Commodities at Risk of Deeper Losses as Euro Debt Fears Reemerge

•  Crude Oil, Copper Vulnerable as S&P 500 Futures Point to Risk Aversion
•  Gold and Silver to Decline if US Dollar Rides Haven Flows Higher Again

Commodity prices are treading water in European hours as markets digest two days of aggressive selling in the aftermath of a hawkish set of FOMC minutes. S&P 500 stock index futures point firmly lower however, pointing to renewed selling pressure as Wall Street comes online.

The sour mood seems to reflect renewed Eurozone debt crisis fears after yesterday's lackluster Spanish bond auction and mixed results at today's French sale of long-term paper. Spreads between debt-stricken countries' and benchmark German bond yields widened, with Portugal, Spain and Italy appearing the most afflicted.

Such an environment bodes ill for crude oil and copper, where prices remain closely correlated with equities and so would be directly vulnerable in the event of continued risk aversion. Gold and silver are likewise likely to decline as safe-haven inflows buoy the US Dollar and apply de-facto selling pressure. The weekly set of US jobless claims figures headlines the economic calendar.

WTI Crude Oil (NY Close): $101.47 // -2.54 // -2.44%

Prices broke falling channel support set from late February and cleared support in the 102.97-103.21 area to challenge the 61.8% Fibonacci retracement at 101.19. A break below this level exposes rising trend line support set from the December 16 low, now at 99.77. The 102.97-103.21 region has been recast as near-term resistance.

Daily Chart - Created Using FXCM Marketscope 2.0

Spot Gold (NY Close): $1620.77 // -25.35 // -1.54%

Prices took out 38.2% Fibonacci expansion support at 1634.76 to challenge the 50% level at 1615.46. A break below this boundary targets the 61.8% Fib at 1596.16. The 1634.76 level is now acting as near-term resistance.

Daily Chart - Created Using FXCM Marketscope 2.0

Spot Silver (NY Close): $31.39 // -1.25 // -3.82%

Prices continue to consolidate below resistance at 32.93, the former neckline of a Head and Shoulders (H&S) top carved out between late January and mid-March, and horizontal support at 31.04. A break blower exposes the first downside barrier at 29.79. The H&S setup broadly implies a measured downside target at 26.84.

Daily Chart - Created Using FXCM Marketscope 2.0

COMEX E-Mini Copper (NY Close): $3.790 // -0.130 // -3.32%

An upward breakout from a the Triangle chart pattern identified earlier this week now appears to have been a head-fake, with prices still seemingly locked in consolidation. Initial support lines up at 3.772, with a break below that exposing 3.696. Resistance is at 3.915, with a breach higher targeting 3.985 at first.

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