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Crude Oil Prices May Be Ready to Make Good on Signs of Topping

Crude Oil Prices May Be Ready to Make Good on Signs of Topping

Ilya Spivak, Head Strategist, APAC

CRUDE OIL & GOLD TALKING POINTS:

  • Crude oil prices fall on risk aversion, disappointing EIA data
  • Bearish technicals may be validated as sentiment sours further
  • Gold prices still searching for direction amid competing cues

Crude oil prices fell amid broad-based deterioration in market sentiment for most of yesterday’s trading session, tellingly tracking lower alongside futures on the bellwether S&P 500 stock index. The return of US/China trade war jitters appeared to be catalyst du jour, though on-going worries about Italian politics probably didn’t help either.

A late-day recovery in risk appetite courtesy of the somewhat timid tone in minutes from May’s FOMC meeting helped the WTI benchmark trim some earlier losses but upside momentum would prove fleeting. While US stocks managed to finish the day in positive territory, crude sank to session lows as EIA data showed inventories unexpectedly added 1.88 million barrels last week.

Gold prices marked time, torn between a slew of competing catalysts. Risk aversion offered a degree of support as bond yields weakened, but this was undermined as weakness in sentiment-linked currencies and data-inspired falls in the Euro and British Pound amounted to a stronger US Dollar, ever the foil for yellow metal. The FOMC minutes release seemed to muddy the waters further.

NEWS FLOW FROM WHITE HOUSE, ST PETERSBURG FORUM IN PLAY

From here, a relatively quiet day on the US data docket is likely to dull monetary policy speculation. A handful of speeches from Fed officials is on tap, but these are unlikely to make waves absent an unlikely bombshell as markets await Friday’s comments from Chair Powell. That might keep sentiment in focus, with worrying news flow from the White House inspiring renewed risk aversion.

Asia Pacific markets are in the red, with crude oil dutifully following suit and gold enjoying modest gains. Stock index futures hint at more of the same ahead. Oil prices may diverge from strictly sentiment-inspired moves however if soundbites from the St. Petersburg International Economic Forum revisit talk of relaxing output curbs installed as part of a Saudi- and Russia-led supply reduction scheme.

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

GOLD TECHNICAL ANALYSIS

Gold prices remain stuck at the outer layer of support guiding the uptrend from December 2016, now at 1288.83. A daily close below that exposes the 1260.80-66.44 area next. Alternatively, a turn back above channel floor support-turned-resistance at 1298.04 opens the door for a test of falling trend line at 1309.29.

Gold price chart - daily

CRUDE OIL TECHNICAL ANALYSIS

Crude oil prices narrowly edged back below former resistance marked by the May 10 high at 71.86, with negative RSI divergence still warning that a top may be taking shape. A daily close below rising wedge support at 70.95 paves the way for a retest the April 19 high at 69.53. Alternatively, a rebound back above 71.86 initially targets the May 22 high at 72.88.

Crude oil price chart - daily

COMMODITY TRADING RESOURCES

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

To contact Ilya, use the comments section below or @IlyaSpivak on Twitter

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

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