Crude Oil Prices at Risk if Bank of Canada Feeds Slowdown Fears

2019-09-04 03:32:00 Ilya Spivak, Head Strategist, APAC

Crude oil prices track stocks as gold gains amid bond yield drop

Crude oil, gold price performance chart created using TradingView

CRUDE OIL & GOLD TALKING POINTS:

Crude oil prices drop for second day on trade war, slowdown fears
Gold prices bounce from trend support as Fed rate cut bets swell
Downbeat BOC might sour risk appetite, spook financial markets

Crude oil prices fell for a second day amid worries about slowing global growth and trade war escalation. The US-China dispute continued to fester as Washington and Beijing haggled over resuming negotiations. Separately, the White House appeared to have threatened the Eurozone with a currency war. Meanwhile, August’s ISM data showed US manufacturing unexpectedly shrank for the first time in three years.

The downbeat mood weighed on bond yields as capital flowed toward the safety of government debt. That bolstered the relative appeal of non-interest-bearing assets and offered a familiar lift to gold prices. The metal initially struggled to capitalize in risk-off trade but a catch-up dovish adjustment in Fed policy bets proved to be supportive. Markets see the probability of a rate cut this month at a commanding 100 percent.

CRUDE OIL MAY FALL AS DOWNBEAT BANK OF CANADA SPOOKS MARKETS

Looking ahead, a monetary policy announcement from the Bank of Canada is in the spotlight. A change is not expected, with priced-in expectations implied in OIS rates suggesting markets put the probability of stasis at nearly 90 percent. Nevertheless, traders will keenly dissect the accompanying guidance as global headwinds gather and leading indicators suggest domestic growth is set to slow in the second half of 2019.

A downbeat tone echoing recent worried pronouncements from many of the world’s top monetary authorities might weigh on the investors’ mood, making for another defensive session. That has scope to keep crude oil prices under pressure, though API inventory data might muddy the waters somewhat. A 3.11-million-barrel draw is projected. In the meantime, gold may try to build on yesterday’s upward momentum.

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GOLD TECHNICAL ANALYSIS

Gold prices bounced from trend support guiding them higher from August’s low, but negative RSI divergence continues of warn of ebbing bullish momentum. A turn below support – now at 1527.42 – exposes the August 13 low at 1480.00 next. Critical resistance is marked by a weekly chart inflection level at 1563.00.

Gold price chart created using TradingView

CRUDE OIL TECHNICAL ANALYSIS

Crude oil prices are testing near-term support establishing the immediate uptrend from early-August lows. A break below the August 26 bottom at 52.96 exposes support near the $50/bbl figure. Alternatively, a push above downtrend resistance – now at 57.37 – targets the 60.04-84 area next.