Talking Points

  • Crude Oil, Copper Sink as Risk Appetite Unravels Across Financial Markets
  • Gold and Silver Sold as Haven-Seeking Capital Flows Drive US Dollar Higher

Commodity prices are trading sharply lower as risk aversion grips financial markets. Sentiment-sensitive crude oil and copper prices are following stocks lower while gold and silver face de-facto selling pressure as haven flows boost the US Dollar. The dour mood began to take shape in Asiaafter ratings agency Egan Jones downgraded Spain while state-run media outlet Xinhua reported that China was not planning an aggressive round of stimulus to combat this year's growth slowdown.

Disappointing Eurozone Money Supply figures compounded selling pressure, showing the annual growth rate slowed to 2.5 percent in April, disappointing expectations for an acceleration to 3.4 percent. The outcome fed fears that the ECB's LTRO efforts were failing to improve lending access amid the sovereign debt crisis, boosting concerns about a possible credit crunch. A jump in yields at an Italian bond auction likewise weighed on investors' mood. Average borrowing costs on 2017 and 2022 paper jumped to 5.66 and 6.03 percent respectively compared with 4.86 and 5.84 percent at a sale of similar debt in late April, stoking worries about the fiscal sustainability of the Euro area's third-largest economy.

Looking ahead, S&P 500 stock index futures are pointing sharply lower ahead of the opening bell on Wall Street, arguing for continued weakness in the commodities space ahead. April's Pending Home Sales report headlines the US economic calendar, with expectations pointing to a flat monthly reading following a 4.1 percent jump in March. The preliminary API set of crude oil inventory numbers is also on tap.

WTI Crude Oil (NY Close): $90.76 // -0.10 // -0.11%

Prices continue to drift above support at 90.14, with a Harami candlestick pattern coupled with positive RSI divergence warning that a bounce may be ahead. Initial resistance lines up at 93.35, with a break above that exposing 96.48. Alternatively, a push through support exposes downside objectives at 88.54 and 83.34.

Commodities_Sink_as_Market-Wide_Risk_Appetite_Unravels_Anew_body_Picture_3.png,

Daily Chart - Created Using FXCM Marketscope 2.0

Spot Gold (NY Close): $1555.15 // -25.79 // -1.63%

Prices continue to consolidate above support in the 1522.50-1532.45 area. Near-term trend line support-turned-resistance lines up at 1583.45. A break above this boundary exposes the 1600/oz figure followed by the top of a channel set from late February, now at 1616.74.

Commodities_Sink_as_Market-Wide_Risk_Appetite_Unravels_Anew_body_Picture_4.png,

Daily Chart - Created Using FXCM Marketscope 2.0

Spot Silver (NY Close): $27.86 // -0.53 // -1.88%

Prices are drifting sideways above support at 27.06, with gains still capped at 28.70. A break lower initially exposes the 26.05-15 area. Alternatively, a push higher through resistance opens the door for a challenge of 29.71.

Commodities_Sink_as_Market-Wide_Risk_Appetite_Unravels_Anew_body_Picture_5.png,

Daily Chart - Created Using FXCM Marketscope 2.0

COMEX E-Mini Copper (NY Close): $3.462 // +0.014 // +0.41%

Prices are testing through support at 3.438, the 100%Fibonacci expansion, with a break lower exposing the 123.6% level at 3.327. Near-term resistance lines up at 3.537, the 76.4% expansion level.

Commodities_Sink_as_Market-Wide_Risk_Appetite_Unravels_Anew_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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