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Crude Oil, Gold Prices May Retreat as Dovish ECB Boosts US Dollar

Crude Oil, Gold Prices May Retreat as Dovish ECB Boosts US Dollar

Ilya Spivak, Head Strategist, APAC

CRUDE OIL & GOLD TALKING POINTS:

  • Crude oil prices rise as EIA reports dramatic inventory drawdown
  • Gold prices swing to range top courtesy of Trump/Junker meeting
  • Dovish ECB might boost US Dollar, weighing on commodity prices

Crude oil prices shot higher as EIA inventory data showed stockpiles shed 6.15 million barrels last week, an outflow nearly three times larger than the projected 2.23 barrel draw. The outcome likewise dwarfed the larger 3.16 million barrel decrease signaled in a private-sector estimate from API.

Gold prices swung higher as the US Dollar weakened, boosting the appeal of the standby anti-fiat alternative. The greenback drifted lower as traders reduced exposure ahead of the closely watched meeting between US and European Commission presidents Donald Trump and Jean-Claude Junker, respectively.

When the conclave produced an agreement that de-escalated immediate trade war escalation fears (as expected), jubilant investors bid up sentiment-geared commodity bloc currencies. The Euro managed tepid gains as well. All this pressured USD lower still, offering gold a further lift.

COMMODITIES MAY FALL AS DOVISH ECB BOOSTS US DOLLAR

Looking ahead, the knock-on influence of the ECB monetary policy announcement may emerge as defining for near-term price action. The central bank has already put the path of QE asset purchases on autopilot through year-end but traders will want guidance on when rates will begin to rise thereafter.

ECB President Mario Draghi will almost certainly face a barrage of questions to this end at the press conference following the announcement. Earlier messaging suggested a hike won’t come at least until the end of summer 2019. As of now, market pricing has written off an increase until the fourth quarter.

Eurozone economic news-flow has cautiously improved in recent weeks, producing a cautious hawkish shift in expectations. The likelihood of an October hike has increased from 58.7 to 80 percent since mid-June. A call for restraint from the ever-cautious Mr Draghi might cool such optimism however.

If this proves to be the case, the bellwether EUR/USD exchange rate might drop. Its unrivaled liquidity might mean that such a move echoes as broader-based US Dollar strength. Most commodity prices would face de-facto selling pressure in such a scenario because they are priced in terms of the US unit on global markets.

See our guide to learn about the long-term forces driving crude oil prices!

GOLD TECHNICAL ANALYSIS

Gold prices continue to oscillate above support at 1217.29, the 38.2% Fibonacci expansion. Resistance is at 1236.66 – a former support level – with a break above that exposing the 1260.80-66.44 area. Alternatively, a push below support sees the next downside threshold at 1202.28, the 50% level.

Crude Oil, Gold Prices May Retreat as Dovish ECB Boosts US Dollar

CRUDE OIL TECHNICAL ANALYSIS

Crude oil prices remain locked in a narrow range above trend support set from early February. A break below this barrier – now at 66.28 – initially targets the 63.96-64.26 region. Alternatively, a daily close above resistance in the 68.74-69.53 area clears a path to test back above the $72/bbl figure.

Crude Oil, Gold Prices May Retreat as Dovish ECB Boosts US Dollar

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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