Talking Points

  • Crude Oil, Copper Look to ECB Meeting Outcome to Yield Direction Cues
  • Gold and Silver Looking to US Dollar as Conduit for Risk Sentiment Trends

Commodities are waiting for guidance from risk sentiment trends, with the spotlight now pointing to the European Central Bank monetary policy announcement. Expectations are running high for Mario Draghi and company to deliver the highly anticipated bond-buying program alluded to in officials' commentary over recent weeks and meant to contain borrowing costs for debt-strapped Eurozone member states.

On balance, the ECB is likely to disappoint on this front. The bond purchase scheme is contingent on a formal bailout request by those countries whose bonds are to be supported by the central bank, meaning it would be functionally useless if Germany's Constitutional Court rules the ESM rescue fund is incompatible with domestic law. A decision on this matter is expected September 12, so the ECB seems unlikely to risk its credibility by unveiling a program that may be made moot just days later.

That shifts the focus to growth-boosting policies, where possibilities include another round of LTROs, a further relaxation of collateral requirements for bank funding, and/or another outright interest rate cut. A strong effort to bolster output is likely to boost risk appetite considering the recession in the Eurozone amounts to the most significant headwind facing global growth this year.

Cycle-sensitive crude oil and copper prices are likely to rise given such an outcome, while gold and silver may find support as fading haven demand weighs on the US Dollar. Needless to say, if ECB policymakers opt not to move forward with growth-supportive measures, the opposite dynamic is likely to play out as risk aversion takes hold anew.

WTI Crude Oil (NY Close): $95.36 // +0.06 // +0.06%

Prices are testing support at a rising trend line set from the June 28 low (95.52), a barrier reinforced by the 50% Fibonacci retracement at 93.90. Initial resistance is at 97.82, the 61.8% retracement, with a break higher exposing the 100.00 figure and 100.65. Alternatively, a push below 93.90 exposes the 38.2% Fib at 89.87.

"Commodities_Look_to_ECB_Rate_Decision_to_Yield_Direction_Cues_body_Picture_3.png,

Daily Chart - Created Using FXCM Marketscope 2.0

Spot Gold (NY Close): $1693.00 // -2.75 // -0.16%

Prices are stalling below the 1700/oz figure after taking out critical resistance at 1674.65, the intersection of the 38.2% Fibonacci retracement and a falling trend line set from the August 23 2011 swing high. A push above 1700 will likely challenge the 50% Fib at 1721.65. The 1674.65 level has been recast as near-term support, with a break back below that clearing the way for a re-test of the trend line (now at 1664.53) and the August 31 low at 1645.76.

"Commodities_Look_to_ECB_Rate_Decision_to_Yield_Direction_Cues_body_Picture_4.png,

Daily Chart - Created Using FXCM Marketscope 2.0

Spot Silver (NY Close): $32.26 // -0.09 // -0.27%

Prices broke resistance at 31.79, the 50% Fibonacci retracement, with buyers now aiming to challenge the 32.93-33.14 area marked by a horizontal pivot level and the 61.8% level. A push above that targets the 76.4% Fib at 34.80. The 31.79 level has been recast as support, with a break back below that exposing the 38.2% retracement at 30.45.

"Commodities_Look_to_ECB_Rate_Decision_to_Yield_Direction_Cues_body_Picture_5.png,

Daily Chart - Created Using FXCM Marketscope 2.0

COMEX E-Mini Copper (NY Close): $3.530 // +0.060 // +1.73%

Prices rebounded as expected after putting in an Inverted Hammer candle above support at 3.438. Near-term resistance lines up at 3.535, marked by a range top in place since late May, with a break above that targeting the upper boundary of a rising channel set from the August 2 low (3.560) and 3.618. Alternatively, a drop below support exposes the channel bottom (3.425) and a falling trend line set from early April (3.357).

"Commodities_Look_to_ECB_Rate_Decision_to_Yield_Direction_Cues_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