Talking Points

  • ISM Report in Focus in the Wake of Ben Bernanke's Speech at Jackson Hole
  • Crude Oil, Gold May Fall on Fading QE3 Bets as US Manufacturing Firms

All eyes are on the ISM Manufacturing report, which is expected to show the US factory sector held up in August after activity contracted in the preceding two months. Markets are likely to interpret the result through the prism of Fed stimulus expectations after Ben Bernanke was seen as giving a nod to QE3 at the Jackson Hole Symposium last week.

The Chairman didn't give explicit guidance but laid out a case for the benefits of nonstandard policy and stressed the importance of achieving "further progress" on economic growth and job creation, adding that the Fed will provide additional help "as needed". With that in mind, an upside surprise may weigh on risk appetite while boosting the US Dollar as hopes for accommodation fade.

Such an outcome is likely to see growth-geared crude oil and copper prices following shares lower while gold and silver pull back amid fading inflation-hedge demand. Needless to say, a disappointing ISM result is likely to yield the opposite dynamic.

WTI Crude Oil (NY Close): $96.47 // +1.85 // +1.96%

Prices are bouncing from support at a rising channel set from the June 28 low (95.33). Initial resistance is at 97.82, the 61.8% Fibonacci retracement, with a break higher exposing the 100.00 figure and 100.65. Alternatively, a reversal through channel support initially targeting the 50% Fib at 93.90.

"Commodities_Look_to_ISM_Manufacturing_Data_to_Guide_Fed_QE3_Outlook_body_Picture_3.png,

Daily Chart - Created Using FXCM Marketscope 2.0

Spot Gold (NY Close): $1692.50 // +0.49 // +0.03%

Prices broke through 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. The bulls now aim to challenge the 1700/oz figure, followed by the 50% Fib at 1721.65. The 1674.65 level has been recast as near-term support, with a break back below that exposing the August 31 low at 1645.76.

"Commodities_Look_to_ISM_Manufacturing_Data_to_Guide_Fed_QE3_Outlook_body_Picture_4.png,

Daily Chart - Created Using FXCM Marketscope 2.0

Spot Silver (NY Close): $32.10 // +0.36 // +1.14%

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 break 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_ISM_Manufacturing_Data_to_Guide_Fed_QE3_Outlook_body_Picture_5.png,

Daily Chart - Created Using FXCM Marketscope 2.0

COMEX E-Mini Copper (NY Close): $3.458 // +0.010 // +0.29%

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 (3.551) and 3.618. Alternatively, a drop below support exposes the channel bottom, now at 3.414.

"Commodities_Look_to_ISM_Manufacturing_Data_to_Guide_Fed_QE3_Outlook_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