Talking Points

  •  Crude Oil Set to Recover as Risky Assets Correct Higher After Selloff
  •  Gold Outlook Rests on US Dollar, Bernanke Speech's QE3 Implications

WTI Crude Oil (NY Close): $95.74 // -1.06 // -1.10%

S&P 500 stock index futures are on the rebound and European shares have erased earlier losses, hinting crude oil is likely to have an opportunity to recover along with a broad-based bounce in risky assets. A corrective move higher would certainly not be unusual after yesterday's brutal selloff as profit-taking runs its course, but the underlying forces behind the move lower remain broadly unchanged.

The situation in the Euro Zone remains fluid, with reports now emerging that Italy may accelerate the time table for passing austerity measures originally meant to go to a vote next week, clearing the way for the exit of Silvio Berlusconi and the formation of a new government. As we discussed yesterday however, a new administration in and of itself is not enough to meaningfully bolster confidence if it is not perceived as competent and effective. With the makeup of any new government still very much uncertain and Greece showing that a changing of the guard doesn't happen as quickly as many may think once political squabbling enters the picture, markets are likely to remain unnerved, keeping any bounce in risky assets a temporary endeavor.

Turning to the calendar, a second speech from Federal Reserve Chairman Ben Bernanke in two days is on tap. Yesterday's comments proved to be a non-event as expected, but today's ordeal is to adopt a town hall style format, leaving ample opportunity for the central bank chief to be asked and answer policy-specific questions. The answers to these could prove important for traders' QE3 expectations and may prove to influence the broader trajectory of sentiment trends, at least over the near term.

Technical positioning is little changed from what we identified yesterday. Prices are testing support at $94.56, a former resistance level reinforced by a rising trend line. Negative RSI divergence continues to argue in favor of a downside scenario. A break lower exposes $89.65. Near-term resistance is loosely defined at the $97.00 figure.

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Spot Gold (NY Close): $1769.95 // -16.35 // -0.92%

With nothing resembling rising QE3 probability coming out of the Fed commentary so far this week, gold prices fell vulnerable to the sharp rise in the US Dollar yesterday, moving lower as the greenback's advance amounted to a de-facto headwind for the yellow metal. A rebound in risky assets hinted by S&P 500 futures ahead of the opening bell on Wall Street would force a correction here as well, weighing on the safe-haven benchmark currency and allowing gold to bounce as well.

Needless to say, upcoming remarks from Ben Bernanke (as described above) may prove market-moving as well, with any hint that the likelihood of additional stimulus has increased likely to amplify whatever corrective advance gold may mount in the hours ahead. Alternatively, if the Fed chief's rhetoric falls along the lines of other policymakers speaking so far this week, painting the central bank's posture as relatively neutral for the time being until its latest efforts are allowed time to work and be evaluated, the recovery may be cut short.

On the technical front, prices are testing support at 1755.80, the intersection of the 23.6% Fibonacci retracement level and a rising trend line set from mid-October. A downward break exposes the 38.2% Fib at 1726.74. Near-term resistance lines up at 1773.71, the 14.6% retracement.

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Spot Silver (NY Close): $34.10 // -0.91 // -2.60%

As with gold, the trajectory of the US Dollar as well as any clues shaping the QE3 outlook that may emerge from Ben Bernanke's upcoming public appearance are key elements in shaping silver's near-term trajectory. On the technical side of things, prices put in a bearish Evening Star candlestick pattern below resistance at $35.12, the 50% Fibonacci retracement level, sinking once again toward critical support at the $33.00 figure. A break below this juncture exposes the 23.6% Fib extension level at $31.39.

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