Commodities - Energy

Crude Oil Looks Beyond Geopolitics to Focus on ISM, Bernanke Testimony

Crude Oil (WTI) - $96.97 // $0.91 // 0.93%

Commentary: Crude prices dipped on Monday, down 0.9 percent to yield the largest daily drawdown in two weeks. Traders were seemingly unfazed by the spread of protests into Oman over the weekend after Saudi Arabia pledged last week to step up output to offset any supply disruptions linked to turmoil in the region.

Markets are now looking ahead to tomorrow's batch of US economic data; the ISM gauge of manufacturing growth is expected to show activity accelerated at the fastest pace since May 2004 in February, which may prove to stoke demand expectations and nudge prices higher. Indeed, the WTI contract has tracked very closely with the headline ISM reading since the top in July 2008. Preliminary crude inventoryfigures from American Petroleum Institute are also on tap, with the official DOE report due on the following day.

Finally, congressional testimony from Federal Reserve Chairman Ben Bernanke will be closely scrutinized after a string of policymakers suggested they would consider ending the QE2 stimulus program before its scheduled expiration in June. While it's unlikely that Bernanke would overtly echo such sentiments, hints that recent comments from FOMC officials reflect a coordinated Fed campaign to shift expectations out of dovish territory would likely prove crude-negative.

Technical Outlook: Overall positioning is little changed, with prices trapped between resistance at the 161.8% Fibonacci extension of the downswing from late January 2010 ($98.40) and a rising trend line connecting major highs since May of last year, now at $95.72. A break higher targets the $100/barrel figure, with a move above that exposing the 200% Fib at $101.83. Alternatively, a move below the trend line exposes $92.84.

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Commodities - Metals

Gold Prices Vulnerable as Spotlight Turns Away from Middle East

Gold - $1411.48 // $0.88 // 0.06%

Commentary: Gold prices stalled on Monday as safe-haven buying faded along with fears that turmoil in the Middle East could derail the global recovery via spike in oil prices. A dramatic build in the short-term correlation between 10-year Treasury notes - the benchmark safe-haven asset - and gold spot over the past two weeks suggests that a shift in focus back to steadily improving fundamentals may undermine the metal along with bond prices. This seems particularly compelling as ETF holdings, a proxy for investment demand continue to edge lower having set another eight-month low last week.

Technical Outlook: Prices continue to consolidate between triple top resistance at $1424.60 and a rising trend line set from the January low (now at $1401.15). Negative RSI divergence hints at the likelihood of a downside scenario, with a break below the trend line and the nearby horizontal barrier at $1393.30 (the Jan 13 high) initially exposing $1376.20.

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Silver - $33.89 // $0.48 // 1.44%

Commentary: As with gold, a healthy correlation between silver spot and 10-year Treasury bond prices suggests the metal is likely to come under selling pressure as risk appetite recovers from the geopolitically-driven selloff. However, unlike its more expensive counterpart, silver ETF holdings were on the rise for much of February and now stand at the highest in five weeks. This suggests investors still see silver as relatively cheap, hinting the it may continue to outperform in March having added a whopping 20 percent in the preceding month to nearly quadruple gold's advance.

Technical Outlook: Prices bounced higher from support at a rising trend line support set from January's bottom, with the bulls retesting resistance at the psychologically significant $34.00 figure. Negative RSI divergence points to fading upward momentum however, with a reversal through the trend line (now at $32.55) exposing the 38.2% Fibonacci retracement of the 1/28-2/22 advance at $31.30.

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