Talking Points

  •  Crude Oil, Copper Aiming Lower as Global Slowdown Fears Return
  •  Gold and Silver Sold as Risk Aversion Stokes Demand for US Dollar

Commodity prices are under pressure to start the trading week as fears of a global economic slowdown return to the spotlight. With the immediate threat of a market-wide credit crisis emanating from the Eurozone neutralized for now by the ECB's LTRO efforts, investors have an opportunity to re-evaluate the macro-economic environment. The picture is hardly rosy, with economists' median forecasts hinting global GPD will add just 2.14 percent in 2012 to mark the weakest performance since the world emerged from the Great Recession two years ago.

Ominous news from China served as the near-term catalyst to set the stage for the return of growth-linked jitters, with Premier Wen Jiabao announcing that his country will officially target a GDP growth rate of 7.5 percent in this year. This marks the lowest goal since 2004 and - if achieved - would amount to the weakest performance since 1990. Disappointing European data flow compounded the risk-averse environment. The composite Eurozone PMI gauge was revised lower to show manufacturing- and service-sector activity contracted at a faster pace than previously estimated in February. Likewise, the UK Services PMI reading fell short of expectations, showing the slowest growth in three months.

Looking ahead, the risk-averse tone appears likely to carry forward. S&P 500 stock index futures are trading sharply lower ahead of the opening bell on Wall Street, suggesting that directly growth-linked commodities including copper and crude oil will remain heavy. US data flow threatens to compound the selloff, with the US ISM Non-Manufacturing Composite gauge expected to pull back in February after hitting an 11-month high in January. Gold and silver are likewise vulnerable as the dour mood is stokes safe-haven demand for the US Dollar, putting de-facto downward pressure on the precious metals complex. Scheduled remarks from Dallas Fed President Richard Fisher may further encourage sellers if they echo the moderation in dovish rhetoric seen in Ben Bernanke's testimony last week, denting demand for an alternative to fiat.

WTI Crude Oil (NY Close): $106.70 // -2.14 // -1.97%

Prices are testing key support at 105.82, the 23.6% Fibonacci retracement level reinforced by a rising trend line set from the February 2 swing bottom, after putting in a bearish Three Outside Down candlestick pattern. Negative RSI divergence reinforces the case for a downside scenario. A daily close below 105.82 initially targets the 38.2% Fib at 103.28.

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Daily Chart - Created Using FXCM Marketscope 2.0

Spot Gold (NY Close): $1712.60 // -5.68 // -0.33%

Prices remain locked between 1687.97 and 1727.06, the 38.2% and 23.6% Fibonacci retracement levels, respectively. A daily close above resistance exposes the December 2 high at 1763.00 anew. Alternatively, a push through immediate support exposes the 50% level at 1656.38.

Commodities_Under_Fire_as_China_European_PMIs_Reboot_Growth_Fears_body_Picture_4.png,

Daily Chart - Created Using FXCM Marketscope 2.0

Spot Silver (NY Close): $34.79 // -0.70 // -1.96%

Prices are testing through support at 34.59, the 23.6% Fibonacci retracement, after completing a Bearish Engulfing candlestick pattern below resistance at 36.99. A daily close below this boundary exposes the 38.2% Fib at 32.97 as the next key level. Near-term resistance lines up at 35.66, the October 28 high.

Commodities_Under_Fire_as_China_European_PMIs_Reboot_Growth_Fears_body_Picture_5.png,

Daily Chart - Created Using FXCM Marketscope 2.0

COMEX E-Mini Copper (NY Close): $3.904 // -0.028 // -0.71%

Prices appear to be carving out a Head and Shoulders topping chart pattern below the 4.0 figure, although confirmation is required on a daily close below the formation's neckline at 3.713. Before that however, sellers must overcome initial rising trend line support set from the December 15 swing low, now at 3.811. Near-term resistance is at 3.947. If the Head and Shoulders is confirmed, sellers will aim for a measured target at 3.438.

Commodities_Under_Fire_as_China_European_PMIs_Reboot_Growth_Fears_body_Picture_6.png,

Daily Chart - Created Using FXCM Marketscope 2.0

--- Written by Ilya Spivak, Currency Strategist for Dailyfx.com