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Crude Oil Prices at Risk as Q2 Earnings Season Gathers Steam

Crude Oil Prices at Risk as Q2 Earnings Season Gathers Steam

Ilya Spivak, Head Strategist, APAC

CRUDE OIL & GOLD TALKING POINTS:

  • Crude oil prices mirror indecision in broad market sentiment
  • Gold prices marking time, look to US Dollar for direction cues
  • Spotlight on Q2 corporate earnings reports in the week ahead

Crude oil prices continue to look to market sentiment trends for direction, with the WTI benchmark moving in close coordination with the bellwether S&P 500 stock index. This has translated into standstill over recent weeks as financial markets weigh next steps having seemingly absorbed the initial economic policy response to the Covid-19 outbreak. Gold pries have been similarly anchored.

Markets breathed a sigh of relief and began to recover in late March as the Federal Reserve introduced open-ended QE, warding off signs of an imminent cash crunch. As liquidity risk premium seeped out of markets, short-term borrowing costs fell alongside the US Dollar while gold and sentiment-sensitive assets – including stocks and cyclical commodities like crude oil – launched a spirited drive upward.

That move seemed to hit a wall in early June as the Fed signaled a transition into wait-and-see mode. While scope for QE was left unlimited, the balance sheet began to cautiously tick lower, suggesting officials’ foot had come off the gas pedal. The Fed also made a point of talking down speculation about the near-term introduction of negative interest rates or a ‘yield curve control’ scheme.

Since then, pace-setting assets have mostly idled. Investors have seemingly priced in initial containment of a would-be credit crisis and have now moved on to weigh the longer-term implications of the coronavirus disruption on the economic outlook. This is a devilishly tricky. Confidence in a swift rebound seems absent, but positive dividend yields and the Fed’s allaying of imminent implosion fears have kept sellers at bay.

CRUDE OIL, GOLD PRICES PRESSURED WITH Q2 EARNINGS IN THE SPOTLIGHT

The week ahead is light on top-tier economic data, putting the steady stream of corporate earnings reports firmly in the spotlight. Traders have almost certainly braced themselves for a bloodbath on the second-quarter earnings front, so it will be forward guidance that is likely to have market-moving potential. Nearly a fifth of the S&P 500 membership is due to report results.

As it stands, stock index futures are signaling a downbeat mood. That may see crude oil pressured alongside shares. Meanwhile, haven-seeking capital flows look likely to buoy the Greenback, sapping anti-fiat demand and pressuring gold. The economic calendar is all but empty. Reports from Halliburton and IBM take top billing on the earnings front.

CRUDE OIL TECHNICAL ANALYSIS

Crude oil prices remain stuck between rising trend line support set from late May and resistance in the 42.40-43.88 area. A breakdown seems to face the next downside barrier at 34.78. Alternatively, a push upward may set the stage for a challenge of $50/bbl figure next.

Crude Oil Prices at Risk as Q2 Earnings Season Gathers Steam

Crude oil price chart created using TradingView

GOLD TECHNICAL ANALYSIS

Gold prices continue to idle above support at 1789.78, the 38.2% Fibonacci expansion. Resistance is at 1827.82, the 50%Fib. A break above that confirmed on a daily closing basis exposes the 61.8% mark at 1864.86. Alternatively, a break of support seems likely to target 1747.74 next.

Crude Oil Prices at Risk as Q2 Earnings Season Gathers Steam

Gold price chart created using TradingView

COMMODITY TRADING RESOURCES

--- Written by Ilya Spivak, Head APAC Strategist for DailyFX

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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