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Crude Oil, Gold Prices May Get Boost From Dovish ECB

Crude Oil, Gold Prices May Get Boost From Dovish ECB

Ilya Spivak, Head Strategist, APAC

CRUDE OIL & GOLD TALKING POINTS:

  • Crude oil prices shrug off EIA data as risk sentiment steadies
  • Gold prices drop anew as Fed rate hike bets boost US Dollar
  • Dovish ECB commentary might offer a lifeline to commodities

Crude oil prices continued to cling to broad-based sentiment trends, with the WTI benchmark echoing a tepid recovery in the bellwether S&P 500 stock index. Markets began the day in risk-off mode but shares bottomed and launched a recovery in late Wall Street trade after the session’s offering of corporate earnings releases was exhausted. The move seemed corrective after the drop played out over the preceding four days.

An unexpected build reported in EIA inventory flow data was shrugged off, perhaps because a disappointing outcome was telegraphed in a private-sector estimate form API published on Tuesday. The official data set showed stockpiles added 2.17 million barrels last week, clashing with consensus forecasts calling for a 1.27 million barrel drawdown.

Gold prices turned back downward as further steepening of the US yield curve signaled swelling US rate hike bets, driving the US Dollar higher. Not surprisingly, that undermined the appeal of non-interest-bearing and anti-fiat assets epitomized by the yellow metal. The spread between yields on 10- and 2-year Treasury bonds hit a one-month high while the greenback touched highs unseen in six weeks.

DOVISH ECB MAY BOOST COMMODITY PRICES

Looking ahead, a monetary policy announcement form the European Central Bank is in focus. Its QE asset-purchase program has been a key source of support for risky assets in recent years, taking over from the Fed as it began to dial back stimulus. Worries about the loss of this backstop have become increasingly acute as the current program’s September end point near.

ECB officials surely appreciate that base effects from last year’s sharp Euro rally will increasingly weigh on inflation as 2018 wears on. A sharp slowdown in the pace of economic activity growth telegraphed in leading PMI surveys warns of further downside pressure. With that in mind, ECB President Mario Draghi may opt for a dovish posture at the press conference following the meeting of the policy-setting Governing Council.

A formal change of posture is unlikely until June, when the ECB can couch any changes in an updated set of growth and inflation forecasts. Still, rhetoric suggesting that ending or even starting to unwind QE in September is not a foregone conclusion might make an impression. Crude oil might benefit from recovering sentiment in such a scenario and gold’s appeal as an alternative store of value may be burnished.

See our quarterly crude oil forecast to learn what will drive prices through mid-year!

GOLD TECHNICAL ANALYSIS

Gold prices continue to consolidate losses above support at 1321.37, marked by the March 29 low. A daily close below that opens the door for another test of the long-standing range floor at 1307.63. Alternatively, a move above support-turned-resistance at 1333.42 exposes the underside of a recently broken rising trend line, now at 1346.98.

Crude Oil, Gold Prices May Get Boost From Dovish ECB

CRUDE OIL TECHNICAL ANALYSIS

Crude oil prices paused to digest losses having broken downward, as expected. From here, a push below support-turned-resistance at 66.22 sees the next downside barrier at 63.96. A daily close above the April 19 high at 69.53 is needed to invalidate the near-term bearish bias.

Crude Oil, Gold Prices May Get Boost From Dovish ECB

COMMODITY TRADING RESOURCES

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

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