Talking Points

  • Commodities May Extend Losses as US Economic Data Dents QE3 Bets
  • Citigroup Earnings Sought to Gauge Market-Wide Impact of Euro Crisis
  • IMF Outlook Update May Hurt Risk Appetite on US Growth Downgrade

Commodity prices are correcting lower in early European trade after Friday's sharp rebound in risk appetite. Sentiment-linked crude oil and copper prices followed share prices higher while gold and silver found a de-facto boost as the safe-haven US Dollar retraced downward.

A quiet economic calendar in Europe turns traders' attention to the US docket. Expectations call for narrow improvement in the Empire Manufacturing gauge - the first of July's regional activity surveys to hit the tape - while Retail Sales snap a two-month losing streak to post a narrow gain in June.

The outcomes may reinforce the recent stabilization in US economic data (at least relative to expectations), which may counter-intuitively weigh on sentiment, and by extension on commodity prices, via a downgrade to Fed QE3 hopes. Significant follow-though from price action seems unlikely however ahead of Chairman Bernanke's Congressional testimony later in the week.

On the earnings front, second-quarter results from Citigroup Inc take top billing today. Traders will be most interested in the bank's guidance vis-à-vis the Eurozone debt crisis, looking for evidence on the impact of sovereign and bank solvency jitters in the on market-wide financial conditions.

The International Monetary Fund is also due to publish an updated set of global growth expectations. IMF MD Christine Lagarde has already suggested a downgrade to worldwide performance is to be unveiled. Markets will be particularly interested in the regional breakdown. A recession in Europe and slowdown in Asia have been expected for some time, but a material downgrade to North American performance may stoke risk aversion.

WTI Crude Oil (NY Close): $87.10 // +1.02 // +1.18%

Prices are consolidating above support at 84.14, the 23.6% Fibonacci retracement. Near-term resistance is at 88.40, the 38.2% level, with a break above that exposing the 90.00 figure. Alternatively, a breach of support targets the 81.19-52 area marked by the June 4 low and the 14.6% retracement.

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Daily Chart - Created Using FXCM Marketscope 2.0

Spot Gold (NY Close): $1589.68 // +17.73 // +1.13%

Prices broke back above 1575.81, the 38.2%Fibonacci expansion, exposing the 23.6% level sitting squarely at the 1600/oz figure once again. A falling trend line set from late March, now at 1612.47, compounds resistance. A break above the latter boundary initially exposes the July 3 high at 1624.81. The 1575.81 level has been recast as near-term support, with a turn back below that targeting the 50% Fib at 1555.83.

Commodities_May_Weaken_on_Fading_QE3_Bets_IMF_Outlook_Downgrade_body_Picture_4.png,

Daily Chart - Created Using FXCM Marketscope 2.0

Spot Silver (NY Close): $27.33 // +0.16 // +0.59%

Prices continue to tread water above support is at 26.75. A break below that exposes the multi-month triple bottom at 26.05. Trend line resistance is now at 27.79, with a breach above that exposing the underside of a previously broken Flag formation (currently at 28.78).

Commodities_May_Weaken_on_Fading_QE3_Bets_IMF_Outlook_Downgrade_body_Picture_5.png,

Daily Chart - Created Using FXCM Marketscope 2.0

COMEX E-Mini Copper (NY Close): $3.504 // +0.088 // +2.58%

Prices took out resistance at 3.445, the 14.6% Fibonacci expansion, exposing upside barriers at 3.535 and 3.618. The 3.445 level has been recast as near-term support, with a break below that targeting the 23.6% Fib at 3.378.

Commodities_May_Weaken_on_Fading_QE3_Bets_IMF_Outlook_Downgrade_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