Talking Points

  • Crude Oil, Copper Sink as Bernanke Stays Mum on QE3, Fitch Downgrades Spain
  • Gold and Silver Decline as Risk Aversion Drives Safe-Haven Flows into US Dollar

Commodity prices are trading lower in early European hours, with sentiment-linked crude oil and copper prices following stocks lower while gold and silver face de-facto downward pressure as haven demand buoys the US Dollar. S&P 500 stock index futures are trading sharply lower, pointing to more of the same as Wall Street comes online.

Traders are responded to ambiguity about future stimulus efforts in Federal Reserve Chairman Ben Bernanke's testimony to the US Congress. Investors were looking for concrete guidance on a QE3 program in light of the latest stretch of disappointing US economic data, hoping it might help the nascent US recovery offset headwinds to global growth from a recession in the Eurozone and a slowdown in China.

Besides disappointment on the Fed stimulus front, a pickup in Eurozone sovereign concerns compounds downward pressure on risky assets after Fitch slashed Spain's credit rating. Spreads between periphery 10-year bond yields and benchmark German equivalents are broadly wider and Eurozone sovereign CDS rates are on the upswing.

WTI Crude Oil (NY Close): $84.82 // -0.20 // -0.24%

Prices are pushing lower after putting in a Bearish Engulfing candlestick pattern below resistance at 87.15, the 23.6% Fibonacci retracement. Sellers are probing through initial support at 83.31, the 14.6% Fib expansion, with a break below that exposing the 23.6% boundary at 81.05. The 87.15 level remains as near-term resistance for the time being.

Commodities_Fall_on_Fading_QE3_Hopes_Spain_Rating_Downgrade_body_Picture_3.png,

Daily Chart - Created Using FXCM Marketscope 2.0

Spot Gold (NY Close): $1589.40 // -29.90 // -1.85%

Prices are pushing lower after putting in a Shooting Star candlestick below resistance at falling trend line resistance set from early March, a barrier reinforced by the 76.4% Fibonacci retracement at 1637.35. Sellers are now probing below support at 1582.10, the 38.2% Fib to challenge the 23.6% level at 1560.98. A break of the latter boundary exposes the multi-month bottom in the 1522.50-1532.45 area. Near-term resistance lines up at the 1600/oz figure.

Commodities_Fall_on_Fading_QE3_Hopes_Spain_Rating_Downgrade_body_Picture_4.png,

Daily Chart - Created Using FXCM Marketscope 2.0

Spot Silver (NY Close): $28.60 // -0.84 // -2.87%

Prices reversed sharply lower from resistance at 29.71 to break back below 28.70. Sellers now target rising trend line support set from the May 16 low (now at 27.77), with a break below that exposing the major double bottom at 27.06. The 28.70 level has been recast as resistance.

Commodities_Fall_on_Fading_QE3_Hopes_Spain_Rating_Downgrade_body_Picture_5.png,

Daily Chart - Created Using FXCM Marketscope 2.0

COMEX E-Mini Copper (NY Close): $3.370 // -0.010 // -0.30%

Prices are retreating after putting in a Spinning Top candlestick below resistance at 3.426, the 76.4% Fibonacci retracement reinforced by the top of a falling channel set from the May 1 swing high. Double bottom support lines up at 3.250, with a break below that exposing the 123.6% Fib extension at 3.080.

Commodities_Fall_on_Fading_QE3_Hopes_Spain_Rating_Downgrade_body_Picture_6.png,

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