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Crude Oil Prices May Struggle to Sustain Gains on Inventory Data

Crude Oil Prices May Struggle to Sustain Gains on Inventory Data

2019-09-05 04:30:00
Ilya Spivak, Sr. Currency Strategist
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Crude oil prices rise with stocks and gold as yields, US Dollar and Yen fall

Crude oil, gold price performance chart created using TradingView

CRUDE OIL & GOLD TALKING POINTS:

  • Crude oil prices rise with stocks as risk appetite broadly improves
  • Easing geopolitical risks, dovish Fed commentary buoying markets
  • EIA inventory data may cap oil gains after downbeat API results

Crude oil prices rose alongside stocks as risk appetite improved across global financial markets. Moderating political risk in Italy, the UK and Hong Kong helped buoy investors’ spirits. Dovish comments from New York Fed President John Williams likewise helped.

Rome is set for a new government excluding the EU’s budgetary nemesis, Matteo Salvini. The UK Parliament foiled the government’s moves to allow for a no-deal Brexit. Hong Kong Chief Executive Carrie Lam withdrew the controversial extradition law that sparked violent protests over recent months.

For his part, Mr Williams said the US central bank’s “number one goal” is to keep the economic expansion alive, to which end policymakers will “act as appropriate”. Tellingly, he flagged global uncertainties as a major factor, bolstering bets on further easing this month despite relatively resilient domestic data flow.

Bond yields fell while the priced-in outlook for policy implied in rate futures moved further toward the dovish end of the spectrum as Williams. That burnished the relative appeal of non-interest-bearing assets, offering a familiar boost to gold prices. A broadly weaker US Dollar also helped the anti-fiat yellow metal.

CRUDE OIL BUOYED IN RISK-ON TRADE BUT INVENTORY DATA MIGHT TRIM GAINS

A further risk-on catalyst has emerged in APAC trade amid reports that the US and China agreed to resume trade talks in October. Regional stocks and crude oil are up alongside sentiment-geared currencies like AUD and NZD while the anti-risk JPY and USD weaken. S&P 500 futures flag more of the same ahead.

Oil’s ability to capitalize may be undermined however if EIA inventory flow data echoes API projections for a surprise build. The trade group said stockpiles added 401k barrels last week. Analysts are expecting official figures to signal a 2.57-million-barrel outflow.

The chipper mood has pulled yields up anew, hurting gold. Incoming US ISM and PMI surveys, the ADP jobs report as well as factory and durable goods orders data may compound pressure if they echo the recent trend toward improvement in US news-flow, cooling stimulus expansion expectations.

Get our free guide to help build confidence in your gold and crude oil trading strategy!

GOLD TECHNICAL ANALYSIS

Gold prices are inching toward weekly chart inflection point resistance at 1563.00 but negative RSI divergence warns of ebbing upside momentum, hinting a top may be taking shape. A daily close below rising trend support at 1533.79 sets the stage to revisit the August low at 1480.00.

Gold price chart - daily

Gold price chart created using TradingView

CRUDE OIL TECHNICAL ANALYSIS

Crude oil prices continue to idle near trend resistance capping gains since late April, now at 57.22. Breaking above that on a daily closing basis opens the door to test the 60.04-84 area. Alternatively, a turn lower through the August 26 bottom at 52.96 targets support near the $50/bbl figure next.

Crude oil price chart - daily

Crude oil price chart created using TradingView

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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