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Risk Appetite Lifts Oil and Metals as China Signals Yuan is Manageable

Risk Appetite Lifts Oil and Metals as China Signals Yuan is Manageable

Nathalie Huynh, Contributor

Talking Points:

  • A slightly higher yuan fix turned the market around and revived risk appetite
  • Gold lowered with safe haven assets amid growing market optimism
  • Oil was best performer as market regains confidence in China’s growth
  • Copper stabilized in usual range with support from revitalized Chinese stocks

Risk buying return in droves after People’s Bank of China fixed CNY a tad higher today. AUD, CAD and oil scored notable gains, while gold and JPY retreated. Later today, US Non-farm Payrolls (NFP) data will be another major event risk that could skew the USD and risk assets.

Oil price stayed elevated in the high 33’s as a better yuan fix from the central bank implied that Chinese growth is under control. Although further upside movement remains in question, oil has successfully detached from its multi-year low of 32.10 yesterday. Twitter rumors that OPEC is considering an emergency meeting is still not confirmed, though political tension between Saudi Arabia and Iran would undoubtedly complicate any concerted efforts to stem price rout.

Gold pricegave back its overnight’s gains as Asian market calmed down that the Chinese (and global) stock rout could be contained. Bullion will likely linger near 1100 today except for a turn of macro sentiment with upcoming NFP. Traders could follow other safe havens assets like JPY and CHF for hints of any retreat of the group.

Copper price seemed rather oblivious to market volatility, it did not trade far on either side of 2.0220 today. After a bumpy start, Chinese stocks settled into gains up to 2.4 percent in the Asian afternoon. This stability enhances support to metals and other commodities alike.

As we mentioned in our recent research, the market’s confidence in Chinese government’s ability to keep financial market afloat would benefit general perception of Chinese and global growth.

GOLD TECHNICAL ANALYSIS – Today’s high of 1113 in gold price surpassed previous resistance level at 1101, although the focus has shifted to downward movements. It is a tug of war at present between existing upward signals and a change in market sentiment to downside for gold. These forces may keep bullion in sideways fashion until next week.

Daily Chart - Created Using FXCM Marketscope

COPPER TECHNICAL ANALYSIS – Copper price briefly dipped below 2.000 in New York though quickly pulled back to stabilized around the 2.0200 mark. Copper remains vulnerable on the downside at levels close to a multi-year low of 2.0020. If it can hold above this support level until next week, more chances for upside extensions may emerge.

Daily Chart - Created Using FXCM Marketscope

CRUDE OIL TECHNICAL ANALYSIS – WTI oil price halted four days of declines and almost mirrors yesterday’s band in today’s session. Momentum signals lightly ticked up although it is still early to tell if the oil free fall has totally finished. Immediate resistance level comes at a previous bottom/support of 34.26. A clean break above that would return oil price to its December range under $40.

Daily Chart - Created Using FXCM Marketscope

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

Contact and follow Nathalie on Twitter: @nathuynh

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

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