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Lackluster China PMIs Pressure Copper, Oil While Gold Advances

Lackluster China PMIs Pressure Copper, Oil While Gold Advances

2016-02-01 04:29:00
Nathalie Huynh,
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Talking Points:

  • Gold rose in reverse to global growth softness and prospect of central banks’ rate cuts
  • Oil neared lower bound after OPEC and Iran rejected rumours on production cuts
  • Copper stayed weak to prolonged decrease in Chinese factory gauge

China Caixin Manufacturing Purchasing manager index (PMI) compiled by Markit showed a slight improvement in January, at 48.4 versus 48.1 expected and 48.2 prior. This survey-based, forward looking index offers a good gauge of factory activities, therefore of the Chinese economy. Both Caixin and official data highlighted deteriorating conditions as PMI remained below the 50 division figure (between contraction and expansion), last seen in February 2015.

Lackluster China PMIs Pressure Copper, Oil While Gold Advances

The upcoming Golden Week in celebration of Lunar New Year could provide a relief from yuan depreciation and stock market rout.

Copper price halted its 1.18 percent intraday declines due to soft official PMI, upon touching 2.0395 support. Positive Caixin PMI should help to limit further downside, although the metal remains weak below a previous support at 2.0452. Copper is heavily influenced by China economic prospects, thus any hint of intervention by the government ahead of Golden Week would prove beneficial.

Oil price lowered near the lower bound of range as unimpressive Chinese PMIs indicate weak consumption. Rumours of a coordinated OPEC production cut proved unfounded or at least difficult to implement. After Russia’s leak, sources from OPEC and Iran rejected claim of a February meeting or the possibility of a cut. At top, oil lingers below support-turn-resistance and December’s low at 36.

Gold price rose as the week started with moderate China economic outlook (the PMIs) and expectation for more easing bias by central banks. Japan’s negative interest rate decision last week may nudge other countries toward lowering interest rates, which is positive to gold price. Chinese data underlined deteriorating factory activities and likely spur safe haven purchases.

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GOLD TECHNICAL ANALYSIS – Gold price traded sideways for another session albeit with intraday upside bias. Momentum has waned, similar to other commodities, hence gold may experience muted price action for a while yet. Immediate support at 1113 could be threatened, upon a break gold would return to trading close to 20-day moving average at 1100.2.

Lackluster China PMIs Pressure Copper, Oil While Gold Advances

Daily Chart - Created Using FXCM Marketscope

COPPER TECHNICAL ANALYSIS – After a return into November-December range, copper price is stuck at the middle amid momentum lackluster. A slight downside bias emerged today, although it does not pose threat to the 1.9355 support at a safe distance below. Medium term traders could continue to monitor this lower bound of range.

Lackluster China PMIs Pressure Copper, Oil While Gold Advances

Daily Chart - Created Using FXCM Marketscope

CRUDE OIL TECHNICAL ANALYSIS WTI oil recovery stalled ahead of 34.25 resistance level that was also December’s low. Upward momentum signals look near exhaustion after last week’s rally, indicating sideways movement the short term. Failure to break above resistance could send oil lower through profit taking.

Lackluster China PMIs Pressure Copper, Oil While Gold Advances

Daily Chart - Created Using FXCM Marketscope

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

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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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