Talking Points

  • Crude Oil, Copper Hurt by Eurozone Data But May Bounce with ISM Result
  • Gold and Silver May Rise if Another Soft US Data Point Boosts QE3 Outlook

Commodity prices are under pressure in European trade as broadly soft economic data out of the Eurozone reminded investors that aside from sovereign risk and structural concerns (at least as it relates to Greece), the region is also sinking deeper into an economic slump that is weighing on global performance at large. Revised Eurozone PMI figures pointed to likely recession in the second quarter while German factory orders and region-wide retail sales figures disappointed expectations. Looking ahead, S&P 500 stock index futures have erased earlier gains and now point firmly lower, hinting continued selling may be ahead.

The landscape may quickly change with the release of the ISM Non-Manufacturing Composite gauge however. Median forecasts call for a print at 53.5 in May, matching April's result. An outcome in line with expectations is unlikely to spark fireworks but a disappointing result may counter-intuitively boost risk appetite while applying downward pressure on the Dollar in the context of the QE3-driven theme at play this week. That would have scope to boost sentiment-linked crude oil and copper prices while offering a lift to gold and silver as precious metals are once again sought out for their store-of-value appeal.

WTI Crude Oil (NY Close): $83.98 // +0.75 // +0.90%

Prices put in a Hammer candlestick above support at 83.34, the 76.4% Fibonacci retracement, hinting an upswing is ahead. Highly oversold RSI studies reinforce the risk of a rebound. Initial resistance lines up in the 90.14-88.54 area, marked by the early September swing top and the 61.8% Fib. Alternatively, a break lower initially exposes 80.16.

Commodities_Sold_on_Eurozone_Data_But_QE3_Bets_May_Spark_Bounce_body_Picture_3.png,

Daily Chart - Created Using FXCM Marketscope 2.0

Spot Gold (NY Close): $1618.85 // -5.25 // -0.32%

Prices are testing resistance at a falling trend line set from early March, now at 1628.65. The barrier is reinforced by the 76.4% Fibonacci retracement at 1637.35, with a break higher exposing the May 1 high at 1671.49. Near-term support lines up at 1616.23, the 61.8% Fib, with a break below that opening the door for a test of the 1600/oz figure.

Commodities_Sold_on_Eurozone_Data_But_QE3_Bets_May_Spark_Bounce_body_Picture_4.png,

Daily Chart - Created Using FXCM Marketscope 2.0

Spot Silver (NY Close): $28.25 // -0.27 // -0.93%

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_Sold_on_Eurozone_Data_But_QE3_Bets_May_Spark_Bounce_body_Picture_5.png,

Daily Chart - Created Using FXCM Marketscope 2.0

COMEX E-Mini Copper (NY Close): $3.308 // -0.006 // -0.18%

Prices broke through support at 3.426, the 76.4% Fibonacci retracement, with sellers now testing the double bottom at 3.250. A break below this boundary exposes the 123.6% Fib expansion at 3.080. The 3.426 level has been recast as near-term resistance.

Commodities_Sold_on_Eurozone_Data_But_QE3_Bets_May_Spark_Bounce_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