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Gold Prices May Struggle to Capitalize on Dovish ECB

Gold Prices May Struggle to Capitalize on Dovish ECB

Ilya Spivak, Head Strategist, APAC

GOLD & CRUDE OIL TALKING POINTS:

  • Gold prices locked in place as US Dollar gains offset declining yields
  • Crude oil prices shrug off EIA data as inventory surge echoes API call
  • ECB readiness to expand stimulus may be formative for market mood

Commodities turned in another quiet session Wednesday. Gold prices remained anchored to familiar territory despite a pullback in bond yields as the US Dollar managed to eke out another fractional advance, dulling the appeal of anti-fiat alternatives.

Crude oil prices briefly dipped to a one-week low before weekly EIA inventory flow data crossed the wires but soon rebounded as the release showed stockpiles added 7.07 million barrels last week. That fell well within API projections published yesterday, which seemed to rob the surge of its market-moving potential.

COMMODITIES LOOK TO ECB TO SHAPE SENTIMENT TRENDS

Looking ahead, the ECB monetary policy announcement is in focus. The central bank is widely expected to slash its forecasts for growth and inflation, setting the stage for an expansion of stimulus. Another round of TLTRO liquidity provisions for the banking sector is seen as the likely easing vehicle du jour.

With the outlook downgrade probably priced in to a significant extent already, the markets may be most reactive to the expected timeline for delivery of additional policy support. A sense of urgency in official commentary may boost risk appetite, while indecision has scope to weigh on sentiment.

Cycle-sensitive crude oil prices may rise in the former scenario and fall in the latter. The implications for gold are not as clear. Stimulus expansion may be supportive for the anti-fiat metal, but the negative impact of a dovish ECB on EUR/USD may cap gains if the move translates into a broadly stronger Greenback.

Learn what other traders’ gold buy/sell decisions say about the price trend!

GOLD TECHNICAL ANALYSIS

Gold prices remain in digestion mode after sinking to a five-week low. From here, a daily close below support at 1276.50 targets the 1260.80-63.76 area. Alternatively, a move back above support-turned-resistance at 1307.32 opens the door for a retest of a broken rising trend line set form mid-November, now at 1328.84.

Gold price chart - daily

CRUDE OIL TECHNICAL ANALYSIS

Crude oil prices continue to mark time above support in the 55.37-75 area, but a bearish Evening Star candlestick pattern coupled with negative RSI divergence still hint at topping. A daily close below support would break the 2019 uptrend and expose the 50.15-51.33 zone. Alternatively, a move above resistance in the 57.96-59.05 region sets the stage for a retest of trend line support-turned-resistance at 62.24.

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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