Crude Oil Price Rebound May Struggle on US, China Trade War Fears

CRUDE OIL & GOLD TALKING POINTS:

• Crude oil gains with stocks on China RRR cut, upbeat US jobs data
• Gold prices fall as yields rise in risk-on trade, but Powell helps a bit
• Tense US, China talks may cool hopes for trade war de-escalation

Crude oil prices rose amid a broad-based recovery in risk appetite on Friday, echoing a spirited rise in global share prices. China announced that it will cut banks’ reserve requirement ratio (RRR) by 1 percent, cooling global slowdown fears. That was reinforced by impressively strong US jobs data as well as dovish comments from Fed Chair Jerome Powell.

Not surprisingly, gold prices fared poorly against the risk-on backdrop as ebbing haven demand weighed on Treasury bonds, sending yields higher and undermining non-interest-bearing assets epitomized by the yellow metal. Mr Powell’s comments helped erase some intraday losses however. The US Dollar traded sharply lower in their wake, boosting the appeal of anti-fiat alternatives.

TRADE WAR IN FOCUS AS US DELEGATION ARRIVES IN BEIJING

The spotlight now turns to Beijing, where a delegation from Washington DC has arrived for talks meant to de-escalate the US/China trade war. Traders will be monitoring soundbites emerging from the gathering, which will run through Tuesday. Comments hinting at rapprochement are likely to lift investors’ mood, pushing crude oil higher alongside shares while gold falls inversely of rising yields.

Such a rosy scenario might be too much to hope for however. The team of US officials is led by deputy trade representative Jeffrey Gerrish, a protégé of USTR and ardent China trade hawk Robert Lighthizer. If Mr Gerrish shares his boss’ prickly disposition toward Beijing, the rhetoric emerging from the discussions may hurt rather than help market sentiment, offering gold a lift while oil prices retreat.

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

GOLD TECHNICAL ANALYSIS

Gold prices put in a bearish Dark Cloud Cover candlestick pattern, hinting a move lower may be ahead. A daily close below 1282.27 initially exposes the 1257.60-66.44 area (former resistance, rising trend line). Alternatively, a turn higher that takes out resistance in the 1302.97-07.32 zone targets a minor upside hurdle at 1323.60, followed by a major top in the 1357.50-66.06 region.

CRUDE OIL TECHNICAL ANALYSIS

Crude oil prices bounced to retest support-turned-resistance at 49.41, the November 29 low. A break above that confirmed on a daily closing basis opens the door for a retest of the 54.51-55.24 area. Support remains in the 42.05-55 zone, with a reversal below that clearing the way for a move below the $40/bbl figure to challenge the August 2016 bottom at 39.19.

COMMODITY TRADING RESOURCES

• Learn what other traders’ gold buy/sell decisions say about the price trend
• Having trouble with your strategy? Here’s the #1 mistake that traders make
• Join a Trading Q&A webinar to answer your commodity market questions

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

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