Talking Points

  •  Crude Oil Looks to Italian Bond Auction for Direction Cues
  •  Gold Remains Driven by US Dollar's Response to Risk Trends

WTI Crude Oil (NY Close): $98.99 // +1.21 // +1.24%

Crude oil prices are narrowly higher in European trade, riding a broad recovery in risk appetite as investors celebrated the emergence of new governments in Italy and Greece. Celebration at the emergence of seemingly competent stewardship in both countries is likely to be short-lived however as hopes give way to a need for clear evidence that the incoming Papademos and Monti administrations can actually deliver on their promises.

Needless to say, austerity measures alone solve little, with traders' experience with Greece until now serving as an appropriate case in point.S&P 500 stock index futures illustrate the underlying jitters waiting to re-emerge, drifting slowly lower after gapping up to open the week. The outlook for the coming 24 hours rests primarily on the outcome of an Italian bond auction where the beleaguered country will offer €3 billion in 2016 paper, with traders scrutinizing demand and yield levels closely to see if credit markets are willing to give Europe's third-largest economy the benefit of doubt (at least for now). Needless to say, poor uptake promises to weigh anew on the spectrum of risky assets, dragging crude lower as well.

Turning to the chart setup, prices are approaching 61.8% Fibonacci retracement resistance at $99.86, with RSI studies checking in at their most overbought since April to suggest that a reversal may be brewing ahead. Confirmation requires a break below $95.25, the intersection of the 50% Fib and the bottom of a rising channel that has guided the way higher since early October. Alternatively, a break above immediate resistance exposes the channel top, now at $103.94.

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Spot Gold (NY Close): $1788.68 // +30.28 // +1.72%

As with crude, all eyes are on the Italian bond auction over the near term as continues to find its most potent catalyst in the response of the US Dollar to broad-based trends in market-wide risk sentiment. If the auction proves successful, ebbing safe-haven demand can be expected to weigh on the greenback and drive gold prices higher, applying de-facto upward pressure given the yellow metal is denominated in terms of the US currency. Needless to say, the opposite is likewise likely to be the case.

On the technical front, prices completed a bearish Evening Star candlestick formation near the $1800.00 figure, with confirmation of a larger downside reversal requiring a daily close below 1746.26 at the intersection of the 38.2% Fibonacci retracement and a rising channel bottom. The setup would be invalidated with a close above the $1802.77, the November 8 session high, with a subsequent break above the nearby 61.8% Fib at $1809.62 exposing the channel top now at $1850.82.

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Spot Silver (NY Close): $34.68 // +0.62 // +1.82%

Like gold, the trajectory of the US Dollar appears most important in the near term as markets wait for the outcome of the Italian bond auction. The technical setup is little changed since late October. 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. Alternatively, a push through immediate resistance exposes the 61.8% level at $37.25.

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