Talking Points

  • Commodities Sink in Asia as Signs of French/German Discord Weigh on Sentiment
  • Dallas Fed Manufacturing Survey, German IFO May Countervail Risk Aversion

Commodities are facing broad-based selling pressure overnight as broad-based risk aversion grips financial markets. Growth-geared crude oil and copper prices are following Asian shares lower while gold and silver are facing de-facto selling pressure as haven flows buoy the US Dollar. Newswires chalked up the sour mood to emerging signs of discord between French and German leaders on the “banking union” component of the Eurozone’s debt crisis management efforts. Asked about the time frame for the setup at a joint press conference, French President Hollande said “the earlier, the better” while Germany’s Merkel countered that the arrangement “has to be thorough, the quality has to be good and then we’ll see how long it takes.

Looking ahead, the spotlight turns to September’s Dallas Fed Manufacturing Activity gauge. The report marks the first in a series of regional factory-sector surveys on tap this week and will help shape a timely outlook on where growth trends in the world’s top economy are pointing in the third quarter. Consensus forecasts continue to suggest US growth will accelerate while Europe sinks into recession and Asia posts a meaningful slowdown this year. This means establishing the extent to which a firmer US recovery can offset headwinds elsewhere is formative for risk appetite.

US data has increasingly outperformed expectations over the past three weeks (according to data compiled by Citigroup); more of the same this time around may underpin risk appetite trends and countervail current negativity. Needless to say, a softer print has scope to amplify the selloff. In the interim, Germany’s IFO Survey of business confidence is due to cross the wires. Expectations call for a slight pick-up on the headline Business Climate gauge, snapping four consecutive months of losses. A benign result has scope to boost risk appetite given the Eurozone’s centrality in driving the global economic slowdown, and vice versa.

WTI Crude Oil (NY Close): $92.89 // +0.47 // +0.51%

Prices are testing support at 91.56, the 38.2% Fibonacci retracement, after taking out the bottom of a rising channel carved out since early July. A break downward targets the 50% level at 88.83. The channel bottom – now at 94.96 – has been recast as resistance. A push back above that aims to challenge a falling trend line set from late February (now at 99.38).

Commodities_Drop_on_Euro_Crisis_Fears_US_Data_Eyed_for_Reprieve_body_Picture_3.png, Commodities Drop on Euro Crisis Fears, US Data Eyed for Reprieve

Daily Chart - Created Using FXCM Marketscope 2.0

Spot Gold (NY Close): $1773.10 // +4.50 // +0.25%

Prices continue to stall after taking out resistance at a falling trend line connecting major swing highs since early November 2011. Near-term resistance is at 1790.55, with a break above that targeting 1802.80. The trend line – now at 1756.94 – has been recast as support. A push back below that boundary sees initial downside barriers at 1725.87 and 1687.84, the 23.6% and 38.2% Fibonacci retracements respectively.

Commodities_Drop_on_Euro_Crisis_Fears_US_Data_Eyed_for_Reprieve_body_Picture_4.png, Commodities Drop on Euro Crisis Fears, US Data Eyed for Reprieve

Daily Chart - Created Using FXCM Marketscope 2.0

Spot Silver (NY Close): $34.53 // -0.14 // -0.40%

Prices are turning lower from resistance at 34.80, the 76.4%Fibonacci retracement. Initial support lines up in the 32.93-33.14 area, marked by a horizontal pivot level and the 61.8% Fib, with a break below this boundary exposing the 50% level at 31.79. Alternatively, a break above resistance aims to challenge 36.89.

Commodities_Drop_on_Euro_Crisis_Fears_US_Data_Eyed_for_Reprieve_body_Picture_5.png, Commodities Drop on Euro Crisis Fears, US Data Eyed for Reprieve

Daily Chart - Created Using FXCM Marketscope 2.0

COMEX E-Mini Copper (NY Close): $3.790 // +0.030 // +0.80%

Prices continue to stall below resistance at a falling trend line set from early February (3.831). A break higher exposes swing highs at 3.955 and 3.988. Near-term support lines up at 3.707, the 23.6% Fibonacci retracement level. A push below that targets the 38.2% level at 3.627.

Commodities_Drop_on_Euro_Crisis_Fears_US_Data_Eyed_for_Reprieve_body_Picture_6.png, Commodities Drop on Euro Crisis Fears, US Data Eyed for Reprieve

Daily Chart - Created Using FXCM Marketscope 2.0

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

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