Talking Points

  • Crude Oil, Copper at Risk as US Retail Sales Data Threatens to Sink Sentiment
  • Gold and Silver May Fall as US Dollar Finds Renewed Support in Haven Flows

Commodity prices are treading water in European trade as markets digest recent volatility, but the possibility of returning risk aversion appears increasingly probable. Traders are likely to turn defensive as Eurozone instability jitters return ahead of the weekend's Greek election, where the country's membership in the currency bloc seems to hang in the balance.

Today's US Retail Sales report may serve as the trigger. Expectationscall fora 0.2 percent decline, marking the first contraction in a year. The critical unknown in the global economic growth outlook is the degree to which a still choppy North American recovery can offset headwinds from weakness in Europe and Asia. Taken against a backdrop of fading QE3 bets after last week's Ben Bernanke testimony disappointed stimulus hopes, this means a soft print stands to weigh on sentiment.

S&P 500 stock index futures are sinking deeper into negative territory ahead of the opening bell on Wall Street, reinforcing the case for a risk-off session. This stands to send crude oil and copper lower following stock prices while gold and silver come under pressure amid recovering haven demand for the US Dollar.

WTI Crude Oil (NY Close): $83.32 // +0.62 // +0.75%

Prices took out support at 83.30 the 14.6% Fibonacci expansion, to challenge the 23.6% barrier at 81.07. A break beneath this boundary targets the 80.00 figure and the 38.2% Fib at 77.33. The 14.6% expansion has been recast as near-term resistance, with a push back above that targeting the June 7 high at the 87.00 figure.

Commodities_May_Fall_as_US_Retail_Sales_Spark_Risk_Aversion_body_Picture_3.png,

Daily Chart - Created Using FXCM Marketscope 2.0

Spot Gold (NY Close): $1609.80 // +13.03 // +0.82%

Prices broke back above the 1600/oz figure to challenge resistance at 1616.23, the intersection of the 61.8% Fibonacci retracement and a falling trend line set from early March. A break above this boundary exposes the 76.4% Fib at 1637.35. The 1600 level has been recast as near-term support, with added reinforcement coming in courtesy of the 50% retracement at 1599.17.

Commodities_May_Fall_as_US_Retail_Sales_Spark_Risk_Aversion_body_Picture_4.png,

Daily Chart - Created Using FXCM Marketscope 2.0

Spot Silver (NY Close): $28.97 // +0.41 // +1.42%

Prices broke above resistance at 28.70, exposing 29.71 as the next upside barrier. With that in mind, the overall structure appears to be showing a Flag chart formation, a setup indicative of bearish continuation. Confirmation is required on a daily close below the pattern's bottom - now at 28.19 - which would expose 27.06 as the next downside objective.

Commodities_May_Fall_as_US_Retail_Sales_Spark_Risk_Aversion_body_Picture_5.png,

Daily Chart - Created Using FXCM Marketscope 2.0

COMEX E-Mini Copper (NY Close): $3.336 // -0.008 // -0.24%

Prices appear to have taken out resistance at the top of a falling channel set from the May 1 swing high, exposing the 23.6% Fibonacci retracement at 3.384. A break above this boundary targets the 38.2% Fib at 3.474. The channel top, now at 3.319, has been recast as near-term support.

Commodities_May_Fall_as_US_Retail_Sales_Spark_Risk_Aversion_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