Talking Points

  • Commodities Yield Mixed Results in Europe as Markets Wait for FOMC
  • Broad Selling Pressure May Emerge as Fed Disappoints Stimulus Hopes

Commodity prices are little changed near familiar levels in early European trade as markets wait for guidance from the Federal Reserve monetary policy announcement. Ben Bernanke and company appear likely to disappoint investors' hopes for further stimulus. This is likely to weigh on growth-linked crude oil and copper prices as hopes for a boost to the US recovery that would make it a more potent offset to recession in Europe and slowdown in Asia are upset. It likewise stands to punish gold and silver amid ebbing demand for the precious metals as an inflation hedge.

Yields across the maturity spectrum are hovering near record lows having arrived there without new stimulus since QE2 ended in June 2011. It seems unreasonable to suggest that more asset purchases are needed to keep credit costs capped or that marginally cheaper funding will bring a significant number of would-be borrowers off the sidelines. That means the core benefit of a QE3 program would be psychological, marking it as a tool the Fed is likely to reserve to use in the event that the Eurozone debt crisis breeds a 2008-style credit crunch.

WTI Crude Oil (NY Close): $88.06 // -1.72 // -1.92%

Prices are testing support in the 87.65-88.32 area, marked by the July 3 closing high and the 14.6% Fibonacci expansion, with a break lower exposing the 23.6% level at 85.37. Near-term resistance stands at the 90.00 figure, with a push above that targeting the July 19 high at 93.21.

"Commodities_May_Face_Broad_Selling_Pressure_After_Fed_Rate_Decision_body_Picture_3.png,

Daily Chart - Created Using FXCM Marketscope 2.0

Spot Gold (NY Close): $1614.30 // -7.67 // -0.47%

Prices put in a bearish Evening Star candlestick pattern at resistance in the 1620.45-35.70 area, hinting a move lower is ahead. Near-term support is at a falling trend line resistance set from late March, now at 1595.57. A break below that targets 1568.58.

"Commodities_May_Face_Broad_Selling_Pressure_After_Fed_Rate_Decision_body_Picture_4.png,

Daily Chart - Created Using FXCM Marketscope 2.0

Spot Silver (NY Close): $27.99 // -0.20 // -0.70%

Prices continue to hold below resistance at 28.44, the July 3 high, after breaking past 27.68. Renewed upside momentum that takes prices through resistance initially targets 29.42. The 27.68level has been recast as near-term support, with a break back below that targeting 26.75.

"Commodities_May_Face_Broad_Selling_Pressure_After_Fed_Rate_Decision_body_Picture_5.png,

Daily Chart - Created Using FXCM Marketscope 2.0

COMEX E-Mini Copper (NY Close): $3.418 // +0.002 // +0.06%

Prices are consolidating below resistance at 3.445, the 14.6% Fibonacci expansion. A break higher targets the next upside boundary at 3.535. Near-term support lines up in the 3.378-90 area marked by the July 10 daily close and the 23.6% Fib. A push below this targets trend line support now at 3.342.

"Commodities_May_Face_Broad_Selling_Pressure_After_Fed_Rate_Decision_body_Picture_6.png,

Daily Chart - Created Using FXCM Marketscope 2.0

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

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