High USD and Demand Woes Stress Commodities despite Economic Resilience

2015-10-20 05:17:00 Nathalie Huynh, Contributor

Talking Points:

Oil halted decline triggered by oil-products, ahead of crude producers summit and inventory data
Gold weakened on resilient Chinese Q3 growth and the highest US NAHB housing index in a decade
Copper slid as demand fears outweighed steady economic recovery

Commodities continued to test technical support levels on the way down amid progressively stronger US dollar and reneweddemand woes. While Chinese third-quarter growth beat expectation, Fixed assets ex Rural, Industrial Production and Electricity Product all fell short of forecasts. Gold, oil and copper broke short-term supports in the Asian morning.

WTI oil held above 46 after a 3.5 percent slide, following 6.5 percent tumble in gasoline futures. Fears of piling oil-products preempted the end of refinery maintenance season with a price drop. Additional pressure came from the slowest China GDP growth per quarter since 2009 and Iran oil export prospects.

Despite the recent decline, upside risk looms with a meeting of OPEC and other producers (including Russia and Mexico) on October 21 to tame the oil price plunge. In the US, the American Petroleum Institute will release inventory data today. Volatility on the last trading day of November contract is also skewed to the upside with the next contract trading around 40 points higher.

Gold broke 1169 support as interests waned on a third day ensuing signs of economic resilience in China and a decade-high U.S. NAHB housing market index. Despite this, current gold prices remain near August high at 1170.16, with next support at 1162.9, as the odds of a rate rise in 2015 reduced to 30.4% after a string of tepid economic data in the US.

No new insight has come out of numerous Fed comments in the last two weeks with little effect on gold. San Francisco Fed’s Williams spoke to Bloomberg TV yesterday that the economy is still in a good trajectory and he expected [the Fed to] gradually raise interest rates.

Copper held losses on a third day as it broke below 2.3575 before Asian noon following a 1.7 percent drop on renewed China demand woes. Shanghai stocks halted a 5-day climb and copper has since lowered past two consecutive support levels at 2.3800 and 2.3575. Next support to watch for copper is 2.3425.

GOLD TECHNICAL ANALYSIS – Gold approaches 10-day moving average at 1165.36 on a fourth day of decline since October high. Downward momentum favoured the gold bears, although the recent uptrend signal has not come to an end. A firm support comes at 1150-1151 where 50% Fibo collides with 20-day moving average.

Daily Chart - Created Using FXCM Marketscope

COPPER TECHNICAL ANALYSIS – Copper is approaching the 20-day moving average on a third day of lower-low. This support level comes at 2.3480 after prices broke through a higher support at 2.3575. It is all about the downside for copper with strong downward momentum in place. The bears may trail their stops around 23.6% Fibo and resistance at 2.3775.

Daily Chart - Created Using FXCM Marketscope

CRUDE OIL TECHNICAL ANALYSIS – Volatility is skewed to the upside on the last trading day of November contract, as December contract is trading at a 40 points premium. Oil is the only major commodity that did not break a support level and stayed range-bound today. The range 45.85-47.04 will likely retain prices coming up to inventory data.