Crude Oil, Gold Likely to Fall if US Jobs Data Underperforms

Talking Points

• US Economic Data Set to be Interpreted in Terms of Growth, Not QE3
• Crude Oil, Gold to Decline if US Jobs Growth Falls Short of Expectations

With the Fed and ECB rate decisions behind them, the markets have turned their attention to the US Employment report. Expectations call for the economy to add 100,000 jobs in July, marking a narrow improvement from the 80,000 increase recorded in the prior month. The Unemployment Rate is forecast to hold unchanged at 8.2 percent. Separately, the ISM Non-Manufacturing Composite gauge is expected to show service-sector growth slowed to the weakest pace since January 2010.

Coming on the heels of a lackluster FOMC policy announcement earlier in the week, it seems reasonable to suspect the data set will be interpreted in terms of its direct implications for US and global economic growth rather than the QE3 outlook. That suggests a soft showing is likely to weigh on risk appetite, applying selling pressure to growth-geared crude oil and copper prices while haven flows boost the US Dollar to produce de-facto losses for gold and silver. Needless to say, a firmer set of outcomes would be expected produce the opposite result.

With that in mind, murmurs of a QE3 announcement at September's FOMC sit-down when policymakers unveil updated economic forecasts and Ben Bernanke holds a post-meeting press conferenceare already spreading. This leaves open a possibility for a soft outcome to boost stimulus hopes and prove sentiment-supportive (and vice versa).

WTI Crude Oil (NY Close): $87.13 // -1.78 // -2.00%

Prices narrowly edged through support in the 87.65-88.32 area, marked by the July 3 closing high and the 14.6% Fibonacci expansion, exposing the 23.6% level at 85.37 as the next downside objective. A break below that exposes 83.63. The 87.65-88.32 area has been recast as resistance, with a turn back above it initially targeting the 90.00 figure.

Daily Chart - Created Using FXCM Marketscope 2.0

Spot Gold (NY Close): $1588.63 // -10.85 // -0.68%

Prices followed the formation of a bearish Evening Star candlestick pattern with a break through falling trend line resistance-turned-support set from late March, exposing the next downside barrier at 1569.72. A break through that targets the 1522.50-32.45 anew. Near-term resistance is at the 1600/oz figure.

Daily Chart - Created Using FXCM Marketscope 2.0

Spot Silver (NY Close): $27.14 // -0.29 // -1.07%

Prices are retesting falling trend line resistance-turned-support at 26.88, a barrier reinforced by the May 16 low at 26.75. A break below the latter boundary exposes 26.05. Near-term resistance is at 27.68, with a break above that targeting 28.44.

Daily Chart - Created Using FXCM Marketscope 2.0

COMEX E-Mini Copper (NY Close): $3.290 // -0.086 // -2.55%

Prices broke through rising trend line support set from the June 4 low to challenge the next downside barrier at 3.300, a level reinforced by the 38.2% Fibonacci expansion at 3.268. A break below the latter level targets the 50% Fib at 3.180. The trend line - now at 3.350 - has been recast as near-term resistance.

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