Commodities May Correct Higher as Markets Gear Up for FOMC

Talking Points

•  Oil, Copper Aim Higher on Pre-FOMC Correction as S&P 500 Futures Rise
•  Gold and Silver May Retrace Higher if Risk-on Mood Weighs on US Dollar

Commodity prices are little changed in early European hours as traders look for a catalyst to spark directional momentum. A quiet economic data docket turns the spotlight to the outcome of an Italian bond auction, with Rome selling zero-coupon 2014 debt as well as inflation-linked 2017 and 2019 paper. Traders will be keeping a close eye on average yields for signs of returning sovereign stress.

Turning to the US data docket, the Consumer Confidence gauge and the Richmond Fed's measure of manufacturing activity are expected to decline for a second month in April after reversing lower from multi-month highs in the previous month. New Home Sales are forecast to print at 318,000 in March, recovering from a shallow slowdown in February and matching the January result. Still, the print would fall below its three-month average at just over 322K.

Interestingly, risk appetite seems relatively well-supported despite the lackluster set of US economic indicators on tap. S&P 500 stock index futures are pointing higher. This may reflect a period of correction after yesterday's rout across the spectrum of growth-sensitive assets ahead of Wednesday's FOMC policy meeting, arguably the week's most significant bit of event risk. This gives scope for a rebound in cycle-sensitive crude oil and copper prices. If the move is mirrored with a pullback in the US Dollar as safe-haven flows reverse course, gold and silver have room for a pull-up as well.

WTI Crude Oil (NY Close): $103.11 // -0.77 // -0.74%

Prices remain wedged between resistance at 104.90 and a rising trend line support set from mid-December, with a Bullish Engulfing candlestick pattern arguing for an upside bias. A break above 104.90 exposes falling trend line barriers at 105.04 and 106.32. Support is now at 101.68.

Daily Chart - Created Using FXCM Marketscope 2.0

Spot Gold (NY Close): $1638.82 // -4.10 // -0.25%

Prices are testing below support at 1638.02, the 23.6% Fibonacci expansion, after putting in a Bearish Engulfing candlestick pattern below falling trend line resistance set from early March. A break lower exposes the 38.2% level at 1612.02. Trend line resistance is now at 1664.19.

Daily Chart - Created Using FXCM Marketscope 2.0

Spot Silver (NY Close): $30.86 // -0.84 // -2.64%

After much sideways drift, prices finally took out support at 31.04, exposing the next downside target at 29.79. The 31.04 level has been recast as near-term resistance. Broadly speaking, a Head and Shoulders (H&S) top carved out between late January and mid-March argues for a measured downside target at 26.84.

Daily Chart - Created Using FXCM Marketscope 2.0

COMEX E-Mini Copper (NY Close): $3.626 // -0.072 // -1.95%

Prices continue to test rising trend line support set from early October, with a break lower exposing supports at 3.573 and 3.522 marked by swing tops in early December and January respectively. Initial resistance lines up at 3.713.

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