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Crude Oil Prices May Rebound But Chart Setup Warns of Topping

Crude Oil Prices May Rebound But Chart Setup Warns of Topping

2020-07-31 05:12:00
Ilya Spivak, Head Strategist, APAC
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CRUDE OIL & GOLD TALKING POINTS:

  • Crude oil prices have marked a top with Rising Wedge support break
  • Risk-on backdrop might make for a corrective pull-up in the near term
  • Gold prices idling under $2000/oz, overall trend still appears bullish

Crude oil prices fell, echoing broader weakness in cyclical assets. The growth-geared Dow Jones Industrial Average tellingly fell while the tech-heavy Nasdaq finished the day higher in Wall Street trade. That seemed to imply bets on prolonged disruption of “physical” economic activity and parallel preference for firms geared to the lockdown-friendly “digital” space.

Most of the selloff was registered in the run-up to and the immediate aftermath of the release of second-quarter US GDP data. It revealed a record 32.9 percent decline. Markets reversed upward to trim losses soon after the numbers crossed the wires however. Analysts were betting on an even-worse 34.1 percent ahead of the release and in any case, an abysmal result amid the onset of the Covid-19 outbreak was expected.

Gold prices edged up as the dour data backdrop inspired a downshift in interest rates, ostensibly reflecting bets on a drawn-out recovery that keeps monetary policy at an ultra-dovish setting for the foreseeable future. The TED spread measure of short-term USD borrowing costs fell and the 10y2y US Treasury yield curve flatted. The US Dollar duly fell. All this understandably fed anti-fiat demand.

CRUDE OIL, GOLD PRICES MAY RISE AS RISK APPETITE FIRMS

Bellwether S&P 500 futures hint a cautiously risk-on tilt is emerging from here. A scary-looking Eurozone GDP print may pass without fireworks having been amply foreshadowed by analogous German figures yesterday. Meanwhile, an uptick in the Fed’s favored PCE US inflation gauge will probably be judged moot considering the central bank’s loud protestation against even thinking about rate hikes.

That probably bodes well for crude oil prices, which may have scope to retrace some recent losses if the upbeat mood carries through into the week-end. The way forward for gold prices seems less clear-cut – improving sentiment may limit scope for a further drop in yields – but the path of least resistance still seems to be pointed upward as long as the US Dollar continues to be pressured.

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CRUDE OIL TECHNICAL ANALYSIS

Crude oil prices broke lower to confirm a bearish Rising Wedge chart formation. The next layer of meaningful support looks to be marked by a chart inflection point at 34.78. A test below the $30/bbl figure seen thereafter. Alternatively, turn up and through resistance in the 42.40-43.88 area may open the door for a challenge of the $50/bbl handle.

Crude Oil Prices May Rebound But Chart Setup Warns of Topping

Crude oil price chart created using TradingView

GOLD TECHNICAL ANALYSIS

Gold prices are idling below resistance at 1985.67, the 100% Fibonacci expansion. A break above this barrier confirmed on a daily closing basis exposes the 123.6% level at 2059.74. Alternatively, a turn back below the 78.6% Fib at 1918.49 may set the stage for a retest of the 61.8% expansion at 1865.76.

Crude Oil Prices May Rebound But Chart Setup Warns of Topping

Gold price chart created using TradingView

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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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