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Crude oil may fall as worries about the recovery implications of US spending cuts and a corruption scandal in Spain drive down market-wide risk appetite.

Talking Points

  • Crude Oil and Copper at Risk if US Fiscal Woes, Spain Jitters Spook Risk Trends
  • Gold, Silver Prices May Advance Amid a Downward Correction in the US Dollar
The economic calendar is quiet to start the trading week, with nothing noteworthy except December's US Factory Orders on the docket. The lull in data-linked event risk may open the door for traders to begin considering the "sequester" spending cuts due to trigger at the end of the month in the US. While another last-minute deal to dull the impact similar to deal done on tax hikes at the turn of the year seems likely, some amount of additional austerity is almost certainly in the cards.

Overall US economic news-flow has increasingly disappointed relative to expectations over recent weeks, raising concerns about the recovery's ability to withstand any material fiscal tightening. Such worries have scope to begin feeding risk aversion, which may weigh on sentiment-sensitive crude oil and copper prices. Worrying headlines out of Europe are reinforcing the negative mood, with calls for the resignation of Spanish Prime Minister Mariano Rajoy over corruption allegations pushing up borrowing costs.

The implications for gold and silver are somewhat clouded. However, it seems feasible that a significant deterioration in sentiment that forces a correction in USDJPY may produce broader-based US Dollar weakness that boosts precious metals. S&P 500 index futures are trading flat however, offering no clear direction conviction driving risk trends ahead of the opening bell on Wall Street.

WTI Crude Oil (NY Close): $97.77 // +0.28 // +0.29%

Prices appear to be carving out a bearish Rising Wedge chart formation, with a Dark Cloud Cover candlestick pattern and negative RSI divergence hinting the turn lower may be just around the corner. A break of wedge support at 97.36 targets the 93.40-94.61 area. Near-term resistance is at 98.21, the January 30 high, with a reversal above that eyeing the 100.00 figure and the September 14 top at 100.40.

Commodities_Oil_at_Risk_as_US_Austerity_Spain_Scandal_Spook_Markets_body_Picture_4.png, Oil at Risk as US Austerity, Spain Scandal Spook Markets Daily Chart - Created Using FXCM Marketscope 2.0

Spot Gold (NY Close): $1667.45 // +3.80 // +0.23%

Prices continue to hover above rising trend line support dating back to mid-May (1655.63), with a bullish Morning Star candlestick pattern arguing for an upside bias. Near-term resistance is at 1690.39, the 38.2% Fibonacci retracement, followed by a falling channel top at 1698.28. Alternatively, a drop below support targets the January 4 low at 1625.69 and the channel bottom (now right at the 1600/oz figure).

Commodities_Oil_at_Risk_as_US_Austerity_Spain_Scandal_Spook_Markets_body_Picture_3.png, Oil at Risk as US Austerity, Spain Scandal Spook Markets Daily Chart - Created Using FXCM Marketscope 2.0

Want to learn more about RSI? Watch this Video

Spot Silver (NY Close): $31.83 // +0.37 // +1.18%

Prices are edging higher in a narrow upward-sloping channel. Near-term resistance lines up in the 32.65-75 area, marked by a horizontal pivot and the channel top. A break above that aims for the upper boundary of a larger channel top at 33.38. Near-term support is at 30.99, with a drop below that aiming for the 30.00 figure and the major channel bottom at 29.15.

Commodities_Oil_at_Risk_as_US_Austerity_Spain_Scandal_Spook_Markets_body_Picture_2.png, Oil at Risk as US Austerity, Spain Scandal Spook Markets Daily Chart - Created Using FXCM Marketscope 2.0

Want to learn more about RSI? Watch this Video

COMEX E-Mini Copper (NY Close): $3.784 // +0.052 // +1.39%

Prices are testing resistance at 3.778, the top of a Rising Wedge pattern and the 50% Fibonacci expansion. A break above that targets the 61.8% level at 3.820. Near-term support is at 3.736, the 38.2% Fib, with a reversal back below that aiming for the Wedge bottom at 3.663.

Commodities_Oil_at_Risk_as_US_Austerity_Spain_Scandal_Spook_Markets_body_Picture_1.png, Oil at Risk as US Austerity, Spain Scandal Spook Markets Daily Chart - Created Using FXCM Marketscope 2.0

--- Written by Ilya Spivak, Currency Strategist for Dailyfx.com

To contact Ilya, e-mail ispivak@dailyfx.com. Follow Ilya on Twitter at @IlyaSpivak

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