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Crude Oil Prices to Look Past OPEC as ECB Drives Sentiment Trends

Crude Oil Prices to Look Past OPEC as ECB Drives Sentiment Trends

Ilya Spivak, Head Strategist, APAC

Talking Points:

  • Gold prices snap nine-day losing streak, hint at rebound in the works
  • Crude oil prices target key trend line after largest drop in three weeks
  • May ISM Manufacturing data, Fed Beige Book in the spotlight ahead

Gold prices did not find fuel to continue higher after yesterday’s strong recovery as US front-end bond yields moved higher and priced-in rate hike expectations firmed, undermining demand for anti-fiat and non-interest-bearing assets. The move began before the day’s round of US economic news-flow started to cross the wires, though better-than-expected outcomes on key figures and an upbeat tone to the Fed’s Beige Book were later cited as catalysts by the newswires.

Meanwhile, crude oil prices followed stocks higher, with the sentiment-linked WTI contract tracking the benchmark S&P 500 index. In fact, the moves in energy prices, stocks, gold and bond yields began at around the same time (around 12:00 GMT). This suggests yesterday’s price action had more to do with a market-wide risk-on dynamic rather than anything inspired by immediate fundamental triggers.

The centrality of risk appetite may continue to play an important role in the hours ahead as the spotlight turns to the ECB monetary policy announcement. A strongly dovish lean may boost risk appetite and help nudge oil prices upward alongside shares. The move’s supportive implications for bond yields could translate into gold weakness.

The absence of an output ceiling and/or production freeze deal at today’s OPEC meeting may keep the upside capped for the WTI contract however. Downside pressure may be compounded if weekly EIA inventory numbers show a build in stockpiles, matching private-sector estimates from API. Economists’ consensus forecasts envision a drawdown of 2.66 million barrels.

Are traders betting on gold strength or weakness? Find out here!

GOLD TECHNICAL ANALYSISGold prices paused to digest after snapping a nine-day losing streak but the appearance of a Bullish Engulfing candlestick pattern continues to hint a larger bounce may be ahead. Near-term resistance is at 1241.96, the 23.6% Fibonacci expansion, with a break above that on a daily closing basis targeting support-turned-resistance at 1262.60. Alternatively, a drop below the 38.2% level at 1203.82 exposes the 50% Fib at 1172.99.

Crude Oil Prices to Look Past OPEC as ECB Drives Sentiment Trends

CRUDE OIL TECHNICAL ANALYSISCrude oil prices are struggling to make good on signs of topping identified earlier in the week but upside resumption has likewise failed to materialize. Prices now challenge pivotal support at the 48.00 figure, marked by the intersection of a rising trend line and the 14.6% Fibonacci retracement. A break below this barrier initially targets the 23.6% level at 46.65. Alternatively, an advance above the 14.6% Fib expansion at 49.91 sees the next upside barrier at 51.16, the 23.6% threshold.

Crude Oil Prices to Look Past OPEC as ECB Drives Sentiment Trends

--- Written by Ilya Spivak, Currency Strategist for DailyFX.com

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