topped out at 45.70 in New York. Apart from a sell-off alongside US equities, a 4.6 million barrels stockpile increase reported by the American Petroleum Institute added more pressure on oil prices. Today’s weekly report from the U.S. Energy Information Administration will offer official data on this projected increase and potentially sway prices further. Despite growing bullish interests by investors, oil prices are still heavy under a glooming global glut that is unlikely to go away, except for occasional rallies due to risk-on and/or shares recovery.

On the good side, the surge during New York session helped to contain prices within the September correction. With Asian stock markets up all around, oil will stay well above 43.70-80 support today.

Copper got a reprieve during New York and Asia session, posting gains for the first day since September 21. It repeatedly attempted to re-test a NY top at 2.2695, with upward momentum that likely lasts throughout today. Its sister market – the Shanghai Composite – has stayed in green for the whole morning.

Short-term traders may take advantage of this temporary relief amid bleak outlook as the London Metal Exchange’s base metals index hit a monthly low. News of cost-cutting exercises at copper producers due to falling metal prices keep flowing, indicating the end is not yet over for copper.

Safe haven gold slid in reverse to renewed risk buying in Asia. Marginal support came by news that China boosted its gold reserve by 1 percent in August as part of asset diversification. Earlier in New York it pared losses after US consumer confidence jumped to the second highest reading so far. These swings did not manage to avert its constant weakness as more Fed members spoke out in support of a rate rise this year.

Higher interest rate will prompt demand for higher asset returns and weaken zero-yielding gold. The case for interest rate rise became more evident lately as central banks elsewhere seemed reluctant to cut rate or extend stimulus. While Bank of England Governor Carney did not give hints on BOE’s stance regarding rate rise in his speech at Lloyds, the market will gauge that via UK final second-quarter GDP today.

GOLD TECHNICAL ANALYSIS – Gold is on a fourth day of lower-low and lower-high, a sign that the weakness is here to stay. A clear downward momentum has led to a downturn in moving averages. A weak support comes at 1121.24, above a firm support and 23.6% Fibo at 1109.31. The gold bears should keep watch of their stops around these levels.

Stock Rally Lifts Copper; Oil Drops on Supply; Gold Wanes on US Data

Daily Chart - Created Using FXCM Marketscope

COPPER TECHNICAL ANALYSIS – Copper topped out at a previous support, now turned into resistance, at 2.2695. Prices continued to attempt this level with support from intraday upward momentum, as such it may be broken soon. Above that, resistance levels are found at 2.2770 then 2.2940. Short-term outlook is bullish for copper as it is reaching up to 5-day moving average at 2.270. Daily momentum also picks up.

Stock Rally Lifts Copper; Oil Drops on Supply; Gold Wanes on US Data

15-minute Chart - Created Using FXCM Marketscope

CRUDE OIL TECHNICAL ANALYSIS WTI oil topped at 45.70 in New York after a trough at 44.30 during the previous Asian session. These two levels make up resistance and support for today, ahead of a weekly inventory report by the EIA. Gains alongside Asian shares helped oil to retrace upward from the lower bound of September correction in range 43.89-50.04. Range traders may take advantage of this ongoing volatility, especially at dips if EIA data shows a supply increase as speculated.

Stock Rally Lifts Copper; Oil Drops on Supply; Gold Wanes on US Data

15-minute Chart - Created Using FXCM Marketscope

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

Contact and follow Nathalie on Twitter: @nathuynh