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CRUDE OIL & GOLD TALKING POINTS:

  • Crude oil prices fail to hold intraday rise amid US-China trade war escalation
  • German ZEW survey, incoming Fed-speak might keep markets in risk-off mode
  • Gold prices soar but US Dollar, bond yields divergence may undercut progress

Crude oil prices succumbed to market-wide risk aversion amid US-China trade war escalation Monday. The WTI benchmark spiked higher intraday amid reports that two Saudi oil tankers were attacked on route to the Persian Gulf via the critical Strait of Hormuz, stoking worries about interference from Iran (though no such thing has been confirmed). Overall de-risking saw that move unravel however.

Gold prices soared, registering the largest one-day rise in three months. The bulk of the move occurred as the US Dollar briefly dropped following China’s unveiling of retaliatory measures to US tariff hikes. The move ran out of steam in just an hour however as the Greenback roared higher on the back of haven demand, leaving gold to feebly limp upward courtesy of sinking bond yields for the remainder of the session.

CRUDE OIL PRICES MAY FALL AS GERMAN ZEW DATA, FED-SPEAK SOUR SENTIMENT

Looking ahead, a slight improvement in sentiment has followed comments from US President Trump talking up prospects for a US-China trade deal. This seems corrective in the context of the recent bloodletting however and may not be sustainable. Incoming data flow from Europe and scheduled commentary from New York Fed President John Williams might tip the scales back into risk-off territory.

Germany’s ZEW survey of analyst sentiment is expected to mark a slight improvement but the tendency to undershoot forecasts on regional data outcomes since late 2018 warns of disappointment. Worries about a possible hike in US auto import tariffs – a move that Mr Trump must decide to make or shelve by the end of this week – given the administration’s current disposition might deliver just such a result.

Meanwhile, Mr Williams – who is often seen as representative of the central consensus on the Fed’s rate-setting FOMC rate-setting committee – might echo comments from Chair Powell following the central bank’s May policy meeting. They signaled officials are in no hurry to ease even as gathering headwinds push the markets to yearn for stimulus. This too might sour investors’ mood.

Crude oil prices look vulnerable against this backdrop. A monthly report from OPEC bemoaning oversupply risk as US output swells even as demand softens might compound selling pressure. Meanwhile, weekly API inventory data will be sized up against forecasts calling for official EIA statistics to reveal a modest 168.8k barrel build when they are published Wednesday.

As for gold, the ongoing divergence in bond yields and the US Dollar might continue to stymie lasting directional progress. Lending rates tend to fall when markets turn defensive while the benchmark currency attracts support from liquidity demand, putting the yellow metal’s defining anti-fiat and non-yielding attributes in conflict with each other.

Did we get it right with our crude oil and gold forecasts? Get them here to find out!

GOLD TECHNICAL ANALYSIS

Gold prices punched through resistance guiding them lower since late February, neutralizing near-term selling pressure. Resistance in the 1303.70-09.12 zone is now in focus, with a break above that confirmed on a daily closing basis exposing the 1323.40-26.30 region. Immediate resistance-turned-support is at 1289.44. Turning back below targets a rising trend line set from mid-August 2018, now at 1270.66.

Gold price chart - daily

CRUDE OIL TECHNICAL ANALYSIS

Crude oil prices continue to menace support at 60.39 after failing to sustain an attempted break upward. A close below this boundary initially exposes the 57.24-88 area. A dense resistance block runs through 67.03, with push through it setting the stage to revisit the $70/bbl figure.

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