- Gold prices retreat from 5-month high as Fed rate hike bets stabilize
- US Dollar gains put de-facto downward pressure on crude oil prices
- Worries about French election may sour market-wide risk sentiment
A worried tone at the open of the trading week proved fleeting as Wall Street returned online after the Easter holiday. Gold prices reversed from intraday gains as recovering sentiment weighed against Treasury bonds and bid up yields, boosting the US Dollar along the way. Not surprisingly, this undermined support for non-interest-bearing and anti-fiat assets.
Tellingly, financials led US shares upward. An index tracking the sector’s representation within the S&P 500 closely parallels the 2017 rate hike outlook implied in Fed Funds futures. This speaks to expectations of continued tightening even amid first-quarter slowdown fears, although the hawks’ exuberance has waned somewhat. The probability of a June hike is 50.2 percent now, down from 63.2 percent last week.
Crude oil prices seemed to get caught up in macro-level capital flows, with the USD-denominated Brent and WTI benchmarks falling as the greenback found a lifeline. The monthly EIA Drilling Productivity report may have compounded downward pressure. It said US shale output will hit 5.2 b/d in May, the highest since November 2015, and upgraded its April forecast to 5.1 b/d from 4.96 b/d projected previously.
The data docket is relatively quiet from here, with API inventory figures at the forefront. Familiarly hawkish comments from Kansas City Fed President Esther George should not be particularly surprising and so might pass with little fanfare. On balance, that is likely to keep broad-based sentiment trends in control, particularly as market-wide liquidity levels rebuild with the return of European participation.
Worries about the French presidential election may sour sentiment anew. First-round voting begins on April 23 and leading candidates are clustered near 20 percent in the polls, making for unusually high uncertainty about who will make it into the final face-to-face contest. This fuels fears that right and left extremes Marine Le Pen and Jean-Luc Melenchon, neither of which excite the markets, may be the last left standing.
GOLD TECHNICAL ANALYSIS – Gold prices retreated after touching the highest level in five months. Support is marked by the 61.8% Fibonacci expansion at 1282.31, with a move below that exposing the 1263.87-65.66 area (50% level, February 27 high). Alternatively, a push above resistance in the 1302.90-08.00 zone (76.4% Fib, former support) targets the 100% expansion at 1336.19.
Chart created using TradingView
CRUDE OIL TECHNICAL ANALYSIS – Crude oil prices continue to mark time below the $54/bbl figure. A daily close below support at 52.04, the 38.2% Fibonacci expansion, exposesthe 23.6% level at 50.14. Alternatively, a push above the 50% Fibat 53.57 targets the 55.10-21 area (January 3 high, 61.8% expansion).
Chart created using TradingView
--- Written by Ilya Spivak, Currency Strategist for DailyFX.com
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